In this unedited podcast conversation, economist Thomas Piketty talks to Bethany McLean and Luigi Zingales about the lessons from this movement toward equality and where it could go next – especially regarding policy choices such as taxes, reparations, and redistribution toward more racial, democratic, and global equality.


Bethany McLean  

As our listeners know, on this podcast, we explore what’s working in capitalism and what isn’t. It’s hard to think of a guest who is more up our alley than Thomas Piketty.

News announcer 1:08  

Political economist Thomas Piketty’s last book, Capitalism in the 21st Century, wasn’t just a publishing phenomenon. It drew the world’s attention to the problem of growing inequality.

Bethany McLean  1:18  

In that book, which was almost 700 dense pages, he documented wealth inequality and argued that the gap between rich and poor would continue to get bigger. It was—in a word—pessimistic. His latest book, which is called A Brief History of Equality, is indeed brief, at least relative to Capital. It weighs in at a mere 244 pages. And it’s actually optimistic. He points out that the world actually has gotten better. A lot better. Piketty writes, “At least since the end of the 18th century, there has been a historical movement toward equality.” He points out that, while the human population and average income have both multiplied more than tenfold since the 18th century, that the bottom 50% today have a much better life than they did a century ago.

Luigi Zingales  2:02  

Piketty also argues that this movement toward equality contains some lessons for today. The cost of oil simplifying? He proposes three recipes: taxes, taxes, and taxes. But just in case this is not enough, he wants also reparations. Reparations in every form, and every possibility. 

Bethany McLean  2:25  

Yeah, I thought he was arguing for a pretty radical reconfiguration of our society. And I found a few of these graphs to be very representative of his views. He writes, “We have to go beyond the opposition between redistribution at the national level and redistribution at the international level. In particular, each country, each citizen on the planet, should have some part of the tax revenues derived from multinational companies and the world’s billionaires,” because “each human should have a minimal right” to “health care and education.” And because “rich countries’ prosperity” depends on the poor. He goes on to say, “All creations of wealth in history have issued from a collective process: they depend on the international division of labor, the use of worldwide natural resources, and the accumulation of knowledge since the beginnings of humanity. Human societies constantly invent rules and institutions in order to structure themselves and to divide up that wealth and power, but always on the basis of reversible political choices.” 

Luigi Zingales  3:22  

He also writes that “all wealth is collective in origin,” that “private property was instituted (or ought to be instituted)”—it’s not clear which one he chooses—“only insofar as it serves the common interests,” to be defined, “and in the context of a balanced set of institutions and rights making it possible to limit individual accumulation, to make power circulate, and to distribute wealth more fairly. The fear of not knowing where to stop in such a political process is understandable. This fear, however, is a bad counselor, because in reality, there is no option other than this political and institutional process.” These are his words. “Reparations,” and “worldwide taxes […] will always be imperfect and provisional. But the alternative solutions […] are only incoherent constructs seeking to perpetuate injustices and positional power that are without foundation.”

Bethany McLean  4:15  

Yeah, as I said, his book is interesting because on the surface, A Brief History of Equality, you could take it as a defense of the direction of the world. And it is in some ways, but the underlying argument, I thought at least, was quite radical. 

Luigi Zingales  4:33  

The book is, in my view, 40%, historical, 40% advocacy, and 20% prophecy. And the three are a little bit mixed, which makes it difficult to appreciate some of the things he’s saying that I think are very interesting.

Bethany McLean  4:48  

What part of it do you think is prophecy?

Luigi Zingales  4:51  

So the fact that we are bound to have a world that is always improving is prophecy that sounds very Marxian in origin—that eventually there will be the end of history with the communist revolution or whatever—and is not based on fact. In fact, the funny thing is that he is known in academia for his very good work on increasing income inequality. And here he is basically pushing that work to the side and saying, “No, no, this is just a blip in history, because the big arch of history is leaning in the right direction, and we are living in a blip. But this blip is second order, and we need to look at the long one.” 

Bethany McLean  5:32  

Did you think that? I thought he was arguing more that the movement toward equality was one we have since moved away from, and that there was a danger in that. In other words, that the pretty radical reversal of tax policy since the 1980s was decimating this movement toward equality and that, therefore, we needed to get back to the world of—the taxation world—at least of the 19th or of earlier in time, with some extra stuff in the form of reparations and inheritance taxes lobbed on top.

Luigi Zingales  6:05  

Yeah, and when he does the advocacy, certainly he makes that point. But my impression is that when he describes the teleological direction of history, he says that it is a one-way direction and has been a pretty continuous path, with some bumps, but a pretty continuous path.

Bethany McLean  6:23  

So let’s talk to Thomas and see what he has to say about his book, and then we will come back, and we will discuss it. 

Your book is essentially optimistic in that you point out how much more equal the world has become, how life expectancy and wealth overall have grown dramatically. A devil’s advocate question: Has that been enabled by some of the same forces that have magnified inequality? And if reducing inequality also means reducing the broad-based standard of living, would you choose that? What’s more important? 

Thomas Piketty  6:56  

No, of course not. Of course I will never choose that. Let me make clear. This is a book where I have tried to summarize some of the main lessons that I have learned in several big books I have written in the history of the distribution of income and wealth. And by trying to be more concise, which I think is good sometimes because I produce books, I mean, I don’t regret that I wrote them, but they are very long. This one is much more concise, like 250 pages. And I think most importantly, this forced me to clarify some of the main messages. 

One of the main messages is that historically, if you look between the end of the 18th century (the time of the French Revolution and the US Revolution) and today―so in the past 220, 240 years―there has been a very large movement toward more equality, more political equality, more economic equality, more social equality. And this movement toward more equality has been very closely associated to a movement toward more prosperity. The two have come together, essentially. That’s a deep message. This is the world in which we live. This is the world from which we come from, and we really need to understand this trajectory. 

In particular, this movement begins with, to take the case of the French Revolution, with the abolition of the privileges of the aristocracy. That’s one important turning point. And another important turning point is, of course, the slave revolt in Saint-Domingue in 1791, which sets the beginning of the end of slave and colonial societies. And if you take these two events, you can see that, on the one hand, you have the beginning of the end of societies based on privileges, based on status and inequality, and you have the beginning of the end of societies based on slavery and colonialism. 

Now, in these two dimensions, the movement has yet to continue. Because this movement, of course, it has continued in the 19th century with the abolition of slavery, with the rise of the labor movement, with the rise of male universal suffrage. It continued in the 20th century with the rise of female universal suffrage, with decolonization, the civil rights movement, the end of apartheid, Social Security, progressive taxation. And it continues today with the #MeToo movement, with the Black Lives Matter movement. But this movement is not over yet because we still live in societies where there are privileges based on money. For instance, there is the political process. We don’t have equal voice in the political process. There are some people who buy influence by  political finance or by paying the media or paying academics. There are so many things to buy, when you want to buy influence. So we are still very far from anything close to real democracy. And when it comes to racial inequality and international inequality, we’ve made progress as compared to slavery and colonialism. But you can see the amount of discrimination, both within countries and enormous inequality between countries. 

This movement toward more equality, to answer your question, has been grounded in political mobilization, social struggles, revolution, and it’s going to continue like this. I think that’s the good thing of studying history: that this is the best guide we have to understand the next step. And there are so many directions in which the movement toward equality is still incomplete. If you think of gender equality, racial equality, democratic rights, democratic equality, I can see in which direction this could, should, and has already started to continue in the future. 

Luigi Zingales  11:01  

But of course, Thomas, there is a big difference between inequality in rights—I think, everybody’s against inequality in rights—versus inequality in outcomes. And I think your book seems to take a stand (which is a very legitimate stand, but I want to understand) that inequality in outcomes (besides inequality in rights, we all agree) that inequality of outcomes is bad per se. I think that, at least I couldn’t read, up to what point? 

So imagine that there are two societies, and they both have the same minimum income. They only differ because one society has some people who are a little bit richer. And one society, everybody has the same income—that is, the bottom one. Do you prefer society two (the more equal) to society one? Or not?

Thomas Piketty  11:48  

If they have the same minimum income, then it’s always better when some people have a higher income. But historically, this is not the kind of choice that we had to make. So when you talk about equal rights, and you say, “Everybody agrees about equal rights.” Well, everybody agrees, except when it becomes concrete. People, when we talk about equal democratic rights, and if you want to have equal influence in elections, that will require a lot in terms of how you finance political campaigns, how you finance the media. We are very, very far from this equality in rights to influence the political process. And so I can give you a series of propositions to move in this direction, and you will see that the nice unanimity about equality of rights is going to disappear right away. 

Let me take another example, which is very economic in nature, which is a redistribution of inheritance. We live in societies where, okay, we have made progress in the long run, in terms of concentration of wealth, but this progress has been very limited. So if you take the bottom 50% of children, they basically receive close to zero inheritance. The share of the bottom 50% of the population’s total wealth today in the United States is something like 2%. So in Europe, it’s like 4%. Well, that’s better than 2%, but for 50% of the population, that’s very small. Now, when you make proposal, which I do, to try to move a little bit toward more equality of opportunities, more equality of rights, by saying, okay, let’s have a minimum inheritance, so in my proposal I say, okay, it should be 120,000 euros. That’s 60% of average wealth per adult at the age of 25. So, people who today receive zero—basically, half of the population—would receive 120,000. People who today receive one million—which is roughly the average of the top 10%—after all the progressive tax to pay for that, they will still receive 600,000. So as you can see, we will still be very far from equality of opportunity. Very, very far. And if you want my opinion, I think we could go a lot more in this direction. But if you start making this kind of proposal, all the nice people who say they are in favor of equality of opportunity start shouting and saying, “Oh, but now you cannot do something like that, because, you know, all these poor children, they’re gonna make stupid things with their own money! So don’t give them money,” you know, as if rich children always make a good decision with the money they receive. Which, by the way, I’m very much ready with the idea to put limitations on what you can do with your money, if we need rules or social rules or environmental rules. So you know, I don’t want to replace the society of greedy wealthy children with a society of middle, poor, all children who are just as greedy as it was always. We need rules on what you can do with your wealth, but these rules need to apply to rich children as much as to poor children. 

This is just an example saying that, when you say, “We all agree about equal rights and equal opportunities,” I’m not quite sure. I think if we are serious about equality of rights and equality of opportunities, which I’m trying to be serious, you realize immediately that in fact, you know, many people disagree.

Bethany McLean  15:19  

So I couldn’t quite tell (which may be my failure as a reader) from reading your book if you are a defender in a limited form of capitalism or not. It seems in some ways that you are, with your idea of progressive taxation, in your core belief in freedom, that you do believe in this core of capitalism. But later in the book, you write that, “The objective is the gradual decommercialization of the economy. In particular, fundamental goods and services in domains such as education, health care, culture, transportation, or energy are by nature to be produced outside the commercial sphere.” And you exclude very small business and housing from that list. So I guess my question is, how much, why do we need this core of capitalism? And how do you determine what should be outside it? Why housing? And is the exclusion of small business, then, enough to create the desirable level of freedom? 

Thomas Piketty  16:14  

Okay, first of all, so, regarding decommodification and decommercialization. I’m trying, as a shifting economic historian, I’m trying to look at the historical evolutions that I see in the data that I use, and then trying to draw lessons for the future. But yeah, I’m just looking at what I observe. 

So what do we observe in practice? We do observe a form of gradual decommodification of the economy. In the sense that you observe the rise, if you take, as compared to 100 years ago or 150 years ago, you see the rise of enormous economic sectors, typically education and health, which are much bigger than, say, the automobile sector of today in advanced countries. And they are going to keep growing into the future, of course. Education and health. And these two sectors, to a large extent, have been organized outside the profit motive. This is obvious for education. I mean, we have for-profit universities, like Trump University, but they  have not been terribly successful. So, most private universities are nonprofit institutions, which is already a very different kind of objective than a shareholder company trying to maximize profit. If you take the case of health, I know that there are some people in the US who believe that private health institutions in the US work very well. But if you look, frankly, I think anybody looking, comparing Europe and the US, looking at health outcomes, looking at life expectancy, will agree—should agree—that, by and large, the public health systems have done a much better job, historically, to deliver good health. And in terms of education, again, the countries that have tried profit-making primary schools and profit-making universities have just not been very successful. 

So there is a process of decommodification, in particular in these two sectors. But you know, you can talk about public transportation, you can talk about utilities, energy. We have to be very pragmatic and look sector by sector at how it can work. I’m just saying, yes, there has been a process of decommodification, yes, it has been extremely successful, and yes, we need to draw from this experience to think about the future. Because if I look today at which sectors are going to expand in the future, and look at education, at health, at culture, at the media, these are sectors where, again, the profit-making organization does not always work very well, does not deliver. 

But then when you talk about other sectors, you know, if I talked about cafes or restaurants, it seems to me that small producers competing with one another can work pretty well. The thing is that you have so many millions of different types of housing units, types of people who have different preferences with this housing. In the end, there’s really a question of how much you gain—because of the enormous heterogeneity in taste, in supply and demand—how much can you gain from the price mechanism and the market system? And how much do you lose because of an excessive reliance on the profit motive? And so in the case of education, the profit motive for teachers seems to generate more harm than good. In some other sectors, it’s not the case. I’m trying to be very pragmatic and look at that. 

Is this going beyond capitalism in the end or not? You know, it depends how you define capitalism, but it seems to me that there are really three ingredients in what I put into this notion of participatory socialism or democratic socialism that I describe. And you can choose another word to describe this. You can call it social democracy for the 21st century if you prefer, if you agree with the three ingredients. Ingredient number one is this growing decommodification. Ingredient number two is this redistribution of wealth through minimum annual returns and through very progressive wealth tax. Which means, very high concentrations of wealth, which in my view are not useful. My reading of the history—comparing different periods, looking at the US in recent decades with the US before, trying to compare as much as I can all the different situations—and I think excessive concentration of wealth is just not socially useful. So, ingredient number two is very sharply progressive taxation of wealth in order to redistribute wealth, so that everybody has access to, you know, 100,000, 200,000, 300,000 euros. Which I think will make a big difference to make the society not only more equal, but also more dynamic in terms of bargaining power. People who have billions may not realize this, but when you have zero, having 100, or 200, or 300 is very different from zero. For people who have one billion, it all looks like almost equal to zero. But when you really have zero, or negative wealth, when you only have that, you are in a very weak bargaining position vis-a-vis your own life, vis-a-vis the rest of society. Basically it means you have to accept everything. You have to accept any working condition, any job. But if you have just 100, 200, 300, in addition to a welfare system with basic income, free education, and health (it’s not instead of all of that, of course, it’s in addition), then you’re in a much better bargaining position. Because this means you can refuse certain offers. You can create your own firm. You can buy your own home for your family so that you don’t need to pay your rent each month. So, I think this will contribute to make the society much more dynamic, and it will be collectively beneficial. 

The third component—so, decommodification, redistribution of wealth—the third component is more equal sharing of power in companies. Again, I tried to start from the historical experience with codetermination. Comanagement in countries like Sweden or Germany where workers have up to 50% of seats in the board of large companies, and those workers have these seats independently of any share in the company. Just as workers, as “investors in labor.” Now, shareholders are 50% plus one, but this means that if workers in addition have shares for 10% or 20% in the company, or if a local government or regional government has 10% or 20% of the company, then you can shift the majority, even with a shareholder that has 80% or 90% of the stock. Which from the point of view of a US shareholder, or actually a French shareholder or British shareholder, is like communism. Except that this has been in place in Germany since 1962, in Sweden since about the same time, and apparently this is not working so badly. And I think, by and large, this has allowed them to reach sometimes more balanced decisions in boards of companies—more reasonable wage scale, salary scale for top managers, for instance—but also, more importantly, to involve workers in the long-run strategy of their company. Because workers invest their skills, invest their lives sometimes, in companies much more than your short-run shareholder who goes and leaves, etc. 

What I’m proposing as the third component of what I call participatory socialism is to extend this to all countries, to all companies, small and large. And if we want to go further, what I describe is to say, okay, the next step could be, if you have 50% of voting rights for shareholders, well, within this 50%, an individual shareholder cannot have more than a certain threshold, 10% or 5%, when the company gets very large. The general philosophy is, we live in very educated societies where we have millions of engineers, technicians, workers, managers, who can contribute to decision-making. And this view of a sort of monarchical organization of the economy, whereby one individual—because he made a smart decision at the age of 30, or was very lucky at the age of 40, or both at the same time—will keep all decision-making at the age of 50, at the age of 70, at the age of 90, in a huge organization with decisions that are so complicated to make. This is completely crazy. And you know, I think there’s a sense of history, the direction of history is to move to a more participatory decision-making. 

If you put all of this together, you have something which is very different from standard capitalism. But then, the situation today—the kind of social democratic capitalism that we have in most of the Western European countries—is already very different from the capitalism of 1910. So I will say, yes, what I’m describing for the future is different from what we have today. But it’s not more different from what we have today than what we have today is different from the capitalism of 1910. So I’m trying to look at this from an evolutionary perspective, and based on the evolutions that have already been happening.

Luigi Zingales  25:50  

So I have a slightly different concern, because I actually understand that you’re trying to find a different form of economic system that emphasizes freedom and maybe puts a little bit more weight on equality. So I’m sympathetic to this desire. My concern is, to what extent you can achieve that with freedom. And as I say, the examples of codetermination are all examples that are not chosen by the parties involved. You don’t see Silicon Valley firms starting in the way that with corporate determination. This has been imposed by the law, and it is imposed by the law under particular circumstances, as you describe in your book. So my question is: Is your ideal society, the one that you want to reach to, a society that we can achieve with democracy? Or do you want to abandon some of the features of at least the classical liberal democracy of majoritarian rules? And let me quote from the end of your book. You say that “equality has made its way overturning the rules established by the regime in power.” And I understand that. And it’s “an illusion” to “adopt the unanimity of the countries or the social groups concerned as an untouchable principle.” 

So do you consider the majority ruling as one of these principles we can give up? So if the majority of people don’t want what you do, what do you do?

Thomas Piketty  27:20  

Ah, but here you refer to a quote with “unanimity,” and then you shift to majority, it’s already a big change. But…

Luigi Zingales  27:27  

No, no, of course it’s a change. But you are very clear. Unanimity of social groups is not unanimity of people.

Thomas Piketty  27:35  

Yes, okay. You said, you know, Silicon Valley shareholders, they don’t want codetermination. So, you’ve got to take some of the freedom away if you oppose codetermination. Yeah. You know, I’m not too surprised that shareholders who have 100% of voting rights don’t want to share their power. But you know, let me say…

Luigi Zingales  27:56  

No, no, sorry, Thomas, it’s not just the shareholders. If we create a company, if we are some manager creating a company, we can design a company where we give ourselves, managers, and maybe even employees equal voting rights. But we don’t choose to do that.

Thomas Piketty  28:11  

Well, okay. But you know, you can also create a country where you and your associates have all the voting rights if you want to. I mean, many people have done that in the past. Look, it’s very understandable that some people want to keep the power for themselves. I’m just saying, aristocrats in France in 1799 wanted to keep the power for themselves. And I mean, I can see why. Look, you have this…

Luigi Zingales  28:38  

No, but, sorry. Aristocrats in France were not competing with other stuff. Actually, they competed with other countries, but not, no. But companies are competing. So if there is a more efficient organizational form…

Thomas Piketty  28:51  

Well, this is a question that is fit for democratic deliberation. That’s it. That’s all what I’m saying. So, of course, I think I am much more democratic than you are because I want to have really equal participation to the democratic process, through political finance, media finance, etc.

Luigi Zingales  29:12  

But you’re restricting people to have that. You’re not allowing people to create companies different than the one you want. That’s not freedom.

Thomas Piketty  29:19

You always have collective rules—about how you organize, the rule of law. Can you discriminate whoever you want in a company? Can you decide that some people don’t have any power and some people have full power? The notion of freedom you have in mind is so one-sided for certain individuals as compared to others. So, you have to look at the entire society and the freedom of everybody. It’s like the discussion we had with inheritance a minute ago. It’s good to care about the freedom of wealthy children, but I think the freedom of other children is important as well. If you want real maximal freedom for all, which is what I want, you have to look at the big picture. 

But to answer your question how we get there, I am completely confident that democratic deliberation, through, so, of course majority decision making, but, democracy is more than just majority decision making, it also requires deliberation, which requires information, which requires certain kinds of financing of the media, financing of political campaign. I am very confident that this democratic system will lead—has led in the past, and will continue to lead—to more prosperity and more equality at the same time. The problem historically is that many groups have tried to keep the power for themselves. This is what has been happening. You have the French aristocrats in 1799, but then you have very wealthy people until World War One who don’t want to redistribute wealth, who say that the sky is going to fall if we redistribute wealth. Well, wealth was redistributed, it was much more equal in 1950 than what it was in 1910 and, you know, the sky did not fall. If anything, there was even more growth and more prosperity after that. So, this is a movement where you always have powerful and wealthy people who don’t want to change, of course, who want to keep the power for themselves, and who try to present their position as based on, you know, “Freedom!” and, “You want to attack freedom!” No, nobody wants to attack freedom. The question is the freedom of whom. We have to look at the rest of society as well, just like for inheritance. What’s crazy to me is to give no voice to the people who invest their labor in a company. That’s what’s completely insane to me. You have people who invest… it’s more than their labor. It’s their dreams, their skills, their… everything they have sometimes. For years, sometimes for decades. And then you’re telling me that shareholders must be free? To give them no voice? Right, okay? It’s like people who want to keep political power for themselves in the society. This has been like that for a long time. Remember, the imagination of elites to design rules in order to keep power is without any limits. 

The story that I tell in my book is the story of freedom, which we today all see as very egalitarian. But until 1910, in Sweden, only the top 20% male voters have the right to vote, which was a very standard feature of European societies in the 19th century. Except that in Sweden it was until 1910. And except that, within this top 20% group, you could have between one and 100 votes depending on the amount of tax you pay, and in municipal elections, there was actually no upper limit to the number of voting rights you could have, and even corporations could vote in municipal elections. This is something multinationals today, they would love to have in the countries where they invest, where hey could vote on the mayor of the city. Sometimes they find other ways to get the same outcome, but at least they don’t dare asking for that. But this was Sweden in 1910, and you had several dozen municipalities where a single voter who had more than 50% of all voting rights was a perfectly legal dictator. From the point of view of these people, who were at the same time investing, who had companies, etc., this was perfectly justified. Just like having all power in their companies. Because after all, they are the people who care about the future because they are propertied, so I can write down the economic models that can rationalize this kind of system. It’s very easy to do. 

Except this was broken up by trade union mobilization, Social Democratic Party mobilization, who took up control of the state capacity in 1932 and used the, put the state capacity to the service of a completely different project where you would register income and wealth, not to distribute more voting rights, but rather to make people pay progressive taxation to pay for a system of education and health. Which is not perfect—we’ve seen with COVID the limitation of our public health systems. But still, it was better and is better than any other system we’ve seen since then. And this has come also with the sharing of power in companies. 

So, be careful, I think, with this kind of discourse saying, okay, shareholders want to keep their power, therefore they should be able to keep it. Well, no. If you look back at history and make this dangerous argument, I think you really end up on the wrong side. Very quickly.

Bethany McLean  34:52

I understand your arguments about the need for employees, or, on employees. And I understand your arguments about taxation. But I thought other parts of the book, you were perhaps a little bit more vague. When you talk about institutions that could enforce laws around equality, or that could be responsible for managing wealth. How do you prevent these institutions from becoming totalitarian? How do you prevent them, the other institutions that you mentioned in your book, that you say would enforce a certain kind of egalitarian behavior. That, when you mentioned in your book, you talk about a balanced set of institutions that would help us create this more egalitarian world. How do you prevent those institutions from becoming bureaucratic and rigid? From becoming the things you fear?

Thomas Piketty  35:40

Yeah, I’m not sure which institutions you’re referring to exactly. We were just talking about public health systems, or public education systems, or progressive taxation systems. And so my answer is, let’s look at, again, real world experiences of how rich countries today—and if you take some of the countries in the world with the highest level of productivity, Sweden, or Germany, or France—trying to see how they got there. And I think that the general lesson is, yes, you need democratic accountability. You need pluralistic vibrant democracy. You need all social groups and social class to have a voice in the political system. You need all of these in order to put checks and balances around the set of social and fiscal institutions, that’s for sure. But we need to make the entire democratic process much more democratic than it is today. So, this set of institutions is not supposed to be imposed from the top. And this is not what happens historically.

Luigi Zingales  36:55

So, Thomas, when I was a kid, I’d go sailing. And when I was sailing, even the most left-wing people would say, “In a boat, we need a commander, and it is not a democracy.” So, there are moments in which, maybe because it’s very dramatic, you need a different form of organization. And you’re saying that you don’t allow that. So, imagine for a second, and maybe you don’t agree, but imagine for a second that it is more efficient to have a different type of organization where shareholders rule, and you say, you don’t want to do it because this is unfair, and you force everybody to have a democratic ship, even at the cost of the ship might sink?

Thomas Piketty  37:37

No, that’s not what I’m saying. I just think democracy works. So I think if we, again, in the political arena, I think we feel, there’s a feeling that democracy works and should work, including in countries where it doesn’t work today, like China and Russia, and that trying to push for democracy is not just something that we do, even if it fails, whatever. I think, in the end, there’s no reason why it should fail, because it has worked in so many different countries with so many different cultures and civilizations. Of course, we need to be very careful about the exact rules and how we divide the power up. But, it works. 

In the example of the boat you mentioned, let me make very clear that, in small companies, I have absolutely no problem with the fact that someone who created a company—who has put his savings, maybe his minimum inheritance to create his business—is going to have more power than someone you hired last week and who maybe is going to create his own business in one month. That would be stupid to equalize power between these two individuals in a small company. So I’m saying explicitly the contrary. The question is, as the firm gets bigger. And as the firm gets bigger, yes, you want to discuss. You want to share power? How exactly? When does it mean, “get bigger”? How big? Things get complicated when we say that. So that’s why I’m trying to look at the historical experience, with 50% of the seats in the board of companies above a certain size. 

Because my reading of the evidence is that it works pretty well, I propose to reduce the threshold. But you know, I’m not saying I know the formula in advance. I think we’re going to have to experiment, we’re going to have to try. That’s all I’m saying. But, I think this is the direction in which we have to go for economic democracy, just like what we’ve done to some extent, to a limited extent for political democracy.

Luigi Zingales  39:46

Thank you very much for your time. This was very interesting.

Bethany McLean  40:12

So, Luigi and I both had talked before this, we both had the same question. And we both tried to ask it and I wasn’t sure that I really got an answer to it: What’s more important? Overall progress, even if the gap between rich and poor gets bigger? Or closing the gap? And my devil’s advocate question was, can you have overall progress without inequality? And if you can’t, is it worth it? Or should the ultimate goal be ending inequality? Luigi, did you think he answered that question or not?

Luigi Zingales  40:42

Not really, necessarily. He did say that inequality is not an evil per se when I asked point blank whether, everything else being equal, somebody making more is evil. However, he did not recognize, I think, the existence of any trade-off between more equality and maybe less efficiency or more tension. Because if equality is obtained through redistribution, it is basically obtained through violence. Maybe organized violence, which is the state taxing view, big time. He does not seem to be affected at all by how consequential this is for the survival of democratic institutions. He is very good at blaming the Soviet Union for going wrong. But you know, it’s easy to do that more than 30 years after the fall of the Berlin Wall. What he is not very good at, in my view, is recognizing the fact that if you exercise a lot of redistribution, there will be a lot of resistance. And that resistance, you can either sort of squash it or stop the process. If it’s very important to achieve the goal, you’re going to squash it. And that’s exactly why the Soviet Union ended up the Soviet Union, in the sense that, Stalin did not start to kill all the kulaki for fun; he started to kill all the kulaki because the kulaki resisted the expropriation of land. And when they resisted, he said, you know, “If you’re not in line with the program, I’ll send you to Siberia.”

Bethany McLean  42:17

Yeah, this notion that the failure of the Soviet revolution was because of the institutions that were put in place afterwards, not necessarily because of the revolution itself. When you look at other similar movements, whether it’s in Cuba, or in China under Mao, or even you could argue in Venezuela to date, they all go in the same direction. The people from whom what-they-had-previously is being taken do not go quietly.

Luigi Zingales  42:42

Yeah, do not go quietly. That is a nice way to put it.

Bethany McLean  42:48

That was. That was a bit, yes. 

Did you think that he addressed the question of what kind of institutions are necessary. And I feel, by the way, that I didn’t do that point justice when we were talking to him. But he talks about how we need these institutions, we need to overturn inegalitarian institutions and established powers. But they do not, unfortunately, in any way guarantee that the new institutions and new powers that will replace them will always be as egalitarian and emancipatory as might have helped. Which is true. And he writes, “It is much harder to agree on the alternative institutions that will make it possible to make real progress towards social, economic and political equality, while at the same time respecting individual rights, including the right to be different.” And I thought, yeah, exactly. How do we agree on those alternative institutions? That actually is one of the key issues in his book to me, and you kind of can’t just hand-wave at it. Am I being too harsh?

Luigi Zingales  43:41

Yes, and no, because I think that you’re absolutely right, that he doesn’t answer the question. However, I give him a lot of credit for raising a fundamental contradiction in our world economy: We’re all democratic within each country, but nobody wants to be Democratic across countries. It’s not like there is any institution that says that the Indians and the Americans have one vote each and they decide on the basis of one vote each. And not to mention the Africans, okay? It is a global order of power that is still very much shaped by the countries who won World War Two. And many of the institutions that descended have tilted the world in favor of the “old,” if you want, Western powers. Now, this has not prevented a country like China to rise in a fantastic way. However, it has been an obstacle. And most importantly, how do we go about fixing that? Because we don’t have a framework. Not only that, the existing frameworks go in the opposite direction. 

He has a very insightful point in the book when he says, really, social democrats are lacking an international theory. Because liberals have an international theory based on free movement of capital and labor, blah, blah, blah. Communists have an international theory saying that we’re all the same, and the international commons. But the Social Democrats are really based on a welfare that is at the local level, and an aspiration of equality which is at the international level. And the two conflict tremendously. And I think that a lot of the losses of social democrats in Europe have been to the fact that they don’t know whether they want to remain internationalist or they want to defend workers. And the two seem in contradiction, and they have not chosen, and as a result they lose both. And the right-wing movements are actually defending the welfare state at the national level. Marine LePen is more defendant of the welfare system than Emmanuel Macron. I give him credit for having the courage to raise this question. I think that that’s a contradiction in all our thinking. I am guilty as charged on that. Because we all are pro-democracy, are we really happy to be pro-democracy where we all vote in the world? And we decide and we impose taxes and etc.? Not so sure, right? So I think we are fake in our support for democracy. And he goes all the way. And I give him some slack for not having figured out all the details, because nobody has. But I think that he’s more honest in pointing out this contradiction than most.

Bethany McLean  46:42

What I couldn’t tell from his fundamental argument of basically stripping away the market from every sphere of life except for very small business and housing (I wasn’t sure why housing was included), that’s a pretty extreme viewand I couldn’t necessarily tell, from this book, the proof for how he arrived there. Why does it have to be this? Why only very small business and housing? Why are those the only things that should be in the commercial sphere, and everything else should be regulated by some kind of unnamed institution? And I guess I would have felt a little more comfortable if there at least had been an analytical framework behind why commercial activity should be so tightly limited.

Luigi Zingales  47:20

So the best line of argument in his favor is to say: I am concerned about precisely the political opposition to redistribution, so what I need is to make sure that nobody is very powerful. Because if somebody is very powerful, this economic power will try to transform itself into political power and will get into the way of my silent revolution that I want to do. And so I need to constrain most of the activities, because these activities can be very influential in determining how people vote and how they express their opinions, and so on and so forth. So I want to basically have some form of control, whether it’s “of the people” (in quotes) or of the government, on all the institutions that carry some power. And I leave shopkeepers, and small activities that are not really important to the free market, because I can crush them any time of the day.

Bethany McLean  48:25

Even as you say that, you speak, “I am going to create this.” So who’s the “I” in this situation? Who’s the all-powerful entity that creates all of this and administers all of this and makes sure it’s being done effectively? And I know his argument would be, “If you set these institutions up correctly, they evolve. And they evolve in such a way that they don’t take on an undue amount of power.” But to me, the devil is really in the details there. How do you create the institutions that are in charge of administering all of this, and policing what’s in the free market and what isn’t, without those institutions themselves becoming exactly what you fear? Right? It’s the old line from Nietzsche: Be careful when you battle monsters, lest you become a monster.

Luigi Zingales  49:07

Yeah, and what is the evidence that even if we’re willing to impose limits on the power of money in the electoral process—which I’m much in favor of introducing—even if we were to do that, what is the evidence that people will favor massive redistribution? I don’t think there is much. In the sense that, in Germany for example, or even in France, there are severe limitations on campaign financing. You don’t see massive demand for redistribution. And if people don’t want this massive amount of redistribution, how do you decide?

Bethany McLean  50:13

I found many aspects of the book quite revelatory, even this idea and the data showing how much of the wealth of the world has been generated from appropriation. I thought, he has this great example in there of how countries have played the game one way until they had their advantages in place. And I thought he had a great example of how Britain basically wouldn’t allow imports of Indian textiles until Britain came to dominate the textile industry and then Britain started advocating for free trade. And I think we could find similar examples of hypocrisy throughout modern history, and that’s just one of the examples.

Luigi Zingales  50:49

Did you know the story that France imposed reparations to Haiti, in the opposite direction? France imposed to the slaves that liberated themselves in Haiti the cost of buying their freedom. That put a burden on Haiti that is enormous. It was 300% of GDP. You wonder to what extent Haiti’s problems today are the result of an enormous burden of public debt that made it difficult for the country to grow,

Bethany McLean  51:25

I thought that was an incredibly powerful part of his book. And that’s the part of the book that I really liked, was this very detailed, data driven history about aspects of history that are often left unaddressed. He was also very powerful in the notion of education, that often in the days of empire, colonialization, you’d have the people of the country paying an enormous amount in taxes in order to educate the already… then their taxes would go to educate the very, very wealthy. And you still see that disparity in education numbers, where the very wealthy get far more dollars thrown at their education than do the poor. And I thought something he said in our discussion was interesting, telling about his mindset, but also quite right, which is that people talk a very big game about equity and about egalitarianism. But when it’s actually put to the test, and they have to do something or give something up, they don’t particularly want to. And nowhere is that more pronounced than with our children, where if you tell most wealthy people that their children, their children’s schools are going to be funded at the same level as the poorest inner city school, talk about a revolution! Talk about people who are going to protest this new system. You’re gonna get it right there. That, to me, is both a really powerful part of his book, but also one that perhaps doesn’t bode well for a seamless transition to this future he is imagining. But I couldn’t tell, in the end, what he actually believed in terms of the right economic system. It sounded to me at various points in the book that he really does believe in a core of capitalism as necessary for freedom. And he writes this, “Everyone knows now that progress must emanate from the egalitarian roots in electoral democracy. Acknowledgement of this fact in the 1970s and 1980s contributed to the final delegitimization of the communist countermodel. If the latter produces both less political freedom and less social and economic well-being, then what’s the point?” But I couldn’t tell what pieces—in his view of the welfare state and progressive taxation—I couldn’t tell what pieces he felt that we needed to retain, and why he felt that we needed to retain those pieces. Did you have clarity on that?

Luigi Zingales  53:41

Completely clarity? No. But it seems to me that he has some form of Yugoslavian or Hungary model. And let’s just say, even during the period of the Cold War, Hungary was much more open than the Soviet Union. For example, you had, at least in the last 10 years of the existence of the block, some private property when it came to shops and little activities. And also, like, Yugoslavia was not as repressive as the Soviet Union, and there was more reliance on cooperatives. The question to me is, how to interpret his push to interfere with free market contracting. And I agree with him that, at some point, every regulation is interference. And so, if you take an extreme view, then you have zero regulation, which I’m not willing to take. 

However, there is a risk of overshooting the opposite direction. He seems to be saying that, except if you run a shop at the corner, the government needs to decide how  you organize your company. And that’s dangerous, because you can have an ethical company where the government decides what is ethical and what is not ethical. And then, you can work, but within the limit of what the government allows you to do, in the name of some higher principles. I think that that’s where I am nervous. 

I think that he doesn’t recognize trade-offs. Even when I confronted him with companies, in the sense of,  do you really want a democracy at every level of the company? Like imagine Walmart, and hundreds of thousands of workers, most of them these days living outside of the United States. To what extent you want to give them the power to decide the future of Walmart? There are some efficient considerations that are quite important.

Bethany McLean  55:40

Yeah, I agree with all of that. On that note, though, I did think he raised an interesting point when he pointed out Germany’s historic practices of employee representation on a board. I also think he raised an interesting point when he said, why did we decide on a system where shareholders get the money instead of employees? And I thought, that’s interesting. I mean, we’ve definitely decided on a system in which shareholders have primacy legally, and all sorts of the funders of the company do. And why shouldn’t employees have a right to the company’s profits, above and beyond what they do? And I thought that was an interesting point.

Luigi Zingales  56:15

So, can I stop you there? Because I disagree. I think that we didn’t decide on that system, because there are cooperatives. Now we have even public benefit corporations. So we have different legal forms.

Bethany McLean  56:27

That’s fair. We’re experimenting with different forms, I think. 

Luigi Zingales  56:30

Yeah. But cooperatives have been around for a long time. 

Bethany McLean  56:33

But for a long time, the dominant form has been this shareholder capitalism. And it’s interesting, you know, in our ongoing quest to unpack things that are taken for granted, I think that’s an interesting thing to start contemplating. Hmm. Why is it that way? Does it have to be that way? And it ties into a lot of our themes. I think, overall, there are enough interesting ideas in here that it’s worth reading and debating. But I think he leaves more questions unaddressed than answered, and in some ways—because to me, those questions go to the very core of his system―that the book is ultimately unsatisfying. It is, I think you’re right, a political platform. And then, just the ways that political platforms have appealing ideas without a lot of answers of how you get from A to B, this is similar.

Announcer  57:30

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