Voxeurop: You co-direct the World Inequality Database. What impact will the pandemic have on inequality?
Thomas Piketty: The pandemic will increase inequality, and even if we don’t have all the data, we already see that low income and precarious workers have taken huge losses, while the more wealthy have reduced consumption and increased their savings capacity. Wealth inequality will be on the rise again.
In itself, the free movement of investments, goods and services is no bad thing — on the condition that there already exists a system of common rules, especially a common regulation and taxation system for capital income and corporate earnings. The mistake was to go ahead with free trade agreements without considering such things as information sharing or a fair tax rule for those unable to simply change location and evade any obligations. We’ve built a machine which allows only the most mobile and powerful economic actors to evade taxes at the push of a button, after they enrich themselves while enjoying a country’s infrastructure, healthcare, etc.
It’s a machine that ensures Europe — and globalisation more generally — is hated by the least mobile classes, the working and lower-middle classes. As a European and social-federalist, it is deeply saddening to see, poll after poll, referendum after referendum, that it’s the working classes who exhibit the strongest scepticism.
The political consequences are terrible. The idea that it’s some unique folly of the British that led them to Brexit seems an illusion. The European institutional system was originally conceived as a free-trade area for goods and services. No real need for budgets or taxation. And therefore no real need to go any further in terms of political integration, especially not by a majority vote.
In relation to what you develop in your last two books, Capital and Ideology and Socialism at Last, how would you analyse those promises of equality broken by social democratic parties?
This brings us back to the European question. One limitation for the social democrats in Germany, France, Sweden, etc. is that from the 1950s up the 80s and 90s they managed to create welfare states — systems facilitating access to healthcare, pensions and education, among the most successful in the world, and still very robust — but since the 80s and 90s they’ve been hampered by a lack of any international vision beyond the nation state. In a globalised economy, it is very hard to maintain the social and fiscal consensus to finance such welfare states, while member countries engage in a tax competition, each fighting their corner. Nobody is going to join all these welfare states together. But when it comes to the global financial system, and new challenges, especially energy and climate change, and then funding the whole thing and imposing rules on the world’s most powerful economic actors — in order to redefine itself for the 21st century, social democracy absolutely needs this international focus.
If I talk in France about progressive wealth and inheritance taxes – which would finance a heritage or estate for all – or when I talk about corporate governance involving voting rights for employees, it would of course be preferable if all this could be realised at the European level, or in a large number of countries.
Of course it’s possible to go it alone. Germany and Sweden didn’t wait for the rest of Europe to develop joint management and voting rights for employees on company boards. France could join them right now. Lack of consensus at the European level cannot be used as an excuse to do nothing.
On the subject of more democratic corporate governance, from the 70s up to the mid-80s there was a European draft directive on corporate governance, proposed by Germany, who wanted to extend voting rights to employees across Europe. Nothing ever happened, mainly because France wasn’t too enthusiastic, and nor were many others.
Major social ambitions involving taxation, as well as corporate law, need to be in tune with the times if there is to be any chance at reconciling public opinion with Europe, as well as reconciling the social democratic project with the European project.
Does the European recovery plan seem ambitious enough to you — enough to beat the recession, the worst in EU history, and reorient the European development model?
This European recovery plan has not been adopted yet, and it’s rare to see such a delay between an official announcement and implementation. It’s now December and we still have no clear idea about when the decisive European Council votes will take place, nor decisions within national parliaments. Moreover, this plan has been inadequate from the start. The result is that, collectively, we’re relying far more on the European Central Bank than on a fiscal recovery plan.
And this despite the fact we went from 500 to 750 billion euro in July, with a common loan?
Indeed, the real novelty is the EU’s 390 billion euro common loan which will boost national budgets according to necessity, without requiring each member state to repay exactly what they received. The rest consists of repayable loans, not much different from what was proposed in the 2012 European Stability Mechanism, which member states aren’t really too keen on.
While there may be the notion of a European public good, with collective repayments, there are two limitations. While 390 billion euro may sound like a lot, it has to be compared to the EU’s GDP, currently 14,000 billion euro. This loan amounts to less than 3 percent of the European GDP, to be spent over the next four or five years, corresponding to about 0.5 percent of GDP in additional public spending. This is clearly nothing to be sniffed at, relative to the starting budget of the EU, going from 1 percent of GDP to 1.5 percent. But compared to national budgets, the sums are still very low.