14 May 2014
By Dennis Glover, Australian Financial Review
Just prior to Easter, my inbox brought news of a dangerous new work circulating clandestinely in the left-wing political underground, Capital in the Twenty-First Century.
Despite its title, this was not a leaked copy of the report of the Commission of Audit, but that now much-analysed book by Thomas Piketty. An international sellout, there wasn’t a copy to be had. I located two: one belonging to the only Harvard PhD in the federal Labor caucus; the other belonging to one of Melbourne’s better-known left-wing barristers, whose chambers, luckily, were close by. He generously slipped his copy to me in a quiet cafe, like one of those Samizdat copies of Nineteen Eighty-Four that passed from hand to hand in Brezhnev-era Russia.
Despite its scarcity, you’re possibly already familiar with its central idea: in the absence of shocks like depressions and wars and the economic and political reforms that follow, the natural tendency of the market is towards inequality, especially when the rate of return of capital is greater than the rate of growth on which salaries and wages depend.
The resurgence of inequality since the 1980s, especially in the US but also (if to a lesser extent) in Australia, is real and due largely to political decisions about finance, taxation, industrial relations, executive remuneration and so forth. Inequality has nothing natural or inevitable about it.
The appeal of Piketty’s argument lies not just in its mathematical elegance, but in that it confirms things we intuit every time we see Clive Palmer, Gina Rinehart and Tony Abbott’s audit commissioners on TV: wealth is begetting power, power is begetting more wealth, and the little people no longer count. Fund managers and superannuation advisers are pocketing $18.6 billion a year and Australian cricket captains are buying $8.5 million mansions in Vaucluse, while others are being asked to give up penalty rates for the good of the economy.
The contradictions of capitalism are becoming obvious and occasionally embarrassing.
Splitting hairs over acknowledging full implications
Many will pull back from the full implications of what Piketty is saying, choosing instead to split hairs over his definitions of capital, the accuracy of his data or the degree to which inequality is the result of factors like education and technology, not capital ownership and the natural operations of the market.
Debates like these are important obviously, but Labor needs more. What Labor should take from Piketty is the type of big philosophical idea it needs to regain the intellectual high ground which, as the Commission of Audit report demonstrates, is now consciously driving national policy in the direction of widening inequality.
That big idea is this: there is no inherent tendency in the free market towards the type of egalitarian society that the ALP was founded to pursue. As Piketty himself puts it: Neither ever more fully guaranteed property rights, nor ever freer markets, nor ever purer and more perfect competition will ensure a just, harmonious and prosperous society.
Such approaches simply make things worse, generating arbitrary and unsustainable inequalities completely incompatible with properly functioning democracy. Inequality can only be reversed by positive, determined, social-democratic purpose, which does not require abandoning the ideal of an open economy. In short, Piketty offers Labor intellectual weapons to pursue its moral purpose, which is the pursuit of greater equality.
In practical terms, this means Labor shouldn’t be afraid to rethink its economic assumptions. The cries of “class warfare” that greet the mildest attempts at redistribution should be ignored in favour of policies that provide a genuine redistributive response to the fading of the Australian egalitarian dream. If people are scared by the Commission of Audit, then they can be won by an appeal to egalitarianism.
For Piketty the answer is global wealth taxes; for Labor who knows? But it all starts with the sort of philosophical confidence that game-changing books like this provide. Meanwhile, if any MUA members find a forgotten crate of Capital in the Twenty-First Century lying around a dock somewhere, can they please send it to Canberra ASAP.