People Before Profit blog

The Cuba breakthrough and U.S. Latin America policy

Tue, 30 Dec 2014 19:02:00 +0000

The wonderful breakthrough in Cuba-US relations on December 17 requires that the left in the United States give some thought about how to deal with the relationship of the United States with the rest of Latin America and the Caribbean.

There are some on the left who are expressing unwarranted worries about the new relationship between the United States and Cuba. To some extent, given the history of imperial interventions, this is understandable, but it also betrays a certain lack of confidence in the Cuban leadership, which has dealt with far worse situations than this with both flexibility and firmness.

Worry about whether Cuba would extradite Assata Shakur to the United States evaporated when Josefina Vidal, the head of the Cuban Foreign Ministry's North America section, stated immediately that Cuba has no intention of returning to the United States any of the people to whom Cuba has granted asylum over the years https://firstlook.org/theintercept/2014/12/23/fbis-desperate-pursuit-assata-shakur-continues-u-s-cuba-talks/ Nor is the presence in Cuba of U.S. products, investments and tourists going to bring down the revolution. Cuban beaches are full of European and Asian tourists, and Cuba has numerous economic arrangements with capitalist countries and companies from around the world, and the Revolution has not fallen. Nor is there any chance that U.S. citizens whose properties were nationalized after the Cuban revolution, including Cuban born people who have since become U.S. citizens, are going to get that property restored to them. At the time Cuba offered a plan of compensation which the United States rejected. Since then, the United States has run up a bill in Cuba to the tune of billions of dollars in counter claims, not only because of the damage done by the economic blockade but also because of terroristic attacks against Cuba which did vast property damage as well as killing thousands of innocent Cuban citizens.

In short, Cuba has won this round. In the agreement reached between U.S. President Barack Obama and Cuban President Raul Castro, Cuba did not have to give up anything that was a matter of principle, and won, either immediately or potentially, everything it has been asking and fighting for over the last 54 years: Freedom for the Cuban Five, restored diplomatic relations, increased trade, an implied promise to remove Cuba from the State Sponsors of Terrorism list and the promotion of legislation to end the economic blockade and travel sanctions.

This victory for Cuban solidarity comes in part because of a massive international movement to free the Cuban Five and end the blockade. For the past 23 consecutive years, there have been lopsided votes in the United Nations General Assembly condemning U.S. Cuba policy. In November 2014, the vote was 188 for condemning the blockade and only 2 (the United States and Israel) opposed. http://peoplesworld.org/again-un-general-assembly-rejects-u-s-anti-cuban-blockade/ Public opinion in the United States has been turning against the blockade, and the New York Times published a series of very useful articles calling for the blockade to end and for the remaining members of the Cuban Five to be freed.

To understand why the Obama administration has decided to radically change its Cuba policy just at this point (or rather, about a year and a half ago when negotiations began in Canada, and helped by Pope Francis, that brought us to this breakthrough), we have to look at developments in the whole Latin America-Caribbean area.

From the election of Hugo Chavez as president of Venezuela in 1998 until now, Latin America has been slipping away from the grasp of the United States, and has become the site of a new development of mass based socialist politics.

This leftward movement of the Latin American and Caribbean states, which some call the "pink tide", is called "Bolivarian" by its supporters, because it emphasizes two dreams of the Venezuelan and South American independence hero Simon Bolivar: That the peoples of the area be truly independent of outside imperial powers, including not only Spain and other European monarchies, but also the United States, and that they be integrated into one powerful and united people. Before Bolivar's death in 1830, it appeared to Bolivar, despondent, betrayed by associates and dying, that this was a losing fight: "He who serves the revolution plows in the sea" http://es.wikisource.org/wiki/Carta_de_Bol%C3%ADvar_al_general_Juan_Jos%C3%A9_Flores_%281830%29

At the center of the new Bolivarianism is ALBA, the Bolivarian Alliance for the Peoples of our America. This was started by Cuba and Venezuela in 2004 and today includes eleven sovereign states with a total population of 70 million. At the ALBA summit meeting in Havana this past week, two states were added (Greneda and St. Kitts and Nevis) http://www.caribjournal.com/2014/12/15/grenada-st-kitts-and-nevis-join-alba/ The others are Antigua and Barbuda, Bolivia, Cuba, Dominica, Ecuador, Nicaragua, St. Lucia, St. Vincent and the Grenadines, and Venezuela.

A second ring of states with leftist or left-centrist governments is integrated through the Union of South American Nations (UNASUR) and the South American Common Market (MERCOSUR). Not all the states in these organizations have left wing governments, but the Bolivarian influence is predominant.

After a series of electoral successes this past year, the states in the region which now are governed by left or left-center leaders include Argentina, Bolivia, Brazil, Chile, Costa Rica, Cuba, Dominica, Ecuador, El Salvador, Grenada, Guyana, Nicaragua, St Kitts, St. Lucia, St. Vincent, Uruguay and Venezuela. So the total population of countries in the "pink tide" is now about 350 million. In one country, Panama, the last elections ousted a right wing, anti-communist government. The Panamanian Peoples Party, which is the communist party there, sees the movement as generally positive. http://www.solidnet.org/panama-party-of-the-people/16-imcwp-contribution-of-party-of-people-panama-es

To a greater or lesser extent, these governments oppose neo-liberal policies, work together on improving mutual trade and aid, and resist the traditional U.S. economic, political and military domination of the region. They are trying to create developmental aid mechanisms that are totally unlike the "structural adjustment" deals forced on poor countries by the International Monetary Fund, the World Bank and developed capitalist countries. Rather than punishing states which invest money in meeting the needs of their people, the Bolivarian governments help each other to achieve improvements in living conditions. The Bank of the South (Bancosur) is being developed as an alternate development financing agency for the region.

A big part of this strategy includes increasing worldwide trade options, and naturally China looms large in those considerations.

But it is not just the governments that are different; large mass movements of workers, small farmers, the poor, indigenous and afro-descendent people and others constitute the social base for Bolivarianism. These are the guarantees of its future also.

Two countries that had governments aligned with Bolivarianism were overthrown with US support: Honduras and Paraguay. Living standards and especially personal security have declined sharply, and there is widespread opposition to the right wing governments in both countries. http://www.telesurtv.net/english/news/Hondurans-Protest-Over-Presidents-Plan-for-Illegal-Re-Election-20141219-0040.html http://www.telesurtv.net/english/news/Paraguay-Halted-by-Rural-Workers-Highway-Shutdown-20141208-0029.html

The pinnacle of the Western Hemisphere integration process is CELAC, the Community of Latin American and Caribbean Countries, which includes every single Western Hemisphere country except the United States and Canada. This is threatening to displace the Organization of American States (O.A.S.), which is seen by many as an instrument of U.S. imperial control. The exclusion of Cuba from the O.A.S. is now viewed negatively even by right wing governments who perceive that the United States is being isolated in the hemisphere and don't want to be isolated with it. Colombian President, Juan Manuel Santos told the United States that if Cuba were excluded from O.A.S. sponsored Summit of the Americas in Panama in April of 2015, other governments would not participate. So now the Obama administration has dropped its objection to Cuba's inclusion. http://www.firstpost.com/fwire/us-softens-opposition-to-cuba-attending-summit-of-the-americas-1836891.html

To counter this leftward movement, the U.S. has been supporting the "Pacific Alliance", which bases itself on a neo-liberal trade and economic model. The Pacific Alliance now includes Mexico, Colombia, Peru and Chile, with a total of about 206 million inhabitants. Early in 2014, the right wing governments of Costa Rica and Panama had signed agreements to become part of the Pacific Alliance, but these governments were defeated in subsequent elections, so the future of those pacts is yet to be seen. Guatemala and Honduras may also join. Chile became part of the Pacific Alliance under right wing president Sebastian Piñera, before the election of socialist Michelle Bachelet in March of 2014. Chile, Costa Rica and Panama all are friendly to socialist Cuba, so within the Pacific Alliance (if they stay in it) they would be strong opponents of using of the group for anti-Cuba and other right wing purposes.

With the exception of Cuba, all the Bolivarian governments could be characterized as social democratic, often with an admixture of nationalism and populism. In almost all cases where a communist party exists, it is allied with the Bolivarian government, sometimes with legislative representation and even seats in the cabinet. And in all countries in the region, Cuba is a hero nation and an inspiration.

The Bolivarian governments can all point to improvements in the lives of workers, small farmers, indigenous people, women and youth. Advances in health care and education are significant. Also, the Bolivarian movement has destroyed the prospects of a neo-liberal "Free Trade Area of the Americas (FTAA)" in which previous U.S. administrations invested such efforts.

The non-Bolivarian countries can boast of no such record. Mexico's economy is underperforming and there is a shocking level of corruption and violence. In Peru, although most of the left had supported the election of President Ollanta Humala in 2012, there is now bitter disappointment at the continuation of neo-liberal policies, and much conflict between the government and the large indigenous population, over issues of mining and land rights. Colombia continues to have a very high rate of violence, although center-right president Juan Manuel Santos is credited with sincerely trying to reach a peaceful settlement with the FARC (Armed Forces of the Colombian Revolution), with negotiations going on in Havana mediated by the Cuban and Norwegian governments. In Guatemala, the continued influence of right wing military figures (such as current President Otto Perez Molina), big landowners and foreign based monopolies have kept both workers and small farmers suppressed and controlled, often by bloody violence. http://www.telesurtv.net/english/news/Guatemala-Police-Threaten-Journalists-Reporting-on-Repression--20140910-0085.html

The Bolivarian states have their problems. The current drastic worldwide drop in oil prices is having a negative effect in oil producing Venezuela, which has also been plagued by inflation, scarcity and violence this year. As many of the Bolivarian countries are tied into PETROCARIBE, a system whereby they can access Venezuelan oil on very favorable credit terms, they are also likely to be affected too. Some other Bolivarian countries are also suffering from inflation and other ills. Internally, a number of countries have to figure out a way to balance the needs of urban workers for development and jobs, with the need to protect the environment and the land rights of indigenous populations.

But for now, the Bolivarian "pink tide" is here to stay. It is likely that popular pressure will lead some or all of the countries who have not yet done so to move with the tide.

U.S. political leaders and government agents have not yet let this lesson sink in. There are still efforts to use government funds, often channeled through USAID via non governmental organizations, to destabilize countries of the Bolivarian group. The US Congress has just passed, and president Obama signed, legislation imposing sanctions on officials of the Venezuelan government. http://peoplesworld.org/sanctions-against-venezuela-colossal-hypocrisy/ How this will be implemented by the Obama administration is yet to be seen.

Most of the left, worldwide and regionally, sees the advance of Bolivarianism as hugely positive. While only Cuba can be considered a socialist state at this point, it seems clear to most leftists that Bolivarianism is improving the lives of workers, farmers and the poor and at the same time building a platform from which further left advances, including socialism itself, can be achieved.

A very small number of left wing parties do not agree with this and see no difference between Bolivarian ruled states and states ruled by right wing parties.

What is the task of the left in the United States at this point?

First, we have to educate the U.S. population that the growth of the Bolivarian movement is not a threat to working people in the United States. On the contrary, as the wages and living standards of people in the Bolivarian countries improve, it becomes more difficult for capital to play off workers in the poorer countries against U.S. workers.

Secondly, we need to convince the U.S. government that efforts to destabilize and undermine the left wing Bolivarian governments are doomed to fail; that U.S. corporations and politicians are going to have to learn to live with the existence of this large bloc of left and left-center ruled countries who have to be treated as equals and sovereign states, not as puppets or people to be bullied into submission.

Thirdly, the worst elements of our corporate "one percent" increase their power by exploiting people in the poorer countries. A defeat for them in Latin America is a victory for workers in the United States.

U.S. capitalists, whose interests the anti-Cuba policy was supposed to benefit, have ended up lobbying for a change in that policy because they are losing out on the opportunity to trade with Cuba: to China, to Europe and everybody. But the people of the United States also won, because their economic interests are served by the new policy and because their right to travel to Cuba is being restored. Working people in the United States can take inspiration from the Latin American developments to help guide our own struggles, including the struggle for socialism.

If the Obama administration will follow up with a rapprochement with Venezuela, Bolivia, Ecuador and the other Bolivarian states, it will come out a winner too, and the only losers will be right wingers everywhere. Imperialism will not disappear, but the people will have won an important victory for internationalist solidarity.

Photo: Raul Castro with then President Luiz Inacio Lula da Silva of Brazil January 2008 Agencia Brazil/Creative Commons 3.0

A Communist activist looks at Piketty's "Capital": part 2 The radicalism of Thomas Piketty

Sat, 20 Dec 2014 11:42:00 +0000

Part 1 of this article - Piketty for Activists - summarizes some of the most important data presented and conclusions drawn by Piketty as they relate to ordinary people in the labor and other movements for economic justice. In Part 2, I argue that Piketty's work has implications far more radical than his mainstream economic framework, and is thus an important contribution to those movements.

Progressive, Left and Marxist Comments on Piketty's Capital

Paul Krugman gives a wildly enthusiastic review - http://www.nybooks.com/articles/archives/2014/may/08/thomas-piketty-new-gilded-age/ "Piketty has written a truly superb book. It's a work that melds grand historical sweep-when was the last time you heard an economist invoke Jane Austen and Balzac?-with painstaking data analysis... his discussion is a tour de force of economic modeling, an approach that integrates the analysis of economic growth with that of the distribution of income and wealth. This is a book that will change both the way we think about society and the way we do economics."

Many heterodox (non-mainstream economists) are more critical. Some of the problematic areas include:

Piketty's definition of capital as equal to all forms of wealth, with value equal to its open market price at any point in time, is problematic not only for Marxists but for many economists. David Harvey explains [http://davidharvey.org/2014/05/afterthoughts-pikettys-capital/], "Capital is a process not a thing. It is a process of circulation in which money is used to make more money often, but not exclusively through the exploitation of labor power." -
How does capital produce a certain rate of return? Piketty doesn't address this question - he simply provides data on how much that rate of return is. Marx built on the labor theory of value as developed by Adam Smith, David Ricardo and other classical economists to explain that the exploitation of labor is inherent in the capitalist production process and the root of all capitalist profit. In Part 1 I quoted Marx on the origins of wealth (https://www.marxists.org/archive/marx/works/1867-c1/ch31.htm) - dripping with the blood of the enslaved and the exploited. Today, the 4%, 5%, or 10% return on capital enjoyed by the Walmart heirs, hedge fund managers, and elite universities' endowments - are ultimately derived from the work of the $8/hr fast food worker, the dispossessed peasant sewing clothing in El Salvador or assembling cell phones in China, and the newly-hired auto worker in Ohio whose wage is half what his father earned a generation ago.
This brings us to the class struggle. Although it is occasionally implicit in sections of Piketty's Capital, its role in social change is almost completely absent from the text. But it was sharp class struggles, led by strong Communist and Socialist parties throughout Europe after World War II, that forced the ruling elite to make major concessions in order to resist the broad appeal of Communism and the Soviet Union. That is the origin of the social state which Piketty praises. And it was and is class war, waged by the 1% against the rest of us, that partially dismantled and continually threatens the social state today.
Picketty has nothing to say about inequalities of race, gender, nationality. The experience in the US is that racism has been the most effective tool used by the 1% to perpetuate their wealth and power by keeping the rest of us divided. No examination of capitalism in the US can be complete without an examination of the economic and the political role played by these inequalities.
Piketty shares with Keynsians and social democrats what I believe is an illusion - that with proper policies and regulation, capitalism can become largely harmonious and crisis free. Marxists have argued that the exploitation inherent in capitalist relations and the anarchy of capitalist production produce a tendency toward crisis that cannot be eliminated from capitalist societies. The historical record - crises and recessions afflicting most capitalist countries at least every decade - seems to confirm the Marxist view.
Piketty has no real recognition of imperialism today, and assumes that most of the rest of world will naturally catch up with developed countries. Not even a mention that along with the social state in developed capitalist countries, huge resources are devoted to wasteful military spending.
Piketty's proposals are fine as far as they go. But how will they come about? He mostly ignores the class structure of state power and public policy. The real ruling class is not even the 1%, but the 1/10 or 1/100 percent. At times, they have been forced to make concessions, even major concessions. But, as Frederick Douglass said, "power concedes nothing without a demand; it never has and never will."

These shortcomings, and more, are important if you look at Piketty's Capital as a complete analysis of the capitalist system, or a guide to action for economic justice. But this book is not, and does not pretend to be, a political manifesto or an organizing guide.

A Communist and activist looks at Piketty

Piketty has not produced a comprehensive analysis of capitalism, implicitly accepting a rather conservative economic model. He doesn't acknowledge, and may be largely unfamiliar with the work of progressive/left economists who have done similar, if less exhaustive, work. Picketty's model, based on problematic definitions of wealth and rate of return, can be questioned.

Like most academic economists, Piketty's policy proposals seem out of touch with political reality, and the real movements and organizations of the working class and the 99%.

His program ignores the immediate crisis faced by much of humanity. He is unlikely to lead or even affiliate with a working class movement or even a less well-defined movement of the 99%.

However, Capital is an important contribution to the theory and the discussion of inequality today. Picketty gives important historical data. His conclusion of the tendency toward concentration of wealth is not inconsistent with Marxist or other analyses that reach similar conclusions. And Piketty makes it clear that public policy makes a difference. What more could a Marxist ask of a non-Marxist? What more could an activist for economic justice ask of an academic?

The book (and Piketty's web site) is a valuable resource for data, and Piketty's analysis raises a number of interesting and potentially valuable points. But I would not recommend Capital as a first resource for someone who wants a fundamental understanding of how capitalism works, or even an understanding of the reasons for growing inequality and possible solutions.

Piketty is not a Marxist, and he approaches things differently. But different ways of describing a phenomenon (e.g., tendency for wealth to concentrate) can be valid in different ways and for different purposes.

Piketty wants to save capitalism from itself - not for the purposes of maintaining exploitation (he doesn't think in those terms) but both to prevent cataclysmic crises, and to provide a much greater degree of democracy, equality, and social justice - particularly to maintain and expand public health, education and other social policies. These are not inherently radical goals, although they go against the dominant policies being enacted in leading capitalist countries today.

Piketty's radicalism

Piketty's framework has been called, conservative, conventional. Nonetheless, the implications of Piketty's work are far more radical than his conventional framework and some critics on the left would suggest.

We can disagree with aspects of his framework, while respecting his data and engaging with millions who are influenced by his writing - especially in the US, where there is fierce struggle to block imposition of further ultra-right pro-corporate pro-1% policies.

Thomas Piketty was born in France in 1971, grew up there, and except for a brief period has worked there. His adolescence coincided with the triumph of neoliberalism - Reagan in the US, Thatcher in Britain, and in France the surrender of the Socialist, Mitterand, to the demands of capital. This was the beginning of a global offensive against organized labor, of the triumph of the IMF and structural adjustment policies that came down most heavily in less developed countries, but also saw the start of the long stagnation and rollback of gains the US, British and other working classes had made since the 1930s.

"I... came of age listening to news of the collapse of the Communist dictatorships ... I was vaccinated for life against the conventional but lazy rhetoric of anticapitalism... I have no interest in denouncing inequality or capitalism per se..." (p. 31) And in many ways, Piketty's framework is very conventional.

Coming from this background at this time, it is not remarkable that Piketty rejected Marxism, although I disagree with him on that. What is remarkable is that he quickly saw through the "end of history" "best of all possible worlds" triumphalism that pervaded his profession in his formative years, and dared to look at capitalism with fresh and critical eyes.

Early on, Piketty rejected aspects of mainstream economics. After two years (1993-95) at MIT, he returned to Paris because the economics profession "continued to churn out purely theoretical results without even knowing what facts needed to be explained. And it expected me to do the same. When I returned to France, I set out to collect the missing data."

Piketty's insistence that theory must be based on data, that economic models must be tested by reality, is not inherently radical, and is not unique to Marxists. But it has radical implications in an era when the economic equivalents of climate denial pass as conventional wisdom and are defended by leading political and economic authorities. For example, policies of austerity (whose popular version is - "when average families tighten their belts, government must also tighten its belt,") have repeatedly been shown in theory and in practice to be wrong and destructive, yet they are still being advocated by many major economists and followed by those in power.

It is radical to focus on real data in the US, where political discourse is often dominated by personal anecdote and economic myths. Piketty's data explicitly undermines one of our most enduring myths - he shows that the economic insecurity of the middle class is not due to generous handouts to the undeserving poor, but to the ever-increasing share taken by the rich, the very rich, and the super rich. He poses a radical challenge, from the mainstream, to the way mainstream economics is practiced in the U.S.

Picketty draws connections among economics, politics, and history. He has an almost Marxist description of class struggle over the distribution of wealth (p.39), although without Marx' analysis of exploitation.

A radical view of wealth

Piketty says that capital reflects social relations, i.e. the wealth that the 1% regard as their own is actually an artificial social construct. It is society and its laws that grants ownership and control to an individual or corporation. "Capital is not an immutable concept: it reflects the state of development and prevailing social relations of each society." (p. 47).

(One example is the role of trade agreements such as the TPP currently being negotiated, which make knowledge in the form of patents and copyrights into commodities owned by giant global conglomerates, with the power to extract tribute from the world's population for use of that knowledge, beyond the ability of local or even national governments to intervene.)

Piketty speaks of "the atmosphere, the sea, mountains, historical monuments, and knowledge," as forms of wealth and says, "Certain private interests would like to own these things, and sometimes they justify this desire on grounds of efficiency rather than mere self-interest. But there is no guarantee that this desire coincides with the general interest."

Piketty's view is in sharp contrast to the expression commonly heard in the U.S. regarding the fortunes of billionaires: "It's their money, they can do what they want with it." In essence, Piketty challenges this. If wealth is a social construct, then society, acting through democratic decision making, should have a voice in the use of that wealth. Piketty's proposal for a global tax on wealth is explicitly designed to reassert public control over the global billionaires that have the decisive economic power in the world today. Even a small tax, he says, will produce reliable information on the extent and distribution of wealth - information necessary for democratic decision-making (p. 518). "Everyone would be required to report ownership of capital assets to the world's financial authorities in order to be recognized as the legal owner." (p. 519). This statement undoubtedly horrifies the libertarian streak in U.S. capitalism, but reaffirms Piketty's contention that wealth exists only as a creation of society, and should be subject to society's democratic control.

It might be a leap too far to compare this with the Marxist position that a principle contradiction of capitalism is between the increasing social nature of the production and distribution of goods and services, and their ever more concentrated private ownership and control. And that socializing the ownership and control through working class power is the only way to resolve that contradiction and the evils of poverty, inequality and crisis that stem from it.

That is not Piketty's view, and is not even implicit in his writing. But his view on the social nature of wealth does not contradict the Marxist view.

Tax the Rich

Piketty emphasizes that the growing dominance of rentier (unearned) income - income from interest, dividends, and rent, - is not socially justified, and he challenges the supersalaries of top executives which he shows play an important role in increasing inequality. I disagree with his classification of these supersalaries as "income from labor" - for both economic and political clarity, it is more realistic to regard million-dollar-plus salaries and bonuses as profits, derived from the exploitation of those who perform the real work. But that does not detract from the implications of Piketty's data and analysis.

He directly challenges one of the basic tenets of dominant mainstream economics - that incomes tend to reflect the value of work performed, and that inequality reflects the high value of work performed by the super-rich and the low value of work performed by, or the unwillingness to work of, the poor.

Piketty says that marginal tax rates above 80% on the portion of incomes over $500,000 or $1 million per year are "the only way to stem the observed increase in very high salaries" (p. 512), and such a tax "would not reduce the growth of the US economy but would in fact distribute the fruits of growth more widely while imposing reasonable limits on economically useless (or even harmful) behavior." (p. 513 emphasis added).

This means doubling the taxes on the 1% in the U.S. (although merely returning to the rates in effect from the 1940s to the 1970s). The radical implications lie in the way the issue is framed. He wants to tax the rich, not only or primarily to raise funds, but to end super-high salaries. He is not only challenging the idea that supersalaries are economically justified - he is saying that they are harmful. He says that gross inequality produces economically useless or even harmful behavior.

Piketty's formulation certainly supports the proposition that it is not only morally, but economically justified for the people to lay claim (through taxes) to a larger share of the nation's wealth - wealth that is socially created in the first place. With even more radical implications, there should be at least a measure of public control over economic activity. If we the people can impose "reasonable limits on economically useless (or even harmful) behavior," why should we not provide positive direction for economically and environmentally constructive purposes?

Wealth, Public Debt, and the social state

Conservatives who dominate public economics and policy say the absolute priority is to reduce the public debt by slashing government spending (on most things) while cutting taxes on the 1% and raising taxes on the 99%. Keynesian economists, a category which includes most progressives, are gaining ground in academia if not in the media and political spheres. They say the biggest danger comes from unemployment and the depressed economy, and that increased government spending on social programs and infrastructure is good in itself and good for the economy, even at the expense of increased public debt.

Piketty's position is potentially more radical. He is favorable toward what he calls the social state - government spending on programs like universal health care, child care, and pensions (Social Security). But government debt, he says, is mainly held by rich people, and the service of that debt represents a continual transfer of wealth from the public to the 1%. So it is better to take part of multi-millionaires' wealth with a tax on capital than to borrow from them in the first place. Existing government debt should be reduced rapidly, he says, by a temporary, progressive wealth tax, which is how France dealt with its huge public debt after World War II (pp 540-541). This really strikes at the heart of the conservative worldview, which views the private property of the billionaire to be sacred.

Piketty is hardly alone in his support of the social state. But his framing of the discussion is interesting. Key components of the social state - education, health and pensions - are "built around a logic of rights and a principle of equal access" that are fundamental (p. 479). He traces these rights to the 1776 US Declaration of Independence and the 1789 French Declaration of the Rights of Man and the Citizen (1789). Under the latter, he says, "inequality is acceptable only if it is based on 'common utility'" and "social inequalities are acceptable only if they are in the interest of all and in particular the most disadvantaged social groups" (p. 480). Exactly what inequalities are acceptable and in what directions equality can be extended, he says, must be answered through "democratic debate and political confrontation."

I would answer that such questions are ultimately decided, in a capitalist society, through class struggle. But when Piketty says it is up to society as a whole to determine democratically how wealth, including "private" wealth, is to be used, this is a radical break from the very concept of private ownership of great wealth. And while Piketty employs these concepts in a capitalist framework, they can be seen as consistent with or even favoring socialism, whose essence is democratic control of the nation's wealth and its employment for the benefit of all.

Conclusion

Piketty's Capital is a significant contribution to economics: in its mass of data; its insistence on a historical view; its analysis of capitalism's tendency to inequality. It also contains assumptions, definitions, analyses, and omissions which are questionable. These have been discussed extensively in the year since Capital's publication. Piketty has contributed greatly to making the study of inequality an important part of economic discourse today.

As Marx famously said, "The philosophers have only interpreted the world, in various ways; the point is to change it." Will Piketty's work be relegated to a topic for graduate economic seminars? That's really not up to Picketty. It's up to us. But by stimulating a broad public discussion of the nature and causes of inequality, and by the radical implications of his analysis, I believe that Piketty's Capital can contribute to building a movement for an economy that works for working people, for building a society that puts people and nature before profits.

Additional resources:

Piketty's Capital has generated far too much interesting discussion for me to attempt a bibliography. I will mention two that have recently caught my attention.

An article in Monthly Review demonstrates Piketty's challenge to mainstream economics even while pointing out his limitations, which are based on the very mainstream framework that he adopts. http://monthlyreview.org/2014/11/01/piketty-and-the-crisis-of-neoclassical-economics/

A collection of articles by heterodox (non-mainstream) economists analyzing various aspects of Piketty's work was published recently in a special issue of Real World Economic Review [http://p.feedblitz.com/t3.asp?/332386/21620547/4833237/www.paecon.net/PAEReview/issue69/whole69.pdf].

Photo: Philadelphia, sign at Occupy Philly November 2011 Ben Sears/PA

A Communist activist looks at Piketty's "Capital in the 21st Century": part 1 Piketty for activists

Mon, 15 Dec 2014 20:47:00 +0000

Part 1 - Piketty for Activists

This article is based on a talk I gave at the New Haven Free Public Library last August. That talk and this article are not aimed at economists, and do not discuss in any depth the economic arguments in the book, nor the debates surrounding them. Rather, in this article (Part 1 - Piketty for Activists), I summarize some of the most important data presented and conclusions drawn by Piketty as they relate to ordinary people in the labor and other movements for economic justice. In Part 2 - The radicalism of Thomas Piketty, I argue that Piketty's work has implications far more radical than his mainstream economic framework, and is thus an important contribution to those movements.

Throughout this article, numbers in parentheses refer to the relevant page numbers in the 2014 Harvard University Press edition of Capital in the 21^st Century, which will be referred to as "Piketty's Capital" (or simply, Capital), as distinguished from the work by Karl Marx, which will be referred to as "Marx's Capital."

Why are we talking about this book?

The title is "Capital in the 21^st Century," and it is the rare example of a weighty economics book that spent months on best-seller lists, and has become a cornerstone in the discussion of inequality.

Unlike Karl Marx's Capital (1867), Thomas Piketty's book is not and does not try to be a complete description of the political economy of capitalism. Rather, Piketty's Capital focuses on the concentration of wealth at the top, and the resultant growth of inequality.

Why is it a best seller? Ten years ago, Capital may have received little notice. But as Piketty states in his opening paragraph, "The distribution of wealth is one of today's most widely discussed and controversial issues..."

Start perhaps in 1999 in Seattle, with the massive protests against the way capitalist trade agreements are forcing workers into a global race to the bottom, continuing through the Occupy movement in 2011, the national movement to raise the minimum wage, and the growing movement of fast food and other low-wage workers to organize unions. These developments in the US have been paralleled around the world, and have pushed the issue of inequality onto center stage. That's why Piketty's Capital is a best seller and, in turn, the book has helped to place the issue and solutions on the table, with public figures from the Pope to President Obama speaking out.

The millions of people in the US and billions globally who are fed up, don't need Piketty's book to know that something is rotten - that their own living conditions and prospects have deteriorated while the 1% are richer than ever. And Piketty is hardly the first economist to provide data and analysis to give substance to this gut feeling.

But Piketty's Capital stands out because of its careful compilation of centuries of data from many countries, combined with a theoretical framework to explain the dynamics of inequality and its rise in the last 3 decades. Piketty (at the Paris School of Economics), and his U.S. collaborator Emanuel Saez at UC-Berkely are widely recognized for their work in tracking the distribution of income and wealth. Piketty is well within mainstream economics, so his work is hard to ignore.

What does the book say?

The book says a lot - 600 pages worth, plus extensive notes. Piketty's own summary is given in his 35-page introduction and in his 100-page concluding section.

Page 1 tells us what the book is about. "Do dynamics of private capital accumulation inevitably lead to the concentration of wealth in fewer hands, or do the balancing forces of growth, competition and technological progress lead in later stages of development to reduced concentration and greater class harmony, These are the questions I attempt to answer." (p. 1).

Piketty's research spans several millenia, and focuses on several centuries of data. It covers many countries, but focuses on France, Britain and the U.S. The historical research is impressive, often interesting, exhaustive, and often exhausting.

His conclusion: There is a strong tendency for increasing divergence, i.e., for growing concentration of wealth at the very top. This tendency exists within every country, and also globally. If unchecked, this tendency can lead to a polarization that threatens social and political stability, with potentially catastrophic consequences.

He emphasizes that this is a tendency, not an absolute law. Inequality is shaped by economic, political and social forces and policies. It is a tendency that can be halted and reversed by public policy, although he is not optimistic that this will happen. And he emphasizes that without policy intervention, there is no automatic economic mechanism that will act to stop the growth of destabilizing concentration of wealth in capitalist economies. Picketty develops a mathematical model, but does not rely exclusively or even primarily on abstract models: he constantly goes back and forth between his model and historical data, showing how they interact.

Rentier Society

Piketty shows the growing inequality and concentration of wealth in Europe that peaked just before World War I. In the UK, the most unequal country, the richest 10% owned "almost everything." During this period the very rich could live luxuriously on a portion of the income from their inherited wealth, leaving a substantial amount left over for reinvestment. Thus, the family fortune would grow faster than the national economy. He concludes, "For strictly mathematical reasons, the conditions are ideal for an 'inheritance society'... characterized by both a very high concentration of wealth and a significant persistence of large fortunes from generation to generation." (p. 351).

This was a rentier society in which the incomes of the wealthy were almost entirely derived from property (rent) and investments (as opposed to wages and salaries from working). Piketty enriches and enlivens this discussion with references from 18^th and 19^th century novels. But outside of these narratives, Piketty's analysis is particularly clinical. The accumulation of great wealth appears as an almost automatic process, governed by natural law.

Contrast this with the origins of wealth as described in Marx's Capital: "The discovery of gold and silver in America, the extirpation, enslavement and entombment in mines of the aboriginal population, the beginning of the conquest and looting of the East Indies, the turning of Africa into a warren for the commercial hunting of black-skins, signalised the rosy dawn of the era of capitalist production... capital comes dripping from head to foot, from every pore, with blood and dirt." (Marx, Capital, Vol 1, Chapter 31 - https://www.marxists.org/archive/marx/works/1867-c1/ch31.htm] )

I would add that it was the incredibly brutal plunder, repression and exploitation of their own people, along with the looting of much of the rest of the world, that provided the steady 5%+ return on government bonds and private investments by which the rentiers of British and French society were able to live a genteel life. While Piketty alludes to this - a character he describes in one of Balzac's novel travels to the West Indies to superintend the family's slave-powered plantation - national oppression and class exploitation are incidental to his analysis, while for Marx they are central.

Inequality trends since World War II

In the 20^th century, the steady concentration of wealth was upset by the shocks of World War I, the great depression, World War II and its aftermath (p. 368+). But since the 1970s, inequality has been growing again, although it has not reached pre-World War I levels. (p. 294)

It is noteworthy that in 1910, Europe had significantly greater concentration of wealth than the US. Since World War II, the positions are reversed, with the US having greater concentration of wealth at the very top. And the bottom half of the population in the US today, together, owned only 2% of the nation's wealth. (p. 257)

In the U.S., income inequality is even greater today than it was in 1929. Over the last 3 decades the top 1% doubled their share of total income from 10% to 20% (p. 292), and even this is probably an underestimate due to the use of tax havens to hide income. (p. 295).

Piketty explains the increase in income at the top by the rise of what he terms supermanagers - incredibly high salaries of top corporate executives. But his data show that at the very top - the top 0.1% - income from capital - rentier income - still dominates.

Even granted the role of supersalaries, Piketty says, "regardless of whether the wealth a person holds is... inherited or earned... the fact remains that beyond a certain threshold, capital tends to accumulate exponentially... the entrepreneur always tends to turn into a rentier." (p. 395) (emphasis added). As an example, Piketty describes Bill Gates' fortune as entrepreneurial - earned (at least implicitly) through hard work, innovation, and management skill. Piketty compares Gates with cosmetics heiress Liliane Bettencourt, who has never worked and whose fortune is based entirely on inherited wealth. Both fortunes - those of the hard-working Gates and the idle Bettencourt, increased at the same rate. And even after he has officially stopped "working," Gates wealth has continued to grow (p. 440).

(Marxists and other skeptics would say that exploitation and monopoly profiteering, as opposed to productive work, account for most of the Gates billions, but that doesn't affect the point Piketty makes here).

Piketty goes on to show that in France, the only country for which good data are available, inherited wealth is rapidly regaining its pre-World War I importance. (pp. 404,425).

Piketty discusses the unequal returns on wealth: the greater your wealth, the higher the rate of return on your capital. (p. 447+). The 1% enjoy higher average returns than the economy as a whole, and the very top may well have returns double those of other investors. I think Piketty should have emphasized this point more, as it greatly supports his contention that, unchecked, wealth tends to concentrate at the top.

The question is: will wealth concentration continue to grow until it reaches the levels of 1910? (pp. 368+, 375+). Piketty's says, "Nothing is certain; inequality can move in either direction... One conclusion is already quite clear, however: it is an illusion to think that something about the nature of modern growth or the laws of the market economy ensures that inequality of wealth will decrease and harmonious stability will be achieved." If the post-World War II policies, such as taxes on capital and income, continue to be destroyed, he says, inequalities as bad as 1910 or even more extreme could emerge.

Piketty gives extensive attention to the "shocks" which, in the mid-20^th century, greatly reduced the concentration of wealth at the top and the inequality of income. The physical destruction of war, and post-war inflation in some countries, wiped out much of the wealth of the upper classes. Social policies enacted in response to these shocks - progressive taxes, wealth taxes, and "welfare state" policies that in the U.S. include programs like Social Security, unemployment insurance and Medicare/Medicaid - were even more important in reducing inequality, according to Piketty. He largely ignores the role of working class struggle in forcing those concessions from a reluctant ruling class, and completely ignores the role of the Soviet Union and allied countries whose example pressured the ruling classes of Western Europe, and even the United States, to grant concessions to their own working classes and those of their dependencies.

Piketty's program

The last section of Piketty's book is subtitled, Regulating capital in the 21^st Century,

In chapter 13, he argues that the social democratic practices that developed in Europe (and to a lesser extent in the US) in the 20^th century redistribute wealth - not by taking from the rich to give to the poor, but by taking from the rich to finance public policies that are more or less equal for everyone, "especially in the area of health, eduction and pensions" (p. 481). He traces the justification for this approach to the American and French revolutions, which "both affirmed equality of rights as an absolute principle... But in practice, during the nineteenth century, the political systems that grew out of those revolutions concentrated mainly on the protection of property rights."

Progressive taxation was the 20^th century innovation, pioneered in America and Britain, which made the social state possible. But since 1980, the progressive income and estate taxes have been undermined by a race to the bottom. The very rich pay a smaller share of their income in total taxes than the moderately rich and the middle class. (Remember Mitt Romney admitting a federal tax rate of 14%, less than many middle class Americans.)

Piketty says the only way to control runaway executive pay and the inequality it produces is returning to confiscatory tax rates of before 1980 (pp. 511-512), and advocates a marginal rate of 80% on incomes above $500,000 or $1 million.

But this is unlikely to happen, he says, and asks, "Has US politics been captured by the 1%?... I am inclined to grant more influence to ideas and intellectual debate." (p. 513). His answer perhaps shows a certain naivete, especially in light of the domination of big money in the 2014 U.S. elections. But on the next page, in apparent self-rebuttal, he says, "...the drift toward oligarchy is real and gives little reason for optimism about where the United states is headed.... no hypocrisy is too great when economic and financial elites are obliged to defend their interests - and that includes economists, who currently occupy an enviable place in the US income hierarchy... the New World may be on the verge of becoming the Old Europe of the 21^st century's globalized economy" (p. 514).

Finally, in chapter 15, we get to the main programmatic point. Yes, we need to update 20^th century fiscal programs (like progressive taxes) and social state programs (like education and pensions) but in the 21^st century "If democracy is to regain control over globalized financial capitalism... it must also invent new tools." (p. 515)

The tool proposed by Piketty is a progressive global tax on capital (GTC) with international financial transparency. The primary purpose is not to finance the state but to regulate capitalism (p. 518), although the revenue generated would not be trivial. A tax on capital stops the indefinite increase of inequality and also imposes effective regulation on the financial sector. It would provide information on the distribution of wealth - information which is necessary (and currently lacking) for democratic public policy.

While unrealistic on a global scale at this time, such a tax would be technically simple to implement on an EU-wide basis (p. 522+). With cooperation amongst the EU countries, it should be possible to have uniform banking rules and force tax havens to comply, so that wealth could no longer be hidden (p. 527+). Tax levels at the top should be set so that rentier wealth does not continually increase.

Of special interest in the U.S., Piketty's very modest tax on all capital would replace the separate property tax, which hits middle class hardest (p. 528). In France, Piketty says, property tax is usually 0.5%-1%. In my city of New Haven, it is probably 3%-5%. Property tax, imposed in the United States on a local level, is our only form of wealth tax. Originally, property was the main form of wealth, and the tax was mildly progressive. Today, financial wealth is not taxed, and the property tax in the U.S. even more than in France hits middle income households hard, and lower income, through their rent, possibly harder. So a tax on all wealth could reduce the property tax in a way that would benefit most of the 99%.

Piketty then makes the case that his tax on capital - wealth - complements a progressive income tax and estate tax, and is essential to stop the uncontrolled growth of inequality.

In my opinion, that of most reviewers, and probably Picketty himself, his proposal for a global tax on capital, or even a regional EU tax, is politically unrealistic today.

But so are the proposals of climate scientists, who warn that it is essential to practically eliminate new carbon emissions right now. That doesn't mean the climate scientists are wrong, or that Picketty is wrong.

Critics from the right.

Of course, Piketty has been attacked from the right. Most of those attacks are laughable, and have been effectively refuted many times. Of course, this does not stop them from being repeated endlessly, and being used by mainstream media. A few representative examples:

Piketty is wrong - The Financial Times (FT) published a front-page exposé by Chris Giles [http://piketty.pse.ens.fr/files/capital21c/en/media/FT23052014c.pdf] alleging that Piketty's data are wrong, a charge picked up and repeated in The Wall Street Journal [http://www.cato.org/publications/commentary/why-pikettys-wealth-data-are-worthless] and elsewhere. The FT article has been refuted widely [ http://equitablegrowth.org/2014/05/30/daily-piketty-may-30-2014/] including by Piketty himself [http://www.voxeu.org/article/factual-response-ft-s-fact-checking]). I find Piketty's response convincing, as did many economists. Most of the "inconsistencies" Giles found were explained by his failure to read the technical appendices and so misinterpreted the data. But few readers, and probably fewer financial reporters, have the time or expertise to delve into the competing claims. The result is that the FT article can produce "he said - she said" reporting, casting doubt on Piketty's data.

A rising tide lifts all boats - A typical example of this argument comes from an article circulated by Bloomberg News [http://www.bloombergview.com/articles/2014-05-13/why-worry-about-inequality] which asks, in effect, what's wrong with growing inequality, as long as "almost everyone is growing richer, and that poverty is disappearing." The author, a Harvard Law professor, apparently has not noticed that the majority of working class Americans are getting poorer, not richer, and that poverty is in no danger of disappearing.

Greed is Good - The New York Times printed an article by Gregory Mankiw, Professor of Economics at Harvard, Chair of George W. Bush's Council of Economic Advisers, and economic adviser to Mitt Romney's presidential bid. [http://www.nytimes.com/2014/06/22/upshot/how-inherited-wealth-helps-the-economy.htm]. He praises inherited wealth (as showing the concern billionaires have for their children) and claims we all benefit, because these great fortunes are invested in new and expanding businesses that provide jobs and wages for the rest of us. Jared Bernstein points out [http://jaredbernsteinblog.com/mankiw-piketty-and-wealth-taxes/] that this is just a restating of the supply-side justification of throwing money at the rich, claiming that some will trickle down to the rest of us. This is, of course, refuted by the experience of the past 40 years, when tax cuts for the 1% and other feed-the-rich policies have contributed to stagnation and actual decline for most working class families, a loss of productive and good-paying jobs, and a rapid growth in low-wage, no-benefit jobs.

Conclusion

I have tried to convey what I think are some of the most important points in Capital, although in 600 pages, Picketty ventures into many areas deserving of an entire review on their own. In part 2 of this article, I will briefly review some aspects of Picketty's work which I view as problematic, and why despite that, Capital can be a significant contribution to building a movement for an economy that works for working people, for building a society that puts people and nature before profits.

Photo: Thomas Piketty commons.wikipedia.org