At Eterna Partners, we’re all avid readers. In many ways, it’s an essential part of what we do. Having the intellectual curiosity to reach beyond what’s making the headlines right now is critical in developing and implementing strategic communications plans fit for the future.
That’s why we’ve created the Eterna Book Club. It’s a way to formalise our watercooler musings and think deeply about issues affecting the work we do. We aim to meet monthly to discuss a book of our choosing and report back so you can get a flavour of discussions in the Eterna office.
For our first book, we chose the French political philosopher Thomas Piketty’s A Brief History of Equality.
Piketty’s major previous work, Capital in the 21st Century, wasn’t just a publishing phenomenon, it drew the world’s attention to the problem of growing inequality since the late 20th century. In it he documented wealth disparity across the West and argued that the gap between rich and poor would get bigger without redistributive interventions.
His latest book, the subject of our book club, is A Brief History of Equality. In contrast with the pessimism of Capital, Piketty points out that the world has grown much more equitable, in terms of the progress made over the past 250 years.
At least since the end of the 18th century, Piketty says there has been a movement towards equality, with average incomes multiplying more than tenfold while the bottom 50% have a much better life than previously. But since the 1980s reversals in tax policies have meant progress has stalled, in his view.
Piketty says the past offers lessons for today. He proposes taxes, many of them, both income and inheritance, as well as reparations, which would result in a radical redistribution, not just at a national but an international level. According to Piketty, everyone on the planet should benefit from the revenues of multinational companies, billionaires should give a part of their wealth to those with less, and rich countries’ prosperity derives ineluctably from the exploitation of the poor.
He writes: “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 beginning of humanity.1”
Initially, we discussed Piketty’s definition of equality, which we thought was extremely broad, crossing social and political inequality. More an understanding of exploitation than inequality per se, the definition enabled him to look at the great historical exploitation of countries and peoples at the expense of others. However, we felt a more tightly defined economic sense would have been more relevant to today’s social context.
Our critique of the book’s contents centred on two broad themes – the naivety in the process and complexity of what he is proposing, and whether his solutions of state expansion and massive tax increases are credible.
For example, when laying out a new form of democratic socialism, we thought that Piketty did not give any sense to the practical challenges involved in making society fairer and more equal. A massive expansion of the welfare state and progressive taxation are Piketty’s two main vehicles, yet he does not even consider potential impracticalities, such as the tendency of a bloated welfare state to cease to act in the interest of society as a whole, and instead out of political self-interest. A hole in this argument for us was the absence of asking ‘who governs the bureaucracies’ and whether this is essentially undemocratic. We thought the lack of engagement with these counterarguments was naive.
Some of Piketty’s targets are entirely legitimate. The international taxation system is clearly suboptimal, and globalisation has meant that individuals are beholden to corporations outside of their nation state boundaries. But there is a huge lack of recognition of the complexity of this effort. The rules around this are extremely hard to navigate.
We also had some sympathy for his idea of increasing inheritance tax. A global plutocracy has amassed entrenched dynasties of wealth which aren’t useful and create inefficiencies, while hitting the reset button by transferring some of this wealth would be positive. But we felt that the administrative burden of giving a sum of money – he says EUR 100,000 to everyone in society at the age of 25 – was not sufficiently thought through, and indeed that the cost of doing so could significantly outweigh the benefits. Piketty also insists on deciding on behalf of the recipients how this money would be spent, which we think would have unintended consequences. For example, if the spend is restricted to property, how would that affect property prices in a market which currently functions relatively freely?
Piketty proposes the idea of a more participatory form of corporate structures. Drawing on the success of the German model of workers and other stakeholders having a say in the running of the business, Piketty argues it would enable better decision making and a more equal distribution of wealth. Specifically, he states at least 50 % of the ownership should be for non-shareholders, who always aim to maximise returns for themselves at the expense of other stakeholders. The Eterna team thought there was some merit here, particularly as companies are looking at their ESG agenda, in thinking about a more up to date version of the corporate structure.
We had reservations, however, about whether this model would work. For example, it is yet to be proven at the very largest organisation level. We also discussed the fact that the German model works well in a job for life, and that some research suggests that younger people in the developed world at least are having a much more transactional relationship with their employers than previously. It may be that there isn’t a focus on participating more in the employment sphere.
Piketty is the man of the moment. The shift in the political economy following the Financial Crisis and subsequent anti-globalisation movements has propelled Piketty’s ideas to global fame. As such, many of Piketty’s ideas are being adopted. The Global minimum tax for corporations of at least 15% was announced in 2021. Gordon Brown’s 7 Ways To Change The World, gave a dense set of policy ideas across international jurisdictions which may presage thinking on a more practical level. The shareholder vs stakeholder debate has been widely discussed over the past 10 years, and Piketty is pushing for the B Corp or Cooperative model.
Looking to the future, we thought there will be more and more pressure for wealth taxes in the coming years. Post Covid, with economies experiencing low growth and increasing welfare burdens, there is more agreement in populations on higher debt levels and much higher taxes – wealth and windfall taxes are back on the agenda. The concept of a universal benefit system or payment, similar to Piketty’s idea of a flat inheritance, is being debated. Less talked about is the inheritance tax idea overall, which the Eterna team found intriguing given the massive transfer of wealth set to happen from the Baby Boom generation to their offspring.
We hope you enjoyed the notes from our first book club. Join us again next month as we discuss Daniel Treisman’s new book Spin Dictators: The Changing Face of Tyranny in the 21st Century.