The European: Mr. Piketty, not just Paul Krugman and Joseph Stiglitz have praised your book, but also Marine Le Pen, who applauded it for showing what globalization inevitably leads to: inequality.
Piketty: Did she say she read it?
The European: Yes.
Piketty: Nobody told me that she likes the book! Did she really say that she read my book?
The European: You seem surprised.
Piketty: I am! I would be surprised if she had actually read it but if that is the case, I can only wonder what she makes of it.
The European: She fundamentally disagrees with the solutions you propose but praises the evidence of the book as an attack against the globalized world.
Piketty: The book is by no means an attack against the globalized world; it’s an attempt to reconcile globalization and global economic competition with global justice. I firmly believe that globalization is a positive-sum game that serves all our interests. But we must find ways and develop institutions to ensure that everybody benefits from it. If a rising percentage of the public thinks that a disproportionate share of the benefits of globalization goes to the financial sector or large multinational companies, then there is a great danger that people like Marine Le Pen will be able to successfully drive the anti-globalization agenda and revitalize nationalism.
The European: Does it bother you that she uses your book to back up her arguments?
Piketty: I am advocating all the things she opposes in Europe: a closer political and fiscal union, more cooperation, etc. So I think that people will realize that we’re not on the same side. But let me make it clear that the book is actually more about the history of inequality rather than the way ahead. I am much better at analyzing the past than predicting the future. I actually want people to disagree with my conclusions and write their own. I wanted to provide the data and bring the debate about inequality back on the political and economic center stage.
The European: You just spoke about the need for strong institutions to regulate the effects of globalization. Do you have any specific examples in mind?
Piketty: The existing institutions can no longer cope with the effects of globalization. The IMF and the World Bank are insufficient to deal with the problems created by globalization. If we want to have a regulated globalization that benefits the majority of people, then we need closer political and fiscal cooperation. The European Union has clearly failed to deliver the kind of regulation we need. The institutions need to be fundamentally restructured if we want to have a common corporate tax in the future or fight tax havens more efficiently, for example.
The European: Do you think that that is a likely scenario?
Piketty: I am very hopeful. Five years ago, nobody would have thought that bank secrecy in Switzerland could come to an end. Today, we know it is. New mechanisms develop and help us cope with specific issues. Switzerland can’t resist the pressure the U.S. is exerting via FATCA. The bad news is that European countries did not manage to do this but had to wait for the U.S. to act. The good news is that the solutions to these problems lie in our own hands.
“It’s understandable that people turn their backs on the EU”
The European: This power imbalance between the U.S. and the EU is something that worries many people, especially with regards to the proposed free trade agreement between the two.
Piketty: The TTIP can be an opportunity for both sides – if it stretches beyond the free trade aspect. It must also be a treaty about fiscal cooperation and establish a basis for a common corporate tax. Very often, multinationals on both sides of the Atlantic pay less taxes than small or medium-sized businesses – that’s unacceptable! A binding treaty between the U.S. and the EU is the right place to address and solve problems like tax havens and unregulated capital flows. Such a treaty would represent half of the world’s GDP. If this powerful bloc of the global economy doesn’t manage to find a solution and speak with one voice, then progress seems very unlikely.
The European: Isn’t this the inherent dilemma of globalization? It fosters unregulated capital flows and tax havens and is at the same time the only solution to these problems.
Piketty: This is indeed the paradox of globalization: We need more global governance and cooperation to cure the side effects of globalization. And we need to find these cures as quickly as possible because people are growing ever more frustrated and are starting to support the retreat behind national borders. In Europe, the middle and working class believe that European integration only benefits the elites. The tragedy is that they are partly right! The nationalist temptation will grow stronger and stronger and international institutions or migrant workers are likely to remain the scapegoats for rising levels of national inequality. For populists, it’s easy to find a culprit.
The European: The American economist Nouriel Roubini even warned that we are witnessing a massive backlash against globalization and the rise of a new nationalism. Do you share his assumption?
Piketty: I am more optimistic but I understand his concerns. At the end of the day, I think there is a very strong attachment to globalization and the effects it has on people’s lives. People feel more interconnected today and are very happy about it. That’s why I am optimistic that stronger European cooperation will come about – even if some member states are reluctant. A Eurozone parliament to which each country would send a representative number of delegates, for example, could prove to be very efficient. It would help the countries that share a currency to coordinate their policies and foster majority decision-making instead of the backroom deals that the EU Council produces.
The European: The public might cherish some effects of closer integration like freedom of movement, but closer political cooperation is still equated to bureaucracy and the death of the strong sovereign nation state. How can the public be convinced to support such an undertaking?
Piketty: We need to show the people that there is an alternative to populist nationalism and technocratic federalism. The current EU structures are not working. There is no democratic decision-making; it’s all done behind closed doors. We only see our heads of states proclaiming at summit after summit that they have yet again saved Europe. But the people don’t know how or what decisions have been reached. It’s understandable that people turn their backs on the EU. The European project needs more democracy and accountability to regain public support. The Eurozone parliament, with its majority decision-making, would be a step in the right direction.
The European: The advantage of the Council is that every country has the same amount of power – theoretically speaking. What you propose would benefit large countries like Germany or France at the expense of smaller member states.
Piketty: Of course, some decisions would be reached because of the majority of those large countries. But if you don’t trust the majority, can you really have a common currency?
The European: But wouldn’t this only increase fears about a Eurozone under German domination?
Piketty: I am not advocating putting all decisions before that parliament. No nation-state should be in a position to impose rules on others. But there are issue areas where national sovereignty is just an illusion. Corporate taxation is a good example of this. No state can fight tax havens or multinationals on its own. Here, we need greater cooperation. The myth of national sovereignty helps big corporations screw us over. This parliament should focus on a small set of common decisions that relate to the common currency and the budgets of the member states but should leave other issues to national parliaments.
“It’s a stupid game”
The European: But where can we draw the line? Fighting inequality on a national level often has repercussions that cross borders and harm other countries. Take the Hartz reforms here in Germany, for example: they cured the sick man of Europe by drastically slashing entitlements but were later often portrayed as a beggar-thy-neighbor policy.
Piketty: First of all, I am not entirely sure if the Hartz reforms are really the primary reason for Germany’s economic success today, but that’s just my opinion. But you are right: Fighting inequality entails many compromises and sometimes countries will have to accept higher inequality for long-term growth. I have no problem with inequality per se, as long as it is only short-lived and to the long-term benefit of the poorer segment of society. Deciding where to draw that line, nationally and internationally, is one of the most crucial challenges of any democratic institution. But if every country just tries to snap away investments from its neighbors through tax competition and optimization, then everybody loses. It’s a stupid game; it’s a negative-sum game that fosters financial opacity.
The European: The Economist criticized you for focusing too much on reducing inequality and thereby neglecting economic growth. Do you think that we have developed a fetish for economic growth?
Piketty: I am not at all growth-averse. The first two chapters of my book should make it clear that I am not a zero-percent-growth advocate but that I believe in both population and productivity growth as a remedy against inequality. The only problem is that economic growth is still very damaging to the environment. I am confident that innovations will enable us to grow sustainably but we should not be as naïve as to believe that growth will solve all our problems. We need a Plan B.
The European: How do you mean that?
Piketty: Growth alone will not help us reduce inequality. We need stronger institutions that regulate growth and make it equitable. And we must discard the dogmatic idea that growth will or must pass the 5% mark. Growth rates in the future will very likely be as low as the rates we had over the last decades, ranging between 1% and 2%. As I stress in my book, the chasm between the rate of return on capital and the rate of economic growth is therefore likely to grow. There is nothing wrong with this per se, but of course it tends to favor initial wealth holders and thereby fosters rising levels of inequality. So it’s the consequences that are harmful rather than the actual process.
The European: In the book, you describe the measures that you propose to reduce inequality as “utopian ideas”. Why?
Piketty: A truly global government is of course a utopian idea. But I tried to make it clear in the book that I believe in step-by-step progress. I don’t believe in all-or-nothing proposals. We might never have a functioning global government, but there is no reason not to improve the global institutions that are already in place.
Did you like the conversation? Read one with Henry Elkus: “The digital age has given young people unprecedented influence”