Not many economists with something approaching a rockstar status visit South Africa. So the visit by French political economist Thomas Piketty, author of the bestselling Capital in the Twenty-first Century, appears to be eagerly awaited by academics, especially those broadly on the left, and by many South Africans.
In 1976, Milton Friedman, then the rising rockstar economist of the anti-Keynesian right wing in the US and Europe, made a visit to South Africa. He was wined and dined by the President Nico Diederichs and Finance Minister Owen Horwood. He and his economist wife Rose met with leading South African businessmen, political leaders and the South African Reserve Bank governor, among others.
Friedman’s message to South Africa was both political and economic. He was mightily impressed by what he described as:
The unbelievably sophisticated economy you have developed at the tip of Africa, thousands of miles away from any similar civilisation.
Friedman urged the West to support South Africa and Rhodesia as bastions against Soviet penetration.
Two nights before the couple left, then-South African Reserve Bank Deputy Governor Gerhard de Kock remarked:
Friedman’s visit will have at least a ten-year impact on South Africa’s economic thinking.
De Kock was right. What followed were major changes in monetary policy, including those recommended by the De Kock Commission on Monetary Policy.
I am not sure whether Piketty will have a similar impact on economic thinking in South Africa today. I do predict, though, that ministers and former ministers will be bounding up the stairs to join him on his many platforms around the country. I would not be surprised if they expressed their total support for his analysis and his ideas.
Some, without the slightest sense of irony, may well make a case that they were and are the true champions of the struggle against poverty, inequality and unemployment in democratic South Africa. This despite the fact that they arrogantly relegated left, social democratic options such as the Freedom Charter and the Reconstruction and Development Programme to the dustbin of history.
Instead, in 1996 they opted for the neoliberal Growth, Employment and Redistribution Strategy, a macroeconomic policy. So a rewriting of the recent economic history of South Africa may well be one outcome of the Piketty visit.
Piketty’s demolition of what went before
To date, data from the relatively short post-second world war period up until the end of the 20th century has been read mostly in sympathy with a neo-classical interpretation. In this period the hypothesis behind the Kuznets Curve was the dominant thinking about development and income inequality. This argues that inequality first increases in the early stages of development, reaches a maximum at an intermediate level of income, and then declines as the country achieves a high level of per capita income.
Into this picture steps Piketty. With his 300-year-old datasets he demolishes the Kuznets hypothesis. He shows instead that the turn away from inequality over time and in the course of development and global integration is not assured. And, he argues, intervention in the market mechanism is required to arrest and reverse the increasing share of income that capital relentlessly claims over time.
Piketty shows that it was the interventions between 1914 and 1945 that arrested the trend towards greater and greater inequality. These included taxation policies in the 1920s and 1930s which were less favourable to the owners of capital.
He shows that patrimonial capital is the largest contingent of total capital. Central to understanding capitalists’ drive to accumulate is increasing economies of scale. Whereas Karl Marx focused on the increasing economies of scale of industry, Piketty shows how the same benefits of scale apply to investment performance of capital.
Despite some reservations about his analysis and his policy prescriptions I believe that Piketty does convey an important and timely message. He combines a grasp of western economic history and an analysis of long run historical data to point to the nature, form and variety that western capitalism has assumed over an extended time. Sharply widening inequalities of income and wealth between rich and poor is the most blatant.
Piketty does indeed have something to say to the beneficiaries of this variety of capitalism who praise and parrot this model and its values. This includes the corporates and the ever-richer elites and to many in aspirant and new middle classes in countries including South Africa and India.
So, what are Piketty’s answers?
Piketty is right to point to the need for a robust debate about the kind of state – a social state, he calls it – that is required at the beginning of the 21st century to regulate a rampant inegalitarian capitalism. New institutions and instruments are needed to regain control over globalised financial capitalism, and “to achieve a just social order”. But when it comes to specifics, Piketty’s economic policy prescriptions are not very convincing.
In my view, they do not take progressive macroeconomic policy much further. If anything it sets back thinking in this crucial policy arena, both at national and global level. His policy response to the crisis he correctly analyses, as Chris Gregory notes, is constructed:
… in the narrowest apolitical, mathematical tradition of 20th century mainstream economics.
An international tax on capital is not likely to be implementable under current national or regional political models. Action is more likely to originate at a national, not international level. In my view this would include a serious relook at old and new forms of control over currency, capital mobility and banking regulation.
Piketty has little to say about all this, apart from noting (on the basis of China’s admittedly opaque and unstable system of capital regulation) that:
… capital controls are one way of regulating and containing the dynamics of wealth inequality.
But how would this work in more democratic, transparent and liberal regimes than the China of today?
By way of contrast, and much more practically, Nobel Prize-winning economist Joseph Stiglitz has teamed up with others to push for US national economic policy options aimed at curbing the flow of economic gains to the wealthiest and most powerful. Those he has teamed up with include New York Mayor Bill de Blasio and US Senator Elizabeth Warren.
Their argument is based on the premise that “equality and economic performance are complementary rather than opposing forces”. On the agenda are policies such as increased taxes on the wealthy to fund education, affordable housing and job-creating infrastructure, as well as minimum wages and benefits for the poor.
These issues, and a few others, are of relevance to South Africa today. The others would include an appropriate form and shape of a “social state”, tax policy, a national minimum wage, and capital controls to curb the billions of dollars leaving South Africa legally and illegally. Perhaps Piketty can be persuaded to share his views on these matters.