In this post, I will review Piketty’s democratic control argument, which holds that increasing wealth and income inequality make democratic control over society difficult, if not impossible, and that a global progressive annual tax on wealth will help democracy to regain control. This argument requires little exposition, since it is rooted in the other arguments I’ve already reviews. Here are quick statements of the two parts of the argument:
4E. Threats to Democracy: r > g means that those with wealth will be able to undermine democracy or will at least not be properly controlled by democracy.
4P. Saving Democracy: A global progressive tax on capital will help to restore democracy’s control over capitalism.
4E depends on 1E and 2E, whereas 4P depends on 1P, 2P and 3P. Click here to find the relevant passages that speak directly to the importance of democracy. I found key passages on pages 1, 6, 31, 424, 480, 515, 532, 569 and 573.
I. Threats to Democracy
If wealth and income inequality continue to increase, democracy will lose control over capitalism. The broad worry is that without compression of inequality capitalists “could easily come to own everything that can be owned, including rural real estate and bicycles, once and for all” (6). That’s the worst that would happen, but it’s a real possibility. In general, though, 4E works like this: capitalism will generate social instability, which will make it hard to maintain stable, functional democratic institutions (1E, the social stability argument) and increasing and unjust inequalities will be too great to correct (2E, the inequality argument). The general thought runs a bit like this:
Economic and technological rationality at times has nothing to do with democratic rationality. The former stems from the Enlightenment, and people have all too commonly assumed that the latter would somehow naturally derive from it, as if by magic. But real democracy and social justice require specific institutions of their own, not just those of the market, and not just parliaments and other formal democratic institutions. (424)
The normal functioning of the market cares not for democracy and democracy does not naturally derive from market society. Instead, you need to deliberately construct democratic institutions to reign in the market.
II. Saving Democracy
Piketty has more to say on how the global capital tax can save democracy. It is one way that “democracy can regain control over capitalism and ensure that the general interest takes precedence over private interests, while preserving economic openness and avoiding protectionist and nationalist reactions” (1). And again:
But if democracy is to regain control over the globalized financial capitalism of this century, it must also invent new tools, adapting to today’s challenges. The ideal tool would be a progressive global tax on capital, coupled with a very high level of international financial transparency. (515)
So we can see that the global capital tax, by compressing inequalities and aiding financial transparency, will save democracy. And the global tax, it turns out, is a good way to do it:
A progressive levy on individual wealth would reassert control over capitalism in the name of the general interest while relying on the forces of private property and competition. (532)
And here is Piketty’s most intense and rhetorical statement:
If we are to regain control of capitalism, we must bet everything on democracy—and in Europe, democracy on a European scale. (573)
So we need to encourage democratic institutions to compress inequalities, inequalities that will otherwise produce instability and unjust inequalities. This is best achieved through a global capital tax.
If Piketty’s empirical data and models are correct, then I think he is right that at some margin, markets will restrict the control that democracy can exert over the distribution of wealth. Globalization and the international mobility of capital is the most important force here, as any attempt at democratic control could be resisted via tax havens and the like. A global capital tax indeed could reign in this phenomenon. The interesting question is whether increasing inequality threatens how well democratic institutions function. But Piketty gives us no account of what it means for democracy to function well, so it is next to impossible to answer his question. That, I’d think, is the biggest worry about Piketty’s argument. Instead of giving an explanation of the sorts of malfunction he is worried about, he mostly waves his hands at a nebulous death of democracy. It is surely true that at some margin, a few people will be rich enough to completely take over democratic institutions and make them serve their interests. That is not presently the case, no matter how obvious it seems to progressives. Yes, rich people have much more impact on democratic outcomes than the poor in the United States, but they are not a united block attempting to subvert democratic outcomes. Instead, they’re simply a large, better educated, more informed and familiar with political power, and so affect outcomes more as a result. As for the super rich, they have a very hard time shifting democratic outcomes in their direction, in particular because they face (a) principal-agent problems getting from money to legislation and (b) the differing political priorities of the super rich seem to work against one another (Kochs vs. Soros and Buffett). We could address this inequality of influence without a global capital tax. A social minimum, campaign finance reform laws and mandatory civic education would help narrow the influence gap. Not that I’d advocate any of these policies (other than a social minimum), mind you, but they might help reach Piketty’s goal. Notice that because 4P is based on 1P and 2P, it also inherits all their problems. Due to its reliance on 1P, we have little reason to think that we’ve reached the requisite level of inequality to generate the bad sort of instability Piketty worries about, and recall that we don’t know what instability is. Due to its reliance on 2P, 4P only kicks in once we’ve reached unjustified inequalities, but Piketty has no clear, consistent principle by which to determine which inequalities are unjustified. 4P only partly relies on 3P, as I think 1P and 2P are sufficient to establish it, but recall that we can achieve financial transparency without a global capital tax. So, in sum, we don’t know whether the democratic control argument is because we don’t know what democratic control is, and we don’t know what sort of instability and which unjustified inequalities undermine that control.