Capital in the Twenty-First Century (22 page)

To be sure, the distinction between public and private capital changes neither the
total amount nor the composition of national capital, whose evolution I have just
traced. Nevertheless, the division of property rights between the government and private
individuals is of considerable political, economic, and social importance.

I will begin, then, by recalling the definitions introduced in
Chapter 1
. National capital (or wealth) is the sum of public capital and private capital. Public
capital is the difference between the assets and liabilities of the state (including
all public agencies), and private capital is of course the difference between the
assets and liabilities of private individuals. Whether public or private, capital
is always defined as net wealth, that is, the difference between the market value
of what one owns (assets) and what one owes (liabilities, or debts).

Concretely, public assets take two forms. They can be nonfinancial (meaning essentially
public buildings, used for government offices or for the provision of public services,
primarily in health and education: schools, universities, hospitals, etc.) or financial.
Governments can own shares in firms, in which they can have a majority or minority
stake. These firms may be located within the nation’s borders or abroad. In recent
years, for instance, so-called sovereign wealth funds have arisen to manage the substantial
portfolios of foreign financial assets that some states have acquired.

In practice, the boundary between financial and nonfinancial assets need not be fixed.
For example, when the French government transformed France Telecom and the French
Post Office into shareholder-owned corporations, state-owned buildings used by both
firms began to be counted as financial assets of the state, whereas previously they
were counted as nonfinancial assets.

At present, the total value of public assets (both financial and non-financial) is
estimated to be almost one year’s national income in Britain and a little less than
1 1/2 times that amount in France. Since the public debt of both countries amounts
to about one year’s national income, net public wealth (or capital) is close to zero.
According to the most recent official estimates by the statistical services and central
banks of both countries, Britain’s net public capital is almost exactly zero and France’s
is slightly less than 30 percent of national income (or one-twentieth of total national
capital: see
Table 3.1
).
¹⁰

In other words, if the governments of both countries decided to sell off all their
assets in order to immediately pay off their debts, nothing would be left in Britain
and very little in France.

Once again, we should not allow ourselves to be misled by the precision of these estimates.
Countries do their best to apply the standardized concepts and methods established
by the United Nations and other international organizations, but national accounting
is not, and never will be, an exact science. Estimating public debts and financial
assets poses no major problems. By contrast, it is not easy to set a precise market
value on public buildings (such as schools and hospitals) or transportation infrastructure
(such as railway lines and highways) since these are not regularly sold. In theory,
such items are priced by observing the sales of similar items in the recent past,
but such comparisons are not always reliable, especially since market prices frequently
fluctuate, sometimes wildly. Hence these figures should be taken as rough estimates,
not mathematical certainties.

In any event, there is absolutely no doubt that net public wealth in both countries
is quite small and certainly insignificant compared with total private wealth. Whether
net public wealth represents less than 1 percent of national wealth, as in Britain,
or about 5 percent, as in France, or even 10 percent if we assume that the value of
public assets is seriously underestimated, is ultimately of little or no importance
for present purposes. Regardless of the imperfections of measurement, the crucial
fact here is that private wealth in 2010 accounts for virtually all of national wealth
in both countries: more than 99 percent in Britain and roughly 95 percent in France,
according to the latest available estimates. In any case, the true figure is certainly
greater than 90 percent.

FIGURE 3.3.
   Public wealth in Britain, 1700–2010

Public debt surpassed two years of national income in 1950 (versus one year for public
assets).

Sources and series: see
piketty.pse.ens.fr/capital21c
.

If we examine the history of public wealth in Britain and France since the eighteenth
century, as well as the evolution of the public-private division of national capital,
we find that the foregoing description has almost always been accurate (see
Figures 3.3
–
6
). To a first approximation, public assets and liabilities, and a fortiori the difference
between the two, have generally represented very limited amounts compared with the
enormous mass of private wealth. In both countries, net public wealth over the past
three centuries has sometimes been positive, sometimes negative. But the oscillations,
which have ranged, broadly speaking, between
+
100 and
−
100 percent of national income (and more often than not between
+
50 and
−
50) have all in all been limited in amplitude compared to the high levels of private
wealth (as much as 700–800 percent of national income).

In other words, the history of the ratio of national capital to national income in
France and Britain since the eighteenth century, summarized earlier, has largely been
the history of the relation between private capital and national income (see
Figures 3.5
and
3.6
).

FIGURE 3.4.
   Public wealth in France, 1700–2010

Public debt is about one year of national income in France in 1780 as well as in 1880
and in 2000–2010.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

The crucial fact here is of course well known: France and Britain have always been
countries based on private property and never experimented with Soviet-style communism,
where the state takes control of most capital. Hence it is not surprising that private
wealth has always dominated public wealth. Conversely, neither country has ever amassed
public debts sufficiently large to radically alter the magnitude of private wealth.

With this central fact in mind, it behooves us to push the analysis a bit farther.
Even though public policy never went to extremes in either country, it did have a
nonnegligible impact on the accumulation of private wealth at several points, and
in different directions.

In eighteenth- and nineteenth-century Britain, the government tended at times to increase
private wealth by running up large public debts. The French government did the same
under the Ancien Régime and in the Belle Époque. At other times, however, the government
tried to reduce the magnitude of private wealth. In France after World War II, public
debts were canceled, and a large public sector was created; the same was true to a
lesser extent in Britain during the same period. At present, both countries (along
with most other wealthy countries) are running large public debts. Historical experience
shows, however, that this can change fairly rapidly. It will therefore useful to lay
some groundwork by studying historical reversals of policy in Britain and France.
Both countries offer a rich and varied historical experience in this regard.

FIGURE 3.5.
   Private and public capital in Britain, 1700–2010

In 1810, private capital is worth eight years of national income in Britain (versus
seven years for national capital).

Sources and series: see
piketty.pse.ens.fr/capital21c
.

FIGURE 3.6.
   Private and public capital in France, 1700–2010

In 1950, public capital is worth almost one year of national income versus two years
for private capital.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

I begin with the British case. On two occasions—first at the end of the Napoleonic
wars and again after World War II—Britain’s public debt attained extremely high levels,
around 200 percent of GDP or even slightly above that. Although no country has sustained
debt levels as high as Britain’s for a longer period of time, Britain never defaulted
on its debt. Indeed, the latter fact explains the former: if a country does not default
in one way or another, either directly by simply repudiating its debt or indirectly
through high inflation, it can take a very long time to pay off such a large public
debt.

In this respect, Britain’s public debt in the nineteenth century is a textbook case.
To look back a little farther in time: even before the Revolutionary War in America,
Britain had accumulated large public debts in the eighteenth century, as had France.
Both monarchies were frequently at war, both with each other and with other European
countries, and they did not manage to collect enough in taxes to pay for their expenditures,
so that public debt rose steeply. Both countries thus managed to amass debts on the
order of 50 percent of national income in the period 1700–1720 and 100 percent of
national income in the period 1760–1770.