Why every environmentalist should care about inequality

Thomas Picketty's work shows us that growth is not the solution to the world's problems, and is further confirmation that the system is broken.

Sam Lowe
28 May 2014

With the (English) publication of ‘Capital in the Twenty-First Century’ Thomas Piketty has burst from relative obscurity onto the main stage. Crowned by the Financial Times as the new ‘rockstar’ economist he has seen his book sell out on Amazon, presented to crammed auditoriums across the globe (I experienced this, pushed up against a red hot light bulb at King’s College last Wednesday), and been interviewed by Paxman on Newsnight

So, who is he? What has he got to say? And what lessons might it have for environmental campaigners?

Who is Piketty?

Thomas Piketty is a French economist, renowned for his work on inequality. As far as economists go he is now a pretty big deal (low bar, I know).

What has he got to say?

In a sentence:

In a market-capitalist system, inequality doesn’t decrease as the world gets richer, it gets worse (and he has centuries of data to prove it).

In a little more detail:

  1. The already wealthy predominantly rely on capital returns (money earned from their ownership of financial assets, property, land, etc.) to increase their fortune; the not so wealthy and poor are more reliant on incomes paid to them by their employer.

  2. In market-capitalist societies the rate of return on so called ‘capital’ has on average been higher than the growth rate of the economy.

  3. This has led to wealth growing at a faster rate than incomes, leading to increased inequality.

  4. There is nothing in the historical trends to suggest (non-withstanding anomalous extreme social shocks such as the cumulative period of WW1, WW2 and the Great Depression) that inequality will not continue to increase indefinitely, heralding the return of an 18th century style economy, where those with wealth are for the most part those lucky enough to inherit it.

If you are still scratching your head, I would heartily recommend watching the following Newsnight explanatory video:


Why, as environmentalists, should we care?

One pretty big reason:

The wealthier you are, the more disproportionate your hold over the political process. This is something that Ezra Klein has referred to as the ‘doom loop of oligarchy’: more wealth buys you more political power, which buys you more wealth, which buys you more political power, and so on.

The sad, and ironic, thing is that one of the possible exogenous shocks that could halt the general trend of increasing disparity between those reliant on wealth and those reliant on income is some form of climate disaster. This would wipe out a large amount of the wealth in a manner similar to WW1 and 2 (and potentially a load of people with it).

Why is this ironic?

Well, a significant proportion of this wealth, or capital, is held in stocks or bonds of extractive companies and known contributors to climate change. This means that any push to combat climate change, and to encourage divestment from fossil fuels, is also a push against inequality where we are asking the wealthy to give up (or at least reallocate) some of their wealth. In both cases we are asking elites, and the politicians they unduly influence, to abandon their myopia and act for the greater good of everyone.

What can be done?

Piketty himself has proposed one ambitious policy solution: a global progressive tax on net wealth. Whilst this may feel far removed from the standard playing field of the environmental campaigner it is certainly something to think about. So long as inequality of wealth (often with a vested interest in maintaining the fossil fuel dependent status quo, at least in the short term) equates to inequality of power, it remains difficult to get the change we so urgently need, delivered in a timeframe the planet requires.

Now his solution may seem improbable; if the elite already have a disproportionate hold over our politics, why would they ever consent to a law being passed weakening that hold? But what other solutions are there?

The classic liberal answer would be that we just need more growth (surprise!). If everyone’s incomes rise more quickly, relative to the returns on invested wealth, then the gap closes and the problem is solved, right? In practice, probably not. Piketty demonstrates that high levels of growth are a historical anomaly, largely driven by the relatively recent massive increase in world population, and should in no way be considered the norm. Additionally, from a sustainability perspective, the quest for more growth at any cost is a really great way to knacker the planet. We need better growth, not more growth (if any at all).

As is Piketty’s central point, wealth is largely concentrated in the hands of a relatively small number of elites (Pension Funds only hold ~20% of total capital). So maybe the answer is to improve access to capital. Higher rates of return (relative to growth) wouldn’t be a problem if the benefits were spread more widely across the population. This is notoriously difficult to achieve (Thatcher’s ‘ownership society’ being a case in point), yet policies that promote community energy ownership and food sovereignty would certainly go some way towards addressing the imbalances (as well as being great from a sustainability perspective).

I want to finish by referencing a recent article by Naomi Klein, in which she eloquently sets out the thesis that just maybe the capitalist system that we live in has left us ill-equipped to deal with the perils of climate change. The changes we need are drastic, off trend and in-essence countercultural. Piketty’s work taken in this context is timely, it is further confirmation that the system is broken and that it is not enough to continue the way we have. The challenge now is not to fix it, it is to reinvent it entirely.

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