Piketty Digest #2: Income and Output
Polanyi-Hayek Workshop: Final Programme

Piketty Digest #3: Growth: Illusions and Realities

by Adam David Morton on July 30, 2014
Piketty Forum

With all the furore surrounding Thomas Piketty’s Capital in the 21st Century my aim here is to carry a weekly focus on the book reblogged from For the Desk Drawer. The purpose is modest. There is already in existence some rather excellent coverage and detailed engagement with the book both in the general media and on specific blog sites. I am thinking here of the analyses by Michael Roberts on his blog site; the competing viewpoint or ‘afterthoughts’ of David Harvey; Benjamin Kunkel’s assessment in ‘Paupers and Richlings’ for London Review of Books matched by Knox Peden’s great essay on ‘The Abstractions of History’; or Paul Krugman’s rather different tone in ‘Why We’re in a New Guilded Age’ for The New York Review of Books. My own endeavour is much less ambitious than any of these engagements. It seeks to offer a weekly equivalent to the ‘Pocket Piketty’ provided by Duncan Green. Each week my intention is to carry a blog post that summarises my notes on each chapter in just a few hundred words that can be read quickly. The purpose of these summaries is to produce an interpretative synopsis of each chapter drawn from my more detailed notes.

These interpretative digests will also enable me to formulate my engagement with a reading group on Piketty’s Capital in the 21st Century, organised by Chris Hesketh at Oxford Brookes University. They will also provide a quick précis for teaching purposes at the University of Sydney and through this novel pedagogical exercise conclude with a question each week to be developed in my Department of Political Economy classes on ‘The Political Economy of Global Capitalism’ (linked to the Twitter hashtag #ECOP2613). Such short interpretative digests may thus provide a different and original form of engagement with the book. Without attempting to rival or replace the importance of detailed engagement, these ‘Piketty digests’ will facilitate a quick and accessible read for people ‘on the go’. The posts will be formulated and produced after reading each chapter, in dialogue with the Oxford Brookes University reading group and colleagues at the University of Sydney, rather than polished after completing the reading of the whole book and then subsequently edited; although I may tidy up a little week-to-week. Perhaps these ‘Piketty digests’ will also provoke some wider resonances and points of contact. Here is the third ‘Piketty Digest’ on Chapter 2: ‘Growth: Illusions and Realities’.

Chapter 2: ‘Growth: Illusions and Realities’

This chapter establishes some key parameters on how to assess economic growth and the condition of global convergence or developmental catch-up — Piketty argues that a global convergence is underway in which emerging countries are developmentally catching up with developed countries, despite inequalities prevailing between them — The twenty-first century will be marked by a low growth regime but a key motif throughout the chapter is an emphasis on the ‘takeoff in growth’ — Piketty refers to the law of cumulative growth, referring to conditions where there is a low annual growth rate over a very long period of time giving rise to considerable progress — Also, the law of cumulative returns is referred to as low annual rates of return of a few percent compounded over several decades resulting in large increases of the initial capital — Binding together the convergence process of developmental catch-up and dynamics of inequality, Piketty is careful to highlight how an apparently small gap between the return on capital and the rate of growth (r > g – see Introduction) can, in the long run, have powerful and destabilising effects on the structure and dynamics of social inequality —  The issue of demographic growth is also discussed in that it can play an equalising role in the structure of inequality, decreasing the importance of inherited wealth, or conversely in conditions of stagnant or decreasing population the influence of capital accumulated in previous generations is thereby increased — Fundamental to the analysis of inequality in the book is the point that low economic growth or stagnation means that the rate of return on capital will be substantially higher than the growth rate, becoming the main contributing factor leading to substantial inequality in the distribution of wealth: low-growth means that inherited wealth comes to play a more significant role in the dynamic of capital accumulation and the structure of inequality — Given the emphasis earlier in the chapter on the ‘takeoff in growth’ on a world scale historically the general tone of the chapter is also marked by a stress on ‘stages of economic growth’ — Are there shades here of Walt Rostow (1960) The Stages of Economic Growth: A Non-Communist Manifesto— The precondition for assessing economic growth is a universalising model of Western development and modernisation whereby productivity growth in manufactured goods, foodstuffs, service sectors can be disaggregated to assess living standards, lifestyles, education, and health according to the standards of advanced developed countries — Growth is discussed in terms of orders of magnitude — Growth in per capita output of the order of 1 to 1.5 percent per year in advanced capitalist countries corresponds to cumulative growth of more than 35 percent over a thirty year period, whereas catch-up in transitional periods for developing countries of growth of 3 to 4 percent in per capita output would be exceptional — ‘A society that grows at 1 percent per year, as the most advanced societies have done since the turn of the nineteenth century, is a society that undergoes deep and permanent change. This has important consequences for the structure of social inequalities and the dynamics of the wealth distribution’ — Piketty argues that economic growth is incapable of satisfying democratic hope for a more just social order, which has to be created by social institutions outside of market forces — The golden age of growth per capita in Western Europe from the 1940s to the 1970s (or the Trente Glorieuses) witnessed an exceptional period of growth between 3 and 4 percent and catch-up with the United States — But no mention here of the Marshall Plan, also known as the European Recovery Program, in which the United States gave $13 billion to aid recovery in Europe and prevent the spread of Communism — Between 1990 and 2012 developmental catch-up in China has exceeded 9 percent per year in per capita output bringing economic growth to “take off” — Piketty then assesses global growth from Antiquity to 2100 (!) — This proceeds in two projections: (1) the growth rate of world per capita output, with the countries in Western Europe, North America, and Japan growing at a rate of 1.2 percent from 2012 to 2100; and poor and emerging countries continuing the convergence process of developmental catch-up attaining growth of 5 percent per year from 2012 to 2030 and 4 percent from 2030 to 2050; and (2) the growth rate of world output, with the  trend slightly exceeding 2.5 percent per year between 2012 and 2030 and again between 2030 and 2050 before falling below 1.5 percent and declining to 1.2 percent in the final third of the century — The assumption that Piketty makes is that the process of convergence between emerging and rich economies will be complete by about 2050 — There is a major problem here in the category of capital and the assessments of the rates of economic growth that Piketty makes are deemed to be non-specific to capitalism: Piketty stretches his notion of capital from Antiquity to the present, throwing together fundamentally different conditions of precapitalist and capitalist relations of production — The chapter nevertheless closes on some interesting musings gained from literary classics on the meaning of money — ‘In eighteenth- and nineteenth-century novels, money was everywhere, not only as an abstract force but above all as a palpable, concrete magnitude’ — Such novels captured social status through stable monetary markers in the works of Jane Austen or Honoré de Balzac where, absent inflation, ‘these orders of magnitude would change only gradually over the course of the nineteenth century and into the Belle Époque: they would long seem familiar to readers’ — Prior to World War I, then, the meaning of money in literary classics was conveyed clearly and would become a dependable literary subject — After that period there was a loss of stable monetary reference points in the twentieth century that marked a significant rupture across the realms of economics and politics and also in social, cultural, and literary matters — ‘Specific references to wealth and income were omnipresent in the literature of all countries before 1914: these references gradually dropped out of sight between 1914 and 1945 and never truly emerged’: money virtually disappeared from literature after the shocks of 1914-1945 whether in European or American novels or the literature of other continents — To substantiate the point Piketty contrasts the novels of Naguib Mahfouz in The Cairo Trilogy (Palace Walk, Palace of Desire, Sugar Street), set in Cairo between the two world wars, before prices were distorted by inflation, and the lavish attention on income and wealth as a way of situating characters and explaining their anxieties, with the lack of monetary references in, for example, the work of Orhan Pamuk, set in Istanbul in the 1970s in novels such as Museum of Innocence or Black Book, and subsequently, where in periods of inflation the meaning of money is ambiguous and mention of specific sums is omitted — The chapter then concludes on the loss of monetary bearings in the twentieth century, noting how the post-World War II system was ‘barely more robust’ than the gold standard of the inter-war period but without mentioning the wider details of the Bretton Woods System of monetary management.

Question: To what extent are there universalist assumptions of modernisation theory embedded in Thomas Piketty’s notion of developmental catch-up and economic take off in growth?


Adam David Morton
Adam David Morton is Professor of Political Economy in the Department of Political Economy at the University of Sydney. He is author of Unravelling Gramsci: Hegemony and Passive Revolution in the Global Political Economy (2007); Revolution and State in Modern Mexico: The Political Economy of Uneven Development (2011), recipient of the 2012 Book Prize of the British International Studies Association (BISA) International Political Economy Group (IPEG); and co-author of Global Capitalism, Global War, Global Crisis (2018) with Andreas Bieler. He co-edits Progress in Political Economy (PPE) with Gareth Bryant that was the recipient of the 2017 International Studies Association (ISA) Online Media Caucus Award for the Best Blog (Group) and the 2018 International Studies Association (ISA) Online Media Caucus Award for Special Achievement in International Studies Online Media.

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