On Piketty, Harvey, and the “Third Way”


I’ve been meaning to write something over here for months, but I just haven’t had the time/motivation to get to it. I’ve been busy recently writing about Iowa basketball and finishing up my final semester of graduate school, but I’ve been wanting to write a society post for what seems like months. One of the problems, besides a lack of time, is that I haven’t been sure on what topic I should just sit down and write on. Additionally, I find it difficult write something if I don’t feel like I am contributing anything new or interesting to the conversation. Finally, though, I figured I’d throw in my two cents on what everybody on Twitter and in the media seems to be talking about recently: Thomas Piketty’s new book Capital in the Twenty-First Century.

Now, I haven’t read the book, so this isn’t going to be a book review. Piketty’s book is on my shortlist of things to read, but I am planning on beginning to tackle Marx’s first volume of Capital first. Instead, I want to talk about Piketty and another author: David Harvey. This past week, I finished reading his book A Brief History of NeoliberalismThis book came out in 2007, which makes it even more interesting to see what he had to say about capitalism and the happenings of the world economy before the global recession took hold later that year. Being someone who is very influenced by Marx, the global crisis that would take place later that year would not have been surprising to Harvey; especially under the neoliberal system that has materialized since about 1980. Overall, the book is wonderful, and does a great job of explaining the concept of neoliberalism — something that everybody today should understand, considering it has crept its way into every corner of our lives. But that is besides the point. What I really want to talk about is Thomas Piketty’s imagined future for our society (based on interviews and talks he has given) and David Harvey’s.

Last Thursday, Vox.com posted a story/interview with Thomas Piketty titled Thomas Piketty Doesn’t Hate Capitalism, He Just Wants to Fix itThe title more than caught my attention because if you have ever listened to Piketty talk or read any interview he has given, he has never once said that he wants to get rid of capitalism. In fact, he takes pains to separate himself from Karl Marx, as if he’s yelling out “Please, don’t label me a Marxist!” Anyway, I tweeted out that article Thursday morning, and then commented on the fact that Piketty seems to have similar intentions to John Maynard Keynes in the 20th century; namely, to save capitalism from its drunken self. Keynes was trying to stabilize capitalism after the first gilded age, the Great Depression, and a couple of world wars. While we currently aren’t trying to rebuild Europe from rubble after a global war this time around, like Keynes did at Bretton Woods, Piketty is trying to save capitalism from the neoliberal-constructed, second coming of the gilded age that has been mounting for about thirty-something years.

Before elaborating on the path that neoliberalism seems to be taking us down, allow me to actually define neoliberalism. Essentially, neoliberalism emphasizes extreme individualism, private property rights, and states that markets should be free from any type of interference or regulation. However, Harvey has said in the past that neoliberalism tends to be different in theory than it does in practice:

There are two things to be said.  One is, if you like, the theory of neoliberalism and the other is its practice.  And they are rather different from each other.  But the theory takes the view that individual liberty and freedom are the high point of civilization and then goes on to argue that individual liberty and freedom can best be protected and achieved by an institutional structure, made up of strong private property rights, free markets, and free trade: a world in which individual initiative can flourish.  The implication of that is that the state should not be involved in the economy too much, but it should use its power to preserve private property rights and the institutions of the market and promote those on the global stage if necessary.

Basically, the neoliberal theory says that government should stay out of the marketplace and let it regulate itself. However, in practice, the capitalist class often argues for and sets up the government to intervene in ways that enforce this neoliberal system. And this neoliberal system has been responsible for the extreme income inequality that Piketty details in his book. Since the 1970s, worker compensation has flatlined, even though productivity has risen, the top 1% richest American’s have been taking home a bigger share of income since the 1970s, and even looking at wealth, we see the same pattern.

Why is income inequality a problem? Because it concentrates power in the hands of the few, and makes it more difficult to get ahead in life if you aren’t born into that upper class. Income inequality causes a great rift in society, where the rich get richer, and the rest of of the population live in precarity. The rise of neoliberalism has spawned an increase in things that benefit the capitalist class rather than ordinary citizens. An increase in things like contract/temporary work without benefits that are shrouded in an entrepreneurial ideology have accompanied stagnant wages, all in the name of creating “a more flexible labor force.” Things like healthcare and education, that at one time were at least on the path to being seen as universal human rights, have now become mere commodities in which markets have been opened and where capital is extracted from. And the huge boom in debt over the last three decades? How else do you continue to increase demand while at the same time cutting costs in the form of worker wages and benefits?

This is the society that Piketty is trying to save us from. A society in which capital is unleashed with no restraints and no consequences when it inevitably creates problems. He puts forward a great history of the political economy over the past couple hundred years, and makes a great observation: the golden era after World War II, where income inequality was relatively low, growth was high, and everybody in society was fairly happy, that was a historical anomaly. That period of time — in which, coincidentally, most Americans generate their vision of “The American Dream” from — was mainly the result of two world wars and the Great Depression destroying a lot of wealth held by the capitalist class. Other than that time period, capitalism has been very good at accumulating an inordinate amount of wealth at the top of the class hierarchy, and leaving little for the rest of the population. And this golden era right after World War II didn’t even last all that long, as we know the Keynesian economics that ruled after the second world war lasted only until about the 1970s before global economics switched course and began moving more toward Hayekian monetarism. The Federal Reserve in the United States stopped worrying about the full employment of the country’s citizens and started worrying about interest rates. This began the neoliberal path that we continue to go down today, and the one that Piketty warns us about.

Piketty sees the course we are on as a problem and his solution to the problem is to increase taxes on the wealthy back to rates similar to which they were during the golden years of embedded liberalism after the 1970s. He understands, of course, that if just the United States were to increase taxes on their rich, we would see even more tax evasion and off-shoring than we already see now, so he proposes a global wealth tax, which many people (myself included) see as being very unrealistic given how the world’s governments are controlled by corporations and the wealthy people that run them. But, essentially, Piketty seems to want to reverse course and move back toward a more Keynesian global economy.

Here’s where I disagree with Piketty and agree more with David Harvey:

The problem of aggregate demand, which was at the centre of thinking in the 1930s, is a realisation problem in Marxist terms. People answered that question and then ran into a production problem, which got answered by monetarism and supply side economics. And right now the world is divided between supply siders who want to go further with austerity and others—China, Turkey and most of the developing economies—who are taking the Keynesian line. But it looks as if there are only two answers—there’s no “third way”. Therefore, within the ambit of capitalism, the possibilities are limited. The only way in which you could find another answer is to go outside of capitalism, and of course nobody wants to hear that!

Like Harvey says, there only seems to be two economic paths that we can follow; we can either go back to Keynesian embedded liberalism or we can continue on the Hayekian market-rules-all road. But why are we not thinking of a third way outside of capitalism? And the words “outside of capitalism” are, I think, very important here. Because, as Piketty has showed us, the embedded liberalism of the Post World War II era was largely an outlier in the history of capitalism (And, let’s not pretend it didn’t have it’s problems, because how else could neoliberalism have come to be the dominant mode of thought?).

Under capitalism, the main goal is to make a profit and to accumulate more capital on a regular basis. And that’s what neoliberalism has done. It’s been very good at extracting more and more rents and accumulating more and more capital in the hands of the rich, but you know what it hasn’t been very good at doing? Generating growth. Which is funny, because we often hear politicians talking about how if we just cut regulation or taxes (both things that have been done under neoliberalism), we would see increased growth. I mean, just get out of the way of the market and watch how growth takes off. But how has that worked out over the past thirty-something years? Not so well, as it turns out. Instead, the government-regulated embedded liberalism of the Post-World War II era had higher growth rates than neoliberalism has had over the past three and a half decades:

Screen Shot 2014-04-26 at 12.17.10 PM

The chart above is from Harvey’s A Brief History of Neoliberalism and it shows how the global growth rate has gone down since the emergence of Neoliberalism. More from Harvey:

Aggregate global growth rates stood at 3.5 per cent or so in the 1960s and even during the troubled 1970s fell only to 2.4 per cent. But the subsequent growth rates of 1.4 per cent and 1.1 per cent for the 1980s and 1990s (and a rate that barely touches 1 per cent since 2000) indicate that neoliberalization has broadly failed to stimulate worldwide growth (see Figure 6.1).

Instead, neoliberalism has provided more unemployment, more precarity, higher inequality and lower growth rates. It’s pretty clear then, that neoliberalism has been more about accumulating capital for the upper class than growing prosperity for the majority of citizens.

This is why I have become more Marxist in my thinking in recent years. Looking at the performance of neoliberalism, it’s hard not to invoke Marx’s ideas when analyzing capitalism; especially his idea that capital turns limits into barriers. This is imperative to understand when studying capitalism. Limits mean that capital can be stopped, and can go no further. Barriers, meanwhile, are just hurdles that may initially slow capital down, but eventually it will find ways around. Some people seem to view embedded liberalism, for instance,  as a limit that can control capital from running wild. However, I see it as more of a barrier that capital was able to overcome with the emergence of neoliberalism. Capitalists weren’t making enough profit under a system that promoted social welfare and collective bargaining, so they came up with a way to make more profit and cloak it in an idea of individual liberty. Capital is always looking for new markets, and hence it always tries to find ways to turn limits into barriers. This is an incentive under capitalism because it opens up new markets for more accumulation of capital. And these incentives to focus on private profit and capital accumulation, rather than the social well-being of the majority of human beings in society, is why I think we should be looking for that “third way” outside of capitalism. I understand why many want to see a return to the golden days of Keynesian economics, but it seems to be just another barrier for capital, rather than a limit. If we were to turn back to embedded liberalism, how long would it be before capital fought back and emerged with something else to overthrow that system and begin the process unlimited capital accumulation again? It was neoliberalism that emerged last time, but what will it be the next time? If we continue to look for solutions within capitalism, it would seem that we are destined to have an eternal struggle between labor and capital, and capital always seems to evolve and come back in a new form.

What does this third way outside of capitalism look like then? That I can’t yet answer. David Harvey has made an interesting point of how it may have to be a system that can tolerate low economic growth because infinite compound growth does not seem realistic. And if we look back at that chart, global growth has been pretty low for a while now. Not to mention, that focusing on growth has gotten us little more than a system that overwhelmingly accumulates capital in the hands of an elite class. Rather, the new system should focus on human beings and promoting personal growth within them. I know it sounds crazy, right? A system that actually cares more about humanity, as opposed to economic gain. However, I do believe this is something we should focus on. Even Keynes said in Economic Possibilities for our Grandchildren that he expected capitalism to have delivered to us a fifteen hour work week by now. Surely, there’s more to life than have having 71% of our society emotionally disconnected from work, right? A societal shift from an emphasis on work to an emphasis on leisure would be great, but that to me seems incompatible with capitalism’s quest for eternal profit because that most likely entails enacting a guaranteed basic income, a single-payer healthcare system, and guaranteed universal education. All of those are things that the capitalist class has fought tooth and nail against under neoliberalism because those would dry up markets from which to accumulate private profit.

That leaves us, in my opinion, looking outside of capitalism for a “third way” that delivers actual individual liberty in the form of social welfare. More of a focus on leisure, in which human beings can focus on the passions and hobbies they love that can enrich society and humanity, rather than being passive vessels in a corporate machine. But how do we do that? Harvey believes the challenge of creating a new socioeconomic system is creating one that stabilizes growth, but also liberates human development. We often hear the phrase in the United States “A rising tide lifts all boats.” For the past 300 years we have relied upon capitalism to deliver the rising tide, and while it has delivered material goods, it has failed to deliver on things imperative to the social welfare of the people that keep the system running. The social goods that it has given us, like labor unions and a social safety net, weren’t just handed over, but were fought for by organized mass movements and have since been rolled back. Capitalism is supposed to work for us, but instead it seems more and more that we are simply just working for it, while getting no real value in return.

That’s why I have come to believe that we need to be searching for a “third way.” I don’t necessarily know what that “third way” is, but I do believe that we should be having these types of discussions about alternative systems. And that’s why Piketty’s book is so important: it is generating public discussions about the viability of a capitalist economy. By closing our minds off to possibilities outside of capitalism, we close our minds off to a future that may be better than our present. I mean, despite what some people may believe, capitalism has only been around for about 300 years, and there were other systems in place for structuring society that came before it. Therefore, I find it highly improbable that capitalism is simply the final stop for civilization. But we have to make it happen. We are responsible for creating a system that better serves the social welfare of the population. As David Harvey so eloquently put it in his book on neoliberalism, to accept our current arrangement is to “accept that we have no alternative except to live under a regime of endless capital accumulation and economic growth no matter what the social, ecological, or political consequences.” And I don’t know about you, but I would like a system that cares more about the well-being of the majority of its citizens than the private profit of a few.


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