The twin shocks of the Covid-19 pandemic and the subsequent global inflationary spiral have left the global economy on the precipice of recession. While the United States, the UK and the EU focus on the domestic implications of these global headwinds, developing countries in Africa, South-East Asia, Central Asia and Central America are faced with dire economic problems and an urgent need for development assistance.
The latest UN Development Report found that its human development index (HDI) has fallen for two consecutive years for the first time ever. The risk to developing countries of another lost decade is palpable.
In times past, foreign aid has supplied funds to support developing countries in situations of need, as well as provide investment to help foster the opportunities for growth. For instance, aid has helped fund education, health and infrastructure programs. As well as tempered the impact of conflict and the spread of infectious diseases, such as HIV and malaria. Moreover, aid was not only a financial phenomenon, primarily the concern of opaque funding institutions and central governments, but also a cultural phenomenon, supported by voters on both sides of the political spectrum. Most people can recall the Live 8 concerts of the mid-2000s. Hundreds of artists performed in those concerts to a global audience of of millions. Aid was big, it was relevant, and it mattered.
This momentum culminated in several pledges to increase global aid donations. The European Union committed to donating 0.7% of GNI every year by 2015. President Bush announced that the United States will double assistance to Africa between 2004 and 2010. And, under the Blair and Brown Labour governments, the former Department for International Development (DFID) grew into one of the worlds leading aid institutions. Of course, many pledges were not kept and criticisms of non-action and false promises were and have been made. However, clearly aid was high on the political agenda, and more importantly it was making a tangible difference.
But the 2000s are ancient history. Where are we right now? I focus on the UK here as I know more about the country.
The last decade was an extremely difficult period for UK aid, which ended in the dissolution of DFID, cuts to the aid budget, and open remarks by leading politicians criticising the very purpose of aid. In fact, today, aid barely gets a mention in public discourse. This point was brought up in the excellent “The Rest is Politics” podcast with Alistair Campbell and Rory Stewart (Oct 18th). They mention the UK is committing a fraction of what it formally would have done and many countries are the verge of crisis. The bottom line is nobody in Westminster is talking about Africa right now and the Foreign, Commonwealth and Development Office appears to be a vacuum of leadership on the issue.
Figure 1: Official Development Assistance (ODA) grew substantially between 2000 – 2010. However, with the exception of Germany, ODA donations have flatlined. In 2014 the UK was the largest ODA donor in Europe. It now sits with France in 3rd place, way behind Germany. In fact, donations from the UK have fallen sharply in the last 3 years (note this was happening before COVID and the COLC).
Source: ODA DAC1 Flows, my own analysis.
Yet, there may be a faint glimmer of light at the end of the tunnel. Kier Starmer has recently publicly committed to re-forming DFID and restoring the UK 0.7% commitment target on foreign aid, which was reduced to 0.5% by the Conservatives. This would be a very welcome improvement and a positive step. But, given the disastrous past few weeks in the gilt markets, any Labour government that comes into power, whether that be this year, next, or in 2025, may find its hands increasingly tied when it comes to spending. Also, the dark tunnel we are currently in may get darker still; this week there have been rumblings reported of a further cut to the aid budget down to 0.3%.
Regardless of what happens in the coming weeks in British politics it’s highly unlikely the new PM will make it his or her priority to reinstate the UK as a global leader in foreign aid. The promise of a “Global Britain” post-Brexit has failed spectacularly on so many fronts, just take the US trade deal for example, but in the sphere of development our fall from grace couldn’t be larger.
Adolph Menzar – Dinner at the Ball 1878. The late 19th century was the height of ownership societies in Europe when 10% of the population owned 90% of the wealth and earned 50% of the national income.
This winter the third national lockdown presented itself as an ideal opportunity to tackle Thomas Picketty’s latest epic on inequality. Capital and Ideology is focused on the history of inequality regimes and the ideologies which justify them. And despite reaching nearly 1050 pages, it didn’t disappoint.
The main argument of the book is that inequality is neither an economic or technological phenomena, rather it is ideological and political. Picketty explains that in all societies, both past and present, there is an ideological schema which supports and maintains the existing inequality regime. In all cases, the proponents of the ideology argue that the inequality it pertains is justified – or at the very least should be maintained as to not release a “Pandora’s box” of social chaos.
The book takes you on a journey, meandering around several different types of inequality regimes, their justifications, the switch-points which instigated their demise (and beginnings), and ultimately, Picketty’s own thoughts on what a just society might look like.
We start the story in a world dominated by what Picketty calls “tri-functional societies”. These are societies which are severely inegalitarian. Members belong to three loosely defined groups (four, in the case of India). Each group has a purpose. The clergy gives the society meaning, the nobleman give the society security, and the workers produce the goods and services the society needs to function (mainly food, shelter, and clothing).
Picketty argues that tri-functional societies can be found in almost all corners of the planet at some time in history and were the main form of social organisation before the rise of pre-modern capitalism and colonialism. They were maintained on the justification that if either components role was compromised the society would descend into anarchy. Each role was clearly defined and carefully incentivised to not step beyond their own function. There was very little movement between each group and extreme violence was a common outcome of any attempts to change the status quo.
The transition away from tri-functional societies to what are called ownership societies is mostly explained by Picketty with reference to the events and repercussions of the French Revolution in 1789. The fall of the Ancien Regime in France resulted in a “great demarcation” between power and ownership. Power, which was previously held exclusively by the Monarch, was transferred to the centralised state which could guarantee private property rights. What followed was a society based on the quasi-sacralisation of property rights which were open to all (if you were male and could access them). However, the question of the distribution of property rights was left unresolved. Thus, under the myth of egalitarianism, we see an increase in inequality in post-revolutionary France not a decrease.
Figure 1 below shows the share of total private property for the top 1% fell in the decade leading up to the revolution and then increased by nearly 10 percentage points during the 19th century. The rate of growth of inequality was even more dramatic when you look exclusively at Paris.
Figure 1: Inequality in France 1780-2000
The ideology underpinning ownership societies of the 19th century is termed by Picketty as proprietarian ideology. This is an ideology fundamentally based on the emancipation of property. Picketty argues that proprietarian ideology can encompass a spectrum of multiple pathways. He broadly defines two pathways as critical proprietarianism and exacerbated proprietarianism. The former is the basis of social democratic societies which depend on a mix of public, private, and social ownership and emphasize the instrumental function of private property. The latter is based on a worshiping of private property over and above other rights.
The justification for such an unequal distribution is a similar one to the justification of the tri-functional schema. In essence, questioning private property rights is a can of worms that shouldn’t be opened; this is not only for the benefit of economic elites but also the average citizen with at least some wealth.
A recurrent theme throughout the book is one of switch-points in history that shape the long-term outcome of events. The lesson to learn from these moments is that inequality regimes could have taken one of many paths and the route they actually took depended largely on the ability of the central protagonists to combine “the logic of events with short term mobilisations and longer-term ideological change”. The French Revolution is a paradigmatic example of such a switch point. Hence, the failure of elites to implement progressive taxation at this point can be seen as failure to align ideology and events. However, looking to the future, it means that inequality regimes do not necessarily follow a deterministic route and can be configured to align with egalitarian principles – this is important for Picketty’s arguments for how we can move toward a more equal society today.
The second part of the book features a detailed analysis of the history of inequality in slave and colonial societies. This is an incredibly important part of the history of inequality at the global level- one which was missing from Picketty’s first book Capital and Inequality. Unsurprisingly, Picketty finds that slave and colonial societies are some of the most unequal in human history. For example, in 18th century Haiti 10% of the population had an income share of greater than 80% of total income. This is compared to the 50% income share going to the top 10% at the height of proprietarianism in 1910 France.
Perhaps one of the most startling, shocking, and powerful examples of the proprietarianism grip on society are the debates surrounding the compensation of slave owners following the abolition of slavery in 1833. The UK government agreed compensation amounting to nearly 5% of national income, which was equivalent to roughly 10 years of educational spending at the time. The justification, for what seems today to be a grossly unjust policy, is again based on the sacralisation of private property which was so endemic of the 19th century (at least until the neo-proprietarian revolution of the 1990s).
The next stage of the journey concerns around the factors behind the fall of ownership societies following the Great War of 1914-1918. Picketty outlines three key challenges that began to threaten ownership societies during the period 1914-1945. Firstly, internal inequality began to reach a level which could not be justified by elites – especially in light of the sacrifices made by the population during WW1. Secondly, external colonialism faced challenge as its extractive institutions and moral superiority were questioned by the ruled populations. Thirdly, there was a nationalist challenge which resulted from inter-state competition buoyed by rising nationalism and inequality between nations.
Figure 2: the fall of ownership societies 1914-1945
Figure 2 shows the dramatic decrease in the top 10% share of total income beginning in 1914 in some countries such as Germany and rapidly falling in most industrialised countries from around 1940. In Germany the share reached as low as 28% in 1950. In the United States the share was greater at 37% in 1950 but still significantly below the 50% peak it reached just before the Wall Street Crash in 1929. In the United Kingdom and France the peak of income inequality was reached in 1910 at 52%. In the United Kingdom this reached a low of 28% in the late 1970s – an unbelievable redistribution of income which would of been unthinkable in 1910.
The emergence of progressive income and inheritance taxation during this period is argued to be the pre-dominant factor driving the reduction in inequality. Picketty argues these fiscal transformations were made possible because of ideological change. The multiple crises of the period 1914-1945 catalyzed these changes but ultimately they were caused by the configuration of intellectual change and external events (not forgetting that the events themselves were endogenous determined by the inequality regime).
The fall of ownership societies leads us to the emergence of the Social Democratic and Communist Societies of the 1950-1980 period. Picketty draws on some interesting examples of how social democratic societies loosened the grip of private property. For example, Germany introduced alternative kinds of ownership such as the co-management of firms between workers and capitalists. There was also a focus on education as form of pre-distribution policy- for instance, the US massively increased education spending during the 20th century.
However, according to Picketty, the social democratic societies failed for four key reasons. (1) They didn’t implement social ownership far enough; (2) they didn’t offer equal access to education; (3) they weren’t able to transcend the political economy of the nation state; (4) and they didn’t implement a progressive tax on wealth.
Thus, we end the story in March 2020, in the ideological epoch of neo-proprietarianism. The void left by the fall of communism and the failure of social democratic societies to deliver on their promises as been filled by the conservative revolution and the return of private property as the dominant form of ownership. Inequality is now reaching levels not seen since 1914. At this stage Picketty sets out his blue-print for the road ahead. Criticism has been thrown at Picketty for being too light touch in this area. I think this is partially justified, however, we can’t rely on Thomas to come up with all the answers and I believe his framework is nonetheless a useful addition to the discussion. Besides, by this point he was 800 words in and must have been pretty knackered!
Highlighted by Picketty as two essential elements in the effort to transcend capitalism are social ownership of capital and temporary ownership of capital. The former can be achieved through an expansion of systems similar to the Germanic and Nordic co-management of firms which rely on the “one person one vote” principle as opposed to the “one share one vote” seen in US, British, and other economies. The latter emphasizes the circulation of capital. This can be achieved through a trio of progressive taxes on income, wealth, and inheritance.
In an interesting statistical experiment, Picketty shows that under certain assumptions, a trio of progressive taxes could provide a universal capital endowment equal to 60% of average adult wealth when you turn 25, as well as provide public goods such as pensions, healthcare, and education.
The final pages of Picketty were fascinating and genuinely inspiring to read. I went away with hope for the future and a better far better understanding of how we might get there. Moreover, this brief overview of the book only scratches the surface of what I learned. For instance, I have omitted the entirety of the discussion on the evolution of voting cleavages, the detailed historical analysis of colonial inequality regimes, and the whole chapter on Indian tri-functional society. Not forgetting the countless sub-chapters with titles such as “On the anti-colonialist legitimacy of the Shiite Clergy” and “Chinese Revolts and Missed Opportunities”.
The publication of the book in March 2020 sits on the faultline between pre-pandemic and post-pandemic society. Without a doubt income and wealth inequality has played a central role in the spread and impact of the virus in the UK and throughout the world. A progressive wealth tax has also been raised as a way of dealing with the public debt – a proposition swiftly put down by Rishi Sunak but which has found increasing support among members of the new Biden administration.
It remains to be seen whether Picketty’s ideas of a participatory federalist socialism will be implemented. However, just as the pandemic has shone a light on the depth of inequality in our society Picketty has shown us we have a way out – and what’s more we have been here before.
