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Thomas Piketty: The Middle East is the most unequal region; global progressive tax is necessary

Internationally acclaimed French economist Thomas Piketty advocates for a progressive wealth tax, including in the Middle East where inequality is predominant

Mohammed Saad , Saturday 4 Jun 2016
Thomas Piketty
Thomas Piketty at the American University in Cairo (Photo: Ayman Hafez)
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It wouldn't be an exaggeration to describe the French economist Thomas Piketty as a "rock star economist." One need only look at the 2.5 million copies that his book Capital in the Twenty-First Century has sold globally since being translated into multiple languages (coining the phrase "the Piketty phenomenon"). That landmark work has distinguished him among today's top economists. Hearing him speak one is also struck by his vibrant enthusiasm and flashes of humour.

Piketty addressed audiences first at Cairo University's Faculty of Economic and Political Studies and then at the American University's Ewart Hall, laying down the foundations of his seminal book. Under the ceiling bearing Alfred Tennyson's quote, "Let the knowledge grow from more to more but more of reverence in us dwell," he grabbed the attention of hundreds of students and professors of economics and politics. Even as he delved into data heavy graphs and numbers on wealth inequality, the clarity and precision of his ideas kept the audience engaged. His humour peeked through at some points, such as when he referred to the "stupid French story of World War II." The lectures delivered in Cairo on Thursday marked the launch of the Arabic translation of what has been described as a "political and theoretical bulldozer," which is translated by two prominent economics journalists in Egypt, Wael Gamal and Salma Hussein.

Opening the lecture with a self-deprecating apology ("my English sounds a lot like French"), Piketty started to unfold the process of writing the book, telling the audience that the nine-month journey to the book's initial French publication was preceded by a very patient and complicated process that started in 2001 with the help of 14 researchers from around the world to "collect historical income tax data" that was never systematically organised before, largely because it was always "considered by historians 'too economic', and considered 'too historic' by economists."

Thomas Pikkety

Piketty explained that his data collection process consumed nearly 15 years, helping him to write the book from a perspective that is not built on a theoretical model (which can be useful but limited in what it can explain), but rather built on a historical comparative perspective that is able to invent new solutions. He explained: "Looking at history gives you a very different perspective; it shows you there are a lot of alternatives. We went through a hard process to collect historical data that spans over two centuries to look at the evolution of inequality, income tax and wealth tax, in Europe and the United States, and looking at this data will surprise you. It will take anyone by surprise to see the fruitful many alternatives and solutions that the history gives us."

The French edition of the book was published in 2013. Its main argument is that when the rate of return on capital is greater than the rate of economic growth, it results in the concentration of wealth. He argues that the rate of return has historically been controlled by a political process and state interventionism. The translation of the book into English gained Piketty tremendous international attention, yet Piketty wanted to point out the importance of other languages: "The sales of the non-English editions of my book combined are three times more than the English version. English isn't the only important language and I'm happy that my book is now available in Arabic."

Thomas Piketty

Middle Eastern perspective

Inequality is the axis that Piketty's book spins around. Delivering two lectures titled "Capital in the Twenty-First Century: Middle Eastern Perspective," Piketty first sought to explain why the Middle East in general and Egypt in particular aren't "as present as they should be." He explained that he did not have access to statistics and surveys conducted by the Egyptian taxation system and therefore could not measure inequality in Egyptian society or draw upon information about how much income tax is collected, who pays income tax and how the revenues from income tax are spent.

"We know very little about income tax data in Egypt. We know there is income tax but there are no income tax statistics." He added that, "if you don’t have access to this data you can’t make any comparison with other countries. Inequality in Egypt is vastly underestimated and there is huge inequality between the Middle East countries due to the wealth concentration and oil resources."

From this point Piketty moved on to the core of the problem, transparency, a problem affecting not only Egypt but the wider Middle East. The lack of transparency in Middle Eastern states is even worse than that of other developing states such as Argentina, Brazil, or South Africa.

Thomas Pikkety
Thomas Pikkety and Ziad Bahaa El-Din (Photo: Ayman Hafez)

Transparency

"Transparency is very important. Collecting data and access to household and transparent government surveys are crucial to understand the taxation system and income tax, to be able to measure the level of inequality through knowing where income tax returns are spent. Not only that, it is also crucial to know whether tax laws are being applied efficiently because the money is being transferred to tax havens or any other reason, and the data makes it possible to reform a broken system and make it more efficient. But without transparency this is all impossible."

While Piketty admitted that tax income data is not perfect, especially from places like Argentina, Brazil and South Africa, it is still important. "Do I think income tax data is perfect? No, I don't think so. But that is not a reason to ignore it. It is not perfect, but it is useful, and better than not getting any data at all."

One of the ways Piketty looks at inequality is looking at a whole region instead of looking at every nation state. "It gives you the bigger the picture to look at a whole region." When Piketty looks at the Middle East he finds it "the most unequal region in the world so far," noting that total investments in Egypt are 100 times less than the oil revenues of Qatar and the UAE, and points out the "striking level of wealth concentration in the region," arguing that there is a need to redistribute the Middle East's resources, establish a transparent income tax system, and impose a progressive tax on wealth.

Thomas Piketty
(Photo: Ayman Hafez)

Inequality is widening

Piketty showed his concerns about rising inequality in every part of the world, including Europe and the US, where inequality is now reaching levels that haven't occurred since the early decades of the 20th century.

The history of the evolution of inequality in the world shows us that "inequality has been vastly reduced in Europe and the United States in the first half of the 20th century between 1910 and 1950, due to the shocks that caused huge instabilities and forced governments to reduce inequality and inflation rates; shocks like the Great Depression in the 30s and World War I and II. Yet the numbers show now that inequality is on the rise, with the help of the accelerated process of privatisation and selling public assets."

Privatisation can occur due to incompetence or inefficiencies in the public sector, but selling public assets reduces public properties and increases private wealth, which leads in the end to large public debts with huge interest accruing on those debts. He says, "Italy has sold most of its public assets, schools, hospitals, etc, and now if it sells everything it owns, it won't be able to pay its public debt. I'm not saying that they should do that, but when you sell what you own you have to rent and rent makes debts."

Thomas Piketty
(Photo: Ayman Hafez)

French face

"France likes to present itself as the country of the French Revolution, egalitarianism and equality and a defender of social justice. But when it comes to real life, it is very different," Piketty told his audience. "It does not mind making deals with Saudi Arabia for oil; France doesn't care as much about social justice issues as it pretends. France was the last country to impose income tax in 1914, decades after the US, Japan, Germany and Britain, and when it did it didn't do more than that, and did not want to impose tax on wealth like Britain. They said that is enough; we don't need tax on wealth because there is no aristocracy in the country."

"The stupid story of France," as Piketty describes, is that "when the French government imposed income tax, it didn't spend that money on schools and hospitals. It used its capital to fund the war with Germany, which was a war to destroy another capital, and that is the stupid story of France in World War II."

Thomas Pikkety
(Photo: Ayman Hafez)

Rise of Trump, rise of inequality

In the United States, the rise of the Republican candidate for the US presidency, Donald Trump, is disturbing for Piketty. "The rise of Trump is accompanied with the rise of inequality and he is using the people's anger with the economic situation against foreign workers, Muslims, Mexicans and other Latin American groups," in a strategy that Piketty describes as "standard nationalist strategy." In Piketty's view such a strategy does not solve the people's problems and ignores the democratic and peaceful alternative of reforming the income tax system and imposing a progressive wealth tax. In Piketty's view, there should not only be a tax on capital flow but also on capital stock, meaning properties and stocked money.

Thomas Pikkety
Wael Gamal (Left)and Salma Hussein the translators of the book (Photo: Ayman Hafez)

Islamic taxes

Answering a question about Islamic tax (Zakat), that compels Muslims to pay 2.5 percent of their wealth to the community, Piketty said that he had never heard of a country or a historical period in which this has been applied and he has received this question many times. He indicated that he could not put his hands on any empirical information about the application of this system, adding: "Until now I prefer the government to do it. I think that progressive taxation on wealth is better than imposing one flat percentage on everybody. If people want to do it out of their commitment to Sharia, then that should be considered, but I prefer that the government do that work."

Thomas Piketty
Thomas Pikkety and dean of the Faculty of Economic and Political Scieces(Photo: Ayman Hafez)

Egypt

Piketty sees a great inequality level in Egypt that is underestimated and can't be measured due to the lack of data. He called for a more transparent tax system, political integration, and a progressive wealth tax. "Some people read my book and they tell me that that they feel pessimistic, but that is not how I see the future. Before the revolution in Tahrir Square, people outside Egypt were saying that Mubarak is the best the Egyptians can get. But you proved them wrong, because you deserve better and you can do better, and I see another revolution."

In history there are a lot of lessons and solutions, Piketty told the audience. "History gives us alternatives, unlike those who tell you there is only one way, like you need to pay the debt forever. But you look at history and you find different solutions and the debate is so much more complicated than what you think." He implored his listeners to "look at the history … make up your mind."

Thomas Piketty
Thomas Pikkety at Cairo University (Photo: Ayman Hafez)

Criticism

Despite how much praise the book has received it has, like all academic texts, been subject to differing interpretations and disagreements with its findings and methodology. Of the criticism, Piketty said: "The reason behind the book was to stimulate discussion and I was more than happy with the book, and the discussions it sparked. We are in the social sciences, not in an area where there the science is exact. In terms of the conclusions, I try to draw what I view as the most reasonable conclusion. I have no problem with different interpretations of my work or criticism of it. The book was so successful that some wanted to write about it without opening it, which led to very strange things, but that is part of the game and I understand that."

Progressive wealth tax

Piketty concluded his lectures saying that the history of income and wealth is deeply political, social and cultural; it involves belief systems, national identities and sharp reversals. There are powerful forces pushing in the direction of rising or reducing inequality, and which one of them dominates depends on the intuitions and policies that different societies choose to adopt. Piketty argues that the ideal solution for inequality involves a broad combination of inclusive institutions, including progressive taxation of income, wealth and carbon, education, social and labour laws; financial transparency; economic and political democracy, including new forms of property, power structures and participatory governance. In short, inequality needs to be put into a broad historical and comparative perspective, so as to invent new solutions.

 

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