Thomas Piketty: "The concentration of wealth is a risk for democracy"

His book Capital in the Twenty-First Century (2013) catapulted him to global fame. But even then, the French economist Thomas Piketty had been one of the most respected names in economic theory for over a decade, as co-founder of the Paris School of Economics and co-creator of the World Inequality Database. A specialist in the study of inequalities and wealth distribution, Piketty now presents the Global Justice Report, an ambitious economic roadmap that outlines how global inequality can be eliminated and the climate crisis curbed before 2100.

Inequality, Professor Piketty, is not inevitable, says the report. What is most decisive?

— Today's entire social, fiscal, and legal system has nothing to do with what it was a hundred years ago, when there were no public services to access education or any public infrastructure. The scale of income and wealth today is very unequal, but a hundred years ago in Europe it was still much more so. In a city like Paris, where we are now, a hundred years ago the land registry was organized in such a way that you either owned the whole building or you had nothing. It continues to be very unequal, but it's not the same world.

Therefore, access to property is one of the big changes.

— The transformation of the fiscal system, the social system, and also the notion of property has changed. A hundred years ago, you could fire a worker or reduce their salary from one day to the next. You could evict a tenant or double their rent whenever you wanted. The owner had all the power. Today, owners still have too much power, more participatory governance of companies and easier access to housing would be needed, but they cannot do whatever they want. What has really changed is the distribution of power, not just the distribution of money.

The richest 10% own approximately 70% of the world's wealth. Can democracy survive with this level of concentration?

— It is a risk. In Europe it is a little less, but the richest 10% already own between 50% and 60% of the total wealth. A hundred years ago it was between 80% and 90%. But it remains enormous. And I believe that you cannot have a real democracy without a much more substantial share for the bottom 50%, for the bottom 90%. In the Global Justice Report, in our baseline scenario, the poorest 50% of the world would go from approximately 2% of the current total wealth to 30% by the end of the century. It would still be less than their weight in the population, but it would be a huge change. And the share that goes to billionaires would make the inverse movement.

Are billionaires mostly the result of innovation, or monopolies, inheritance, and tax privileges?

— And pure luck. It's a mixture. It's not completely due to taxation or monopolies, but they have contributed. Twenty years ago, the richest man on the planet – because they are always men, not women – was Bill Gates, who had perhaps around 30 billion dollars. Then the richest reached 200 billion. And now we're talking about a trillion dollars for the richest man on the planet. If it had grown at the same rate as the world economy, we could say that, in a way, it's acceptable, but it's not like that, it's really exploding. There is monopoly power and there are tax privileges, no doubt. The tax rates paid at the top have fallen to practically zero. And, above all, the development model that billionaires propose for the future is not good. The idea that future environmental and social challenges can be faced by accumulating more and more wealth in a very small group of people, building data centers around the world and always increasing the material footprint, mining, and energy needs. If they were preparing a good future for us, one could say: okay, why not give power to billionaires? But anyone can see that it's not a good model.

Let me be a little naive. Why do tax systems become less progressive just at the top end?

— Because collectively we haven't paid enough attention to it. The people at the top have invested a lot of energy and resources – media, think tanks, financing political campaigns– to lobby for it. But we all also have a responsibility for having let this happen. In November there will be a referendum in California on an exceptional 5% tax on the wealth of billionaires. And it could win: polls give 60%-65% support for the tax. What is interesting is that the referendum has been driven by nurses and healthcare workers. It's not about taxing billionaires for being mean to them, but because there are priorities that billionaires don't take into account, such as the climate transition or the healthcare sector.

How can it be prevented that billionaires simply move their wealth abroad?

— They should be taxed equally. The best way is to do so in proportion to the years of residence in a country. If a multimillionaire has spent the first 60 years of their life in France and when they turn 61 moves to Switzerland, they would pay 60 divided by 61: that is, sixty-firsts of the tax that would correspond to a resident. The following year, at 62, they will still pay 60 divided by 62 as a fraction of the tax that would correspond to a resident. The problem of tax evasion can be solved very easily this way. People can leave if they want, but they won't reduce their taxes much. I think it's the best criterion, because multimillionaires haven't built their wealth all by themselves, they have had access to public services, public infrastructure, a legal system... All wealth creation has a collective origin. And this is what we must remind them of.

Should financial wealth and productive business wealth be taxed in the same way?

— All wealth is productive by definition, whether you put it in a building or a company, a home or a shop. If you want to exempt wealth that is useful, you should not tax any wealth. There is a lot of hypocrisy in this argument of exempting productive wealth, it is only used when we talk about billionaires.

What is your solution?

— When you have a wealth tax, say 5% on a billionaire, they sometimes say they don't have enough cash. They don't need cash. They can simply transfer 5% of their stock portfolio to a sovereign wealth fund. This is what we propose in the report. The sovereign wealth fund could initially decide to keep the same portfolio, and nothing changes, it is simply a transfer of ownership. But over time, the sovereign wealth fund could make different investment decisions. Perhaps we would have fewer data centers everywhere and a bit more solar panels and transport infrastructure. Some of the money could go to healthcare and education. We can reorient investment towards our real needs.

And if there is no cash to pay and no difference in the origin of wealth, how can a wealth tax prevent a family business, for example, from having to sell?

— We don't want cash: we want control over assets, we want a sovereign fund. People don't want it because they don't want to lose control, but there is no technical problem, it's all a power problem. They want to maintain total control of their portfolio. But I'm sorry: this is not in the public interest. Because the way they are preparing the future leads us to a climate catastrophe. If they were solving the climate crisis for us, no problem: keep all the power, we don't need elections, rule the world. I know that's what they want. But it's not working.

Is the Nordic model really a question of wealth taxes, or of wages, unions, public services, and trust?

— It is all of this, but it also requires a balance between public and private wealth. The share of public wealth within total national wealth in Europe in the 70s was approximately 30%. It was never more than 50%, but it was a significant part. It was an era with relatively small public debt and significant public assets: not only public hospitals and universities, but also some public companies. This 30% has been declining due to privatizations and the increase in public debt. Today it is 10% or less. And in countries like the United States, it is even negative: there is more public debt than public assets. This is not a good model, because public interest must have control over some assets. In our plan, we would gradually return to public assets in national wealth of 20% or 30%. And the sovereign fund would own approximately 10% of the total capital stock. The model we have in mind would be like Norway's sovereign fund today, which has the equivalent of 500% of the Norwegian GDP in total assets.

It is a fund that comes from oil...

— Yes, and these fuels should have remained underground. That is why our solution to create a sovereign wealth fund is through taxation on multimillionaires, who have often made their fortunes from oil and have contributed to carbon emissions. What we propose is to have a global wealth tax, but it can also be done at a national level, taking a part of this wealth to put it into a sovereign wealth fund like Norway's. It's not about owning 100% of some companies, but 10% or 20% of many companies, or 5% in many sectors. Having a significant stake allows for influencing the company's labor, environmental, and ethical standards. This is the model we have in mind: sovereign wealth funds everywhere. Many people, both on the left and the right, feel that control over major strategic investment decisions needs to be regained. Some on the right would want to invest more in military sectors. I would prefer to invest more in low-carbon energy and transport. It's a democratic decision. In the Norwegian sovereign wealth fund, there is deliberation in the Norwegian Parliament on the criteria of the sovereign wealth fund.

In Spain or France, is housing the main obstacle to equality?

— Yes. Housing is one of the biggest difficulties for the middle classes and low-income groups throughout Europe. The solution must come from an analysis of the distribution of the housing stock. There are people in Paris who have enormous apartments, sometimes empty. And large families living in very small apartments. In some cases, more construction is also necessary, but in many cases, with the housing stock we already have in our cities, we could reorganize and redistribute the uses of housing.

Is a global register of financial assets a prerequisite for your project?

— It is not. Individual countries can already have wealth taxes on their own. They just have to decide that, if you leave the country, you continue to be subject to the tax. If people do not pay the tax, but have assets in the country, assets can be seized. If they continue not to pay, they have to face consequences like anyone who does not pay taxes. There cannot be a double standard for the rich. However, if you have a larger coalition of countries, you can do even more. The Global Justice Report tries to solve a global problem: global warming will not be solved by France or Spain alone, a coalition is needed. There are many things that each country can do in terms of internal redistribution, but if the problem you are trying to solve is global development, you have to face the fact that countries in the Global South aspire to achieve a level of prosperity like those in the Global North.

And they will do it as it has been done until now...

— If all the countries of the Global South do the same as the United States regarding fossil fuel extraction, the planet will simply explode. There will be geopolitical rivalries and conflicts over resources. Now the President of the United States says: "I need fossil fuels. I will take all the fossil reserves from Venezuela or Iran; and if my public opinion doesn't follow me, too bad". We live in this world, where the conflict over resources and the constant deepening of extractivism and the use of fossil fuels will not stop if we don't do something. What we are trying to do in the Report is to say: okay, we know the technonationalist objective, it is very clear. The problem is that the other side – the more internationalist people, who believe in global justice, economic justice and climate justice – does not put an alternative on the table. We try to contribute to it.

With a global wealth tax...

— We need a global fund to finance investments in low-carbon energy in the Global South, so that these countries can enrich themselves without reaching 4°C of warming. In the Global Justice Report we propose a scenario in which all countries can achieve prosperity while staying below 2°C. Our conclusion is that this is possible, but it requires a lot of redistribution, compression of inequality, and dematerialization of the economy. If we continue with the current projections of fossil fuel extraction from the United States and other countries do the same, we are heading towards 4°C by the end of the century and towards a completely dystopian future. And this is particularly stupid because the new economic needs that are invented to justify this greater extraction of resources are not the most important from the point of view of well-being.

Can the European Union survive without a genuine common fiscal policy?

— I think Europe needs common policies, also commercial ones, common tariffs. But if Europe doesn't do it, individual countries must do it. Simply waiting for unanimity at the European level, I think, is a waste of time. Either a subset of European countries agrees to move towards majority decision-making, or individual countries should do it. What is happening now with China's competition in new manufacturing sectors, destroying millions of jobs while Europe does nothing, is an absolute absurdity from a social and environmental point of view – these goods travel 10,000 kilometers – and from a Chinese point of view, because China does not need this enormous trade surplus: it should increase Chinese wages to boost domestic consumption. This development model based on accumulating more and more trade surplus is completely absurd.

Why do they do it?

— Partly due to a feeling of insecurity in the face of global financial systems. Partly because we have not transformed the international monetary system to have an international reserve currency, something we propose in the report and towards which we have already begun to move. The International Monetary Fund has an internal currency, special drawing rights, which has increased considerably after the financial crisis of 2008 and covid in 2020. We believe that in the future, when there are new climate shocks, there will be more emissions of this international currency, which could go to regional development banks and help finance climate investments.