I. Summary

The book is lengthy, at over 1,000 pages. It is divided into four parts exploring, along a historical axis, the ‘inequality regimes’ of selected societies and how these regimes changed over time. While most of the book focuses on Western Europe and the United States, Piketty has widened the net and this second book includes historical episodes in India, China, Brazil, Russia, Japan, South Africa, Iran, and the Ottoman Empire.

The author begins by examining pre-modern ternary societies characterized by the classic division between warrior-nobility, clergy-scholars, and a third estate of labouring masses, not only in Western Europe but also in China and India. Piketty's specialty being the comparative analysis of historical datasets, he identifies intriguing similarities, for example the comparable size of elite groups in the various countries surveyed (the warrior-nobility and the clergy-scholars usually represented 3 to 6 per cent of the total population respectively, though a bit less in Britain and France).

An important characteristic of ternary societies was the fusion of property rights with regalian powers. Piketty's narrative of the rise of the modern state in Europe is one of gradual separation between property and power, with the central state becoming the exclusive locus of regalian power. Ternary societies mutated into ‘ownership societies’ in which the state became the protector of private property. Piketty views this evolution as emancipatory, but only to a degree, as the societies of nineteenth century Europe remained profoundly inegalitarian (‘proprietarian’). For example, wealth inequality in France at the end of the nineteenth century was in fact greater than on the eve of the 1789 Revolution.Footnote ³ The connection between property and political power persisted in Britain as well – Piketty reminds readers that, for all its constitutional progress since the 17th century, male suffrage only became universal there in 1918.Footnote ⁴

Unsurprisingly, levels of inequality within slave-owning and colonial societies were extreme, and Piketty offers damning data on the financial extraction visited by Britain and France upon their respective empires.Footnote ⁵ In India, Piketty argues that British administrators ended up exacerbating pre-existing caste-based divisions which, he suggests, might have disappeared spontaneously as they did in Europe, China, or Japan with the rise of the central state.Footnote ⁶ One of the explanations for Europe's ability to colonize the rest of the world was the greater fiscal capacity achieved by France and Britain, which were able to collect 6 to 8 per cent of national income in taxes, compared with only 1 or 2 per cent in the Chinese and Ottoman empires.Footnote ⁷ Together with military superiority, Europe was thus able to deploy an array of financial, legal, and technological innovations that cemented its dominant position in the world economy.

Inequality levels reached at the beginning of the twentieth century collapsed in Europe during the period between 1914 and 1945. This is territory already covered in Piketty's first Capital. Various factors explain the collapse: wartime physical destruction, post-war expropriation, and nationalizations, but also – and this is the heart of Piketty's argument – taxation of income and wealth. The post-war period between 1950 and 1980 was a time of greater egalitarianism characterized by progressive taxation at high rates, especially in the US and the UK, and the establishment of national welfare systems. And yet, Piketty maintains, the social-democratic ambition underpinning these reforms remained incomplete because of the failure by the political left to develop a theory of transnational redistribution, ie addressing how social justice might be achieved in a market economy beyond the nation state. Parties of the left were thus unable to formulate an intellectual response to the conservative revolution unleashed by Reagan and Thatcher, and their failure became complete when the collapse of Soviet communism discredited it as an alternative to capitalism As a result, since the 1980s, income and wealth inequalities have once again reared their heads, and in some countries have reverted back to levels last seen in the early twentieth century.

The final quarter of the book is devoted to recent political evolutions in Europe, the United States, and India, in particular the rise of identity politics and ‘social nativism’. The governing left, having become the party of the highly educated (the ‘Brahmin Left’), no longer harbours any redistributive ambition. Educational systems have, for their part, failed to ensure equal opportunity for the children of the less fortunate. As a consequence, the less-advantaged classes have either disengaged or turned to social nativism, as illustrated by the election of Donald Trump and the Brexit vote.

In the last eighty pages, Piketty offers recipes to remedy this state of affairs through what he calls ‘participatory socialism’ and ‘social federalism’. There are four main planks. First, steep progressive taxation of income and wealth. While the first Capital proposed an annual wealth tax at 2 per cent, rates are now progressive and reach 90 per cent on the largest fortunes.Footnote ⁸ Much of the international commentary has focused on the annual wealth tax, but in terms of overall financial mass, the progressive income tax is much more meaningful in Piketty's computations, representing 45 per cent of national income versus only 5 per cent for the wealth tax. Piketty also cautions that his rates are indicative and meant principally to stimulate debate. He points out, importantly, that the largest fortunes having grown since the 1980s on the order of 6 to 8 per cent per annum, it would be necessary to implement annual wealth taxation at at least 5 to 10 per cent just to stabilize, let alone reduce, the concentration of wealth at the top. Piketty's second plank is a one-off capital endowment equal to 60 per cent of median wealth that would be funded by the annual wealth tax and distributed to every young citizen at age 25. This endowment is in addition to the universal basic income that is propounded by other advocates of reform.Footnote ⁹ The third plank is corporate governance reform along the German/Nordic co-management model: employees and workers would be given positions on corporate boards and voting rights of large shareholders would be capped at a certain percentage (proposed to be 10 per cent). Finally, in the European Union, Piketty proposes constitutional reforms to overcome the rule of unanimity, which has blocked efforts towards meaningful tax harmonization for decades.

Whether any of these proposals has a realistic chance of being adopted is anybody's guess. The main difficulty, of course, is that their effectiveness would be dependent on implementation across a large enough spectrum of countries.

II. Piketty's critique of property law

Following a long tradition on the French intellectual left (one thinks of Proudhon, for example), many of Piketty's ideas reveal innate skepticism regarding the institution of property. In the debate between property as a natural, pre-political right versus property as a product of society, the state, and its laws, Piketty would vote for the latter (though neither Locke nor Bentham is mentioned). Positivism is preferred to natural-law theory; historical contingency to cultural or societal determinism. ‘The accumulation of wealth is always the result of a social process, which depends, amongst other things, on public infrastructures … such as legal, fiscal and educational systems, the social division of labor and the knowledge accumulated by humanity over centuries.’Footnote ¹⁰ For the influence behind contemporary ‘neo-proprietarian’ ideology, Piketty looks mainly to Hayek, his ‘evolutionary rationalism based on respect for preexisting rights and social relations’, and his mistrust of parliamentary majorities.Footnote ¹¹ More recent economic schools, such as the institutional economics of Douglass North, are presented as equally neo-proprietarian.Footnote ¹²

Piketty is particularly critical of how references to property rights in declarations of human rights and constitutions have been interpreted, to this day, in a manner imposing ‘drastic legal limits on any possibility of a peaceful, legal redefinition of the property regime.’Footnote ¹³ The French Revolution, which he examines at length, is a case in point as it gave rise to a highly inegalitarian society in the century that followed. Piketty sees the promise of equality in Article 1 of the 1789 Declaration of the Rights of Man and the Citizen (‘the French Declaration’) as aspirational or ambiguous, no less so than the US Declaration of Independence declaring equality and liberty to be inalienable rights in a slave-holding society. In contrast, he points out how the affirmation of property as a ‘natural and imprescriptible right’ in Article 2 of the French Declaration was interpreted by the revolutionaries as limiting any meaningful redistribution, in effect prevailing over the promise of equality. In keeping with this critique, ecclesiastical institutions are identified as a source of modern property law, perhaps on par with the work of Montesquieu, Locke, and other traditional thinkers of the Enlightenment.Footnote ¹⁴ For example, Piketty cites the Italian historian Giacomo Todeschini, according to whom:

While this view may be debatable, it does seem consistent (at least in part) with the work of legal historians who emphasized the role of the Roman Catholic church in the formation of the Western legal tradition.Footnote ¹⁶ Piketty uses the religious analogy frequently, in expressions like ‘sacralization’ of property or the ‘quasi-theology’ of markets, to emphasize his view that property rests on faith and values (‘ideology’). He attributes, correctly, the innate conservatism of property law to the natural fear by governments (including revolutionary governments) of chaos and disorder. He rejects the contemporary claim of meritocracy and suggestions that income and wealth are just deserts for the talented. Piketty sees little conceptual difference between Silicon Valley entrepreneurs, Russian oligarchs, or Chinese billionaires:Footnote ¹⁷ the financial success of these individuals is attributable not just to talent or luck, but also to ‘their quasi-monopolistic behavior’, ‘the legal and tax breaks they are granted and the public resources they appropriate.’Footnote ¹⁸

Piketty is not, however, a proponent of state property and is dismissive of communist experiments. Contemporary China is described as a mixed economy where 30 per cent of property is still publicFootnote ¹⁹ but where inequality has nevertheless increased significantly.Footnote ²⁰ Rather than the public/private divide, it is the durability or permanence of private property that Piketty sees as the main problem. Property should be not durable, permanent, and transmitted from generation to generation, but ‘social and temporary’. Hence Piketty's seminal recommendation to tax both income and wealth at high progressive rates in order to circulate capital within society. Contemporary constitutional obstacles to taxation that could reach 80 or 90 per cent are presented as legacies of proprietarian ideology and excessive conservatism on the part of constitutional courts. Piketty disapproves of the French constitutional court's rejection of a pledge by presidential candidate François Hollande to institute a 75 per cent tax on income in excess of 1 million euros, and a German constitutional court ruling (later overturned) that income tax could not exceed 50 per cent. Constitutional courts are ‘invaluable but fragile’ institutions; the power to decide progressivity of taxes should belong to parliaments only and not to constitutional judges.Footnote ²¹

Many lawyers will be uncomfortable with these views, as they go against much of contemporary practice, not to mention the teachings of the law and economics movement throughout the last several decades. However, Piketty's historical datasets on financial inequality are instructive, even for the skeptics. The author produces dozens of visually explicit charts illustrating the evolution of, and the increase in, inequality from multiple angles in the countries surveyed. In the United States, Europe, and China, the top 10 per cent (‘decile’) of the population received 25 to 35 per cent of total national income in 1980; in 2018, that share had grown to 34 to 48 per cent at the expense of the bottom half of the population, whose share either stagnated or decreased.Footnote ²² In other words, in these countries around 10 to 15 per cent of national income was transferred from the bottom half of the population to the richest 10 per cent. In India, 55 per cent of national income now accrues to the top decile, making it one of the most unequal societies in the world.Footnote ²³ Looking at private wealth, in the United States, the top decile now owns 74 per cent, versus only 2 per cent for the entire bottom half.Footnote ²⁴ In India, Russia, and China, the private wealth of the top decile exceeds 60 to 70 per cent of the national total.Footnote ²⁵

In all of these countries plus Europe, wealth is hyper-concentrated at the very top, with the top 1 per cent accounting for half or more of the wealth held by the top decile.Footnote ²⁶ Such proportions are reminiscent of those found in Europe in the early twentieth century.Footnote ²⁷ Levels of inequality in some parts of the contemporary Middle East are similar to history's most inegalitarian slave-owning societies.Footnote ²⁸ Most concerning of all, perhaps, is the evolution of the poorest countries of the world, mainly in Africa and South Asia: they actually became poorer in the period between 1970 and 2000, and have not recovered since.Footnote ²⁹ The main explanation, according to Piketty, is the rapid liberalization of the global trade regime, ‘which was in part imposed by the rich countries and international organizations during the 1980s and 1990s’, leading to a decline in tax receipts and further weakening national governments. Global organizations such as the United Nations Conference on Trade and Development (UNCTAD) have expressed similar concerns in recent years regarding adverse effects of globalization on the tax receipts of poor countries.Footnote ³⁰

These facts raise uncomfortable questions for lawyers. We are citizens too, and as a profession we are tasked with specific ethical duties. Piketty does not bother with minutiae like the private law/public law divide, and his remedial suggestions are mostly about taxation, ie public law-centric. Yet it is private law, with its core disciplines of property, contracts, and corporations, that shapes immediate economic outcomes and therefore the primary distribution of wealth and income. Much of the ‘neo-proprietarianism’ that Piketty criticizes is grounded in private law, yet the traditional view in legal jurisprudence is that private law must not concern itself with questions of distributive justice.Footnote ³¹ Piketty's data shines a negative light on that tradition; a contemporary critique of private law's contribution to inequality seems entirely in order, and in certain highly-regarded academic circles, it has already begun.Footnote ³²

A historical analogy with the Gilded Age in the US may be of particular relevance here. In the late nineteenth century, legal conceptions of property had become as all-encompassing as they are today; in the words of a noted US legal historian, ‘American courts came as close as they had ever had to saying that one had a property right to an unchanging world’.Footnote ³³ Then, like today, property law was presented as neutral, natural, and apolitical. And yet, new conceptions were developed by the Progressives and Legal Realists that challenged property rights and paved the way for the taxation of income, minimum wage laws, and other redistributive programs found in the New Deal. Like Piketty's, the critique deployed by the Progressives and Legal Realists involved a positivist approach to institutions, qualification of natural law justifications for rights, and a re-exploration of the relationship between property and power. Because private law is an important foundation of economic systems, its critique is a necessary conceptual addition to the now more familiar critique within parts of the legal academy and profession of the laws of trade, international tax, and international investment.Footnote ³⁴

III. The regulatory regime of global capital flows

Throughout the book Piketty is critical of ‘international treaties on circulation of capital’ that have, according to him, contributed to the growth of inequality. He does not give much detail, however, so we are left to unpack what exactly he means by these ‘treaties’. Overall, they seem to be a composite between international trade and investment rules and various European directives or treaties implemented since the 1980s. As Piketty points out, capital controls were removed almost everywhere during the 1990s and 2000s, but these measures were usually decided voluntarily on a unilateral basis rather than in the context of binding treaty arrangements, and controls continue to be imposed in a number of countries.Footnote ³⁵ Two obvious treaty categories that are central to tax and legal planning by investors and multinationals, and therefore fall naturally under Piketty's critique, are tax treaties and investment treaties. Unsurprisingly, both categories have been under growing scrutiny in recent years, not just by NGOs but also by legal scholarsFootnote ³⁶ and various international organizations.Footnote ³⁷

Piketty does not challenge the principle of free circulation of goods, services, and capital, however – as doing so would, he writes ironically, be tantamount to ‘seceding from the civilized world’.Footnote ³⁸ Rather, he criticizes the absence of transnational tools that would allow the tracing of capital through the multiple layers of intermediation that result from globalization. Having spent several decades perusing national databases, he points out that paradoxically, in this modern age of big data, granular information on the distribution of income and wealth in Western countries has actually become less available than in the twentieth century, and is particularly poor in countries such as China and Russia. In contrast to real estate assets, which are usually recorded in national property registers, there is no public system tracking the transnational ownership of financial assets. He proposes, along with a few colleagues (Gabriel Zucman in particular), to build on the data infrastructure of custodian banks or securities market institutions such as central securities depositories (CSDs), which could become the basis for a new worldwide financial register. This is, as yet, blue sky thinking; yet it is also consonant with a strand of legal scholarship that has focused on the structural opacity and the architectural flaws of the global securities system.Footnote ³⁹ Generally, Piketty's idea that better financial data is necessary if proper democratic deliberation is to take place on the subject of transnational distributive justice seems utterly compelling.

Another area in which Piketty advocates greater international cooperation and transparency is the treatment of tax havens and offshore jurisdictions. He reserves his most trenchant critique for the EU and its tolerance of tax havens in its midst. Here, although one must agree with him that Luxembourg and the Netherlands are the world's most successful tax havens, all efforts at EU-wide harmonization of direct taxes have, as yet, floundered. Greater optimism is allowed on the questions of financial anonymity and insufficient exchange of tax information, problems which Piketty correctly brings to the fore but on which he omits to credit recent global initiatives. Treaty-based arrangements for automatic exchange of financial information between tax authorities are now being rolled out in a large number of countries under the auspices of the Organization for Economic Co-operation and Development (OECD) and the G20; national registers of beneficial owners of legal entities are being created following anti-money laundering standards disseminated by the Financial Action Task Force. These measures are admittedly imperfect, but at least they exist. It is too early to measure their impact, if any, on the international circulation and distribution of income and wealth. By increasing cross-border transparency and cooperation, they should at least assist in combatting financial crime such as tax evasion, corruption, and money laundering.