Wednesday, December 24, 2014

Reading Piketty and Raulston Saul

The Comeback

So, I've been reading John Raulston Saul's The Comeback, about the rising political importance of the First Nations of Canada. They are making a comeback in demographics, in culture, in political power. I'd heard good things about this book and I trusted Raulston Saul to summarize things for me, having enjoyed his books Voltaire's Bastards and Reflections of a Siamese Twin. I've done some research on the First Nations before and I know that it is a deep and vast topic. Many non-Aboriginal authors come to the topic with unintended, but very real prejudices, that some Aboriginal authors have shown have important negative consequences. On the other hand, some writers, Aboriginal and non-Aboriginal, talk about different ways of thinking, about how certain ideas are impossible to convey across linguistic differences (no matter how many words are used in the attempt) that strikes me as dangerous sophistry. I read a few books on responses to the 1996 Royal Commission on Aboriginal Peoples before throwing my hands up in despair at the practical complexities of the topic. (It was independent reading, and I had paid work to do.)

I have to say that I was disappointed with this work. Raulston Saul does a good job of describing how "Canada" has to change its racist attitudes towards the First Nations. They are not a charity to be pitied. They are actually an important, politically savvy people who were crucial to the building of this country but whose generous contributions have been met with betrayal and insult. It is one of the greatest responsibilities of our times that we rectify this shameful situation and work with the First Nations on terms of mutual respect, to build a new relationship built on mutual respect and sovereign equality.

So far, so good. But I genuinely would have liked to know the outline of what such a relationship would look like. What stands in the way of the First Nations controlling the resources under their own lands? What are their own lands? How will they treat with us once their rights are respected?

In all honesty, what I got from Raulston Saul is that Canada should fund an Arctic University (as have all the other Arctic Circle nations) and that we should direct more resources to allow the First Nations to preserve their languages. I got very little in the outline of what this overall new relationship will look like.

Capitalism in the 21st Century

I have mixed feelings about Thomas Piketty's Capitalism in the 21st Century as well. This review sums up what is good about it:
If you get slow growth alongside better financial returns, then inherited wealth will, on average, "dominate wealth amassed from a lifetime's labour by a wide margin", says Piketty. Wealth will concentrate to levels incompatible with democracy, let alone social justice. Capitalism, in short, automatically creates levels of inequality that are unsustainable. The rising wealth of the 1% is neither a blip, nor rhetoric.
To understand why the mainstream finds this proposition so annoying, you have to understand that "distribution" Рthe polite name for inequality Рwas thought to be a closed subject. Simon Kuznets, the Belarussian émigré who became a major figure in American economics, used the available data to show that, while societies become more unequal in the first stages of industrialisation, inequality subsides as they achieve maturity. This "Kuznets Curve" had been accepted by most parts of the economics profession until Piketty and his collaborators produced the evidence that it is false.
In fact, the curve goes in exactly the opposite direction: capitalism started out unequal, flattened inequality for much of the 20th century, but is now headed back towards Dickensian levels of inequality worldwide.
While this review sums up what I agree are its weaknesses:
Thus, for Piketty too, people and institutions play an almost non-existent role. Only five social ‘phenomena’ escape this erasure; two world wars, the great depression, today’s fabulously rewarded “supermanagers”, and a middle class newly able to pass mini-riches to its heirs. For the rest, there are no people and, most notably, no institutions. There are percentiles but not classes; great wealth per se but not per its ‘malefactors’; and no transnationals or industry associations. Piketty occasionally mentions the influence of people and institutions when he wants to one-up his colleagues but it’s window-dressing. In his core narrative they play virtually no role; even the cited five make mostly cameo appearances. His is an orthodox closed economic-historical dynamic  in which the relationships between economic aggregates  are guided by other economic aggregates, and they by the former. Thus is Piketty empowered simply to ignore people and their quarrels.
I won't dispute Piketty's assertion that the extent of social-economic inequality did not change between 1800 and 1910. But if that's true, it would be fascinating to read a summary of how it happened that the overall distribution stayed the same while the composition of the membership in the top 10% and the top 1% changed from land-owning rentiers to more and more industrialists and financiers.

Also, Piketty's charts don't show how the population of the world (especially Europe and the United States, and settler colonies like Canada and Australia) grew immensely, so that while inequality stayed the same, more people were obtaining some sort of livelihood (often an improving one) under the new political-economy.

Another reader reminded me of Kenneth Pomeranz's The Great Divergence (among other books) that points out that the genocidal conquest of North America, and the plundering of other lands, gave the Europeans access to entire continents of forests, coal, iron ore, farm land, etc.,. Fair point. What were the changes in the international distribution of wealth between 1800 and today? (Obviously, the data doesn't exist and the numbers would have to be estimates.)

Piketty talks about how the world wars and the Great Depression were the real causes of greater social equality from 1940 to 1980. He talks about real-estate destroyed, investments liquidated (or repudiated), empires lost, whittled away by inflation, but there's not much talk about the impact of trade unions and full employment policies and public social spending. (Oh yes, and the "threat" of a socialist alternative in the USSR and China.)

Piketty offers a nice antidote to the post-war rationalizations of liberal economists like Simon Kuznets, who saw the social equality of the 1950s as an inevitable aspect of mature industrial societies, rather than a consequence of the massive transformations of society between 1914-1945.

Piketty's central thesis is that if economic and demographic growth slow down to close to zero (or 1.5% in the case of mature economic growth) while returns to savings for the wealthy (who can save more than ordinary people who often consume everything) are at 4-5% per year, that inequality will gradually grow. This makes sense, but where does that 4-5% return come from? Eventually, an economy growing at only 1.5% per year will not be able to produce 4-5% returns on wealth that is the equivalent of 7 years of GDP. I was disappointed not to find anything about how financialization, and the computerized manipulation of money (via derivatives and other arcane instruments) can now provide these rates of returns on capital, for as long as computer algorithms are capable of doing so. (In reality, computerized trading has not yet reached the point where financial bubbles never reach the bursting point. Hence the 2008 financial crisis.)

The terrifying thing that I took away from Piketty's book though, is that if it took two world wars and a great depression to produce the postwar compromise, that means that all the activism of a far more radical period was insufficient to have changed anything. The depressing failures of the left to stop and roll-back the depredations of the predator classes since the 1980s are just part of the historical norm. The rich have always been rich and the poor will always stay poor.

The elites blundered themselves into World War I. The Great Depression was a consequence of the financial instability caused by that war. And World War II was, again a consequence of that initial elite mistake. Unless they fuck-up again on their own, we're doomed to re-living the world of Downton Abbey, with us as the chumps. Forever.


Purple library guy said...

I'm not at all convinced that the Great Depression had much to do with WW I, at least in the US. Western Europe, sure. But in the US the war was mostly just an opportunity for some profiteering and increased production, and they had 10 years of apparent prosperity after the war. My understanding is that the post-WW I prosperity was illusory in the same way as usual--inequality was increasing, people were in hock, and the proles were optimistic because they'd been suckered into some financial con game (in the roaring 20s, mostly individual middle class ownership of stocks, which promptly became worthless). Then, much as in 2007, the cards came tumbling down when something made the "animal spirits" falter and people started to realize there might not be a "greater fool" to sell their junk to for more.

So I think the system is pretty much wired to create crises. It's for the same kind of reason many career criminals eventually get caught: Get away with stuff once, a venal person wants more, and more, and every time they get away with it again they get a bit more overconfident and a bit more greedy. There's no such thing as "enough". If you can push the proles this far, surely you can push them a bit farther.

Until you can't. I still think there tends to be a place where it stops working. Look at various bits of Latin America.

(Huh. People think of the Great Depression as world wide, but how was Communist Russia doing at the time?)

thwap said...

The Great Depression was caused by a banking crisis that was caused by the patched-together world financial system brought about by the indebtedness and economic weaknessses of WWI.

Germany was dependent on American loans to stay afloat and pay England and France reparations. England and France depended on those reparations to repay their loans from the USA.

The strains of the war meant that England couldn't put the lb sterling on the gold standard until late in the 1920s, and when they did, it turned out to be a disaster. Their monetary system was too fragile for it.

Then stock-market speculation in the USA led to the pulling of US loans from the Credit Anstalt bank in Austria (?) which triggered the banking crisis which eventually produced the Great Depression.

The War wasn't the single cause, but it was a big cause.

The "Roaring Twenties" were a terrible time for farmers and the working classes. Unions were crushed, wages stagnated or fell. There was an illusion of prosperity for the last half of the decade.

Communist Russia, like Nazi Germany, had decided to pursue autarchy and that was a better option at the time. (Within reason, and speaking nothing of the other traits of Stalinism or Hitlerism.)

Purple library guy said...

Huh. Interesting.

Come to that, autarchy (relatively) would probably be a better option NOW for a lot of places. Yet I've noticed that most critics of neoliberalism and even of free trade don't dare suggest bringing back some protectionism even as they hand-wring about the pernicious wage effects of offshoring. Wonder why that is? Well, the soft left doesn't have the guts. But I think the hard left has an odd blind spot about it too--simply countering footloose capital with protectionism wouldn't be "internationalist" enough, or something.

thwap said...

Yeah, we need a revolution in social relations, not in tariff policy!