Monday, May 5, 2014

Piketty: Income and Output

Is foreign capital investment a good thing?  After telling us that he's going to propose a global wealth tax, Thomas Piketty in Capital in the Twenty-First Century shows us that income and output aren't the same thing.

For the developed countries, income and output are about the same, but for poor countries, output can very often be substantially more than income, because the return on capital investment gets transferred abroad.  And this causes political problems between political parties that want to expropriate the foreign capitalists and the parties that want to encourage them.

And that's why Piketty opens his chapter on Income and Output with a description of the 2012 Marikana miners' strike in South Africa.

In Piketty's telling, the "South African police intervened in a labor conflict between workers... and the mine's owners... Thirty-four miners were killed."  The miners wanted to double their wages from 500 euros to 1,000 euros a month.  But in Wikipedia's telling things were a bit more complicated than that.
The strike occurred against a backdrop of antagonism and violence between the African National Congress-allied National Union of Mineworkers (NUM) and its emerging rival, the Association of Mineworkers and Construction Union (AMCU). According to a Guardian columnist, the NUM was closely linked to the ruling ANC party but lost its organisational rights at the mine after its membership dropped from 66% to 49% and its leadership began to be seen as 'too close' to management.
If you read Howard Zinn's A People's History of the United States or Emile Zola's Germinal you find that usually there are radical suits behind the great strikes.  The radical suits -- we call them community organizers today -- lead the workers into bloody confrontations with the owners.  And then head off to their next gig.  The workers are usually worse off than before.  It's the eternal refrain of the modern era. Capitalism works on the individual's surrender to the market, but the workers, emerging from feudal collectivism, still think you have to fight with your fists to win a livelihood.

The other Big Thing that Piketty wants us to know is the "First Fundamental Law of Capitalism." It is this:
(Share of national income from capital) = (rate of return on capital) x (capital/income ratio)
You can see what is going on here.  Piketty is not interested in just describing what capitalism does.  He wants to rush immediately to the result.  Are the capitalists getting a fair share on the national income? Is the capitalist share going up?  So what are we going to do about it?

And what about the capital/income ratio?  That's the "total wealth owned at a given point in time" divided by the "quantity of foods produced and distributed in a given period."  In the Nineteenth century the ratio was high, about 600%.  Then after the World Wars it came down to 300%.  Now it's gone back up to 500%.

We shall see what Piketty wants to do with these notions in future posts.  But you can see what is coming.  If the income of the poor nations is less than their output, then maybe the rich nations should return the surplus they have ripped off back to the poor nations.  Because inequality.

Stay tuned.


Part One: Income and Capital

Income and Output

End of Growth

Part Two: The Dynamics of the Capital/Income Ratio

Changes in Capital

New World Capital and Slavery

Capital/income Ratio in the Long Run

Capital's Share of Income

Part Three: The Structure of Inequality

Inequality and Its Concentration

Two Worlds: France and the US

Inequality of Labor Income

Inequality of Capital Ownership

Merit and Inheritance in the Long Run

Global Inequality of Wealth in the 21st Century

Part Four: Regulating Capital in the Twenty-First Century

A Social State for the 21st Century

Rethinking the Progressive Income Tax

A Global Tax on Capital

The Question of the Public Debt


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