How Does Piketty’s ‘Capital in the Twenty-First Century’ Apply to China?

How Does Piketty’s ‘Capital in the Twenty-First Century’ Apply to China?

Marc Blecher

For the past several months, readers around the world have been buying, discussing, and even occasionally reading Capital in the Twenty-First Century, French economist Thomas Piketty’s magisterial analysis of the relationship between capitalist development and inequality in Western advanced capitalist countries. But does Piketty’s framework apply to China, whose transition to capitalism has also produced massive economic imbalances? Or does China’s much more truncated and radically different historical pathway to capitalism make for a very different pattern? Yes, and yes.

Piketty tracks a U-shaped curve in which capitalism in the U.S. and Western Europe produced high levels of inequality from the nineteenth century to around 1930, when it dropped for four decades before heading back upward, starting in the 1970s, eventually reaching today’s stratospheric levels. The main driver is the ratio of the rate of return on capital (r) to the rate of economic growth (g). When r > g, inequality rises; when r ≦ g, inequality levels off or falls. The ratio at a given time or place is a function not so much of economics as of politics—especially tax policy and war (which stimulates growth). But inequality is made durable through inheritance, which keeps the return on capital much higher than economic growth, and will continue to do so for the foreseeable future unless the world adopts a global wealth tax, Piketty’s big policy proposal. That, in turn, will require genuine democracy, he argues.

Full text on ChinaFile

Jacqueline Nivard

Jacqueline Nivard, Centre d'études sur la Chine moderne et contemporaine

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