Capital in the Twenty-First Century (24 page)

Since the 1970s, analyses of the public debt have suffered from the fact that economists
have probably relied too much on so-called representative agent models, that is, models
in which each agent is assumed to earn the same income and to be endowed with the
same amount of wealth (and thus to own the same quantity of government bonds). Such
a simplification of reality can be useful at times in order to isolate logical relations
that are difficult to analyze in more complex models. Yet by totally avoiding the
issue of inequality in the distribution of wealth and income, these models often lead
to extreme and unrealistic conclusions and are therefore a source of confusion rather
than clarity. In the case of public debt, representative agent models can lead to
the conclusion that government debt is completely neutral, in regard not only to the
total amount of national capital but also to the distribution of the fiscal burden.
This radical reinterpretation of Ricardian equivalence, which was first proposed by
the American economist Robert Barro,
¹⁶
fails to take account of the fact that the bulk of the public debt is in practice
owned by a minority of the population (as in nineteenth-century Britain but not only
there), so that the debt is the vehicle of important internal redistributions when
it is repaid as well as when it is not. In view of the high degree of concentration
that has always been characteristic of the wealth distribution, to study these questions
without asking about inequalities between social groups is in fact to say nothing
about significant aspects of the subject and what is really at stake.

I return now to the history of public wealth and to the question of assets held by
the government. Compared with the history of government debt, the history of public
assets is seemingly less tumultuous.

To simplify, one can say that the total value of public assets increased over the
long run in both France and Britain, rising from barely 50 percent of national income
in the eighteenth and nineteenth centuries to roughly 100 percent at the end of the
twentieth century (see
Figures 3.3
and
3.4
).

To a first approximation, this increase reflects the steady expansion of the economic
role of the state over the course of history, including in particular the development
of ever more extensive public services in the areas of health and education (necessitating
major investments in buildings and equipment) together with public or semipublic infrastructural
investments in transportation and communication. These public services and infrastructures
are more extensive in France than in Britain: the total value of public assets in
France in 2010 is close to 150 percent of national income, compared with barely 100
percent across the Channel.

Nevertheless, this simplified, tranquil view of the accumulation of public assets
over the long run omits an important aspect of the history of the last century: the
accumulation of significant public assets in the industrial and financial sectors
in the period 1950–1980, followed by major waves of privatization of the same assets
after 1980. Both phenomena can be observed to varying degrees in most developed countries,
especially in Europe, as well as in many emerging economies.

The case of France is emblematic. To understand it, we can look back in time. Not
only in France but in countries around the world, faith in private capitalism was
greatly shaken by the economic crisis of the 1930s and the cataclysms that followed.
The Great Depression, triggered by the Wall Street crash of October 1929, struck the
wealthy countries with a violence that has never been repeated to this day: a quarter
of the working population in the United States, Germany, Britain, and France found
themselves out of work. The traditional doctrine of “laissez faire,” or nonintervention
by the state in the economy, to which all countries adhered in the nineteenth century
and to a large extent until the early 1930s, was durably discredited. Many countries
opted for a greater degree of interventionism. Naturally enough, governments and the
general public questioned the wisdom of financial and economic elites who had enriched
themselves while leading the world to disaster. People began to think about different
types of “mixed” economy, involving varying degrees of public ownership of firms alongside
traditional forms of private property, or else, at the very least, a strong dose of
public regulation and supervision of the financial system and of private capitalism
more generally.

Furthermore, the fact that the Soviet Union joined the victorious Allies in World
War II enhanced the prestige of the statist economic system the Bolsheviks had put
in place. Had not that system allowed the Soviets to lead a notoriously backward country,
which in 1917 had only just emerged from serfdom, on a forced march to industrialization?
In 1942, Joseph Schumpeter believed that socialism would inevitably triumph over capitalism.
In 1970, when Paul Samuelson published the eighth edition of his famous textbook,
he was still predicting that the GDP of the Soviet Union might outstrip that of the
United States sometime between 1990 and 2000.
¹⁷

In France, this general climate of distrust toward private capitalism was deepened
after 1945 by the fact that many members of the economic elite were suspected of having
collaborated with the German occupiers and indecently enriched themselves during the
war. It was in this highly charged post-Liberation climate that major sectors of the
economy were nationalized, including in particular the banking sector, the coal mines,
and the automobile industry. The Renault factories were punitively seized after their
owner, Louis Renault, was arrested as a collaborator in September 1944. The provisional
government nationalized the firm in January 1945.
¹⁸

In 1950, according to available estimates, the total value of French public assets
exceeded one year’s national income. Since the value of public debt had been sharply
reduced by inflation, net public wealth was close to one year’s national income, at
a time when total private wealth was worth barely two years of national income (see
Figure 3.6
). As usual, one should not be misled by the apparent precision of these estimates:
it is difficult to measure the value of capital in this period, when asset prices
had attained historic lows, and it is possible that public assets are slightly undervalued
compared with private assets. But the orders of magnitude may be taken as significant:
in 1950, the government of France owned 25–30 percent of the nation’s wealth, and
perhaps even a little more.

This is a significant proportion, especially in view of the fact that public ownership
left small and medium firms untouched, along with agriculture, and never claimed more
than a minority share (less than 20 percent) of residential real estate. In the industrial
and financial sectors most directly affected by the postwar nationalizations, the
state’s share of national wealth exceeded 50 percent from 1950 to 1980.

Although this historical episode was relatively brief, it is important for understanding
the complex attitude of the French people toward private capitalism even today. Throughout
the Trente Glorieuses, during which the country was rebuilt and economic growth was
strong (stronger that at any other time in the nation’s history), France had a mixed
economy, in a sense a capitalism without capitalists, or at any rate a state capitalism
in which private owners no longer controlled the largest firms.

To be sure, waves of nationalization also occurred in this same period in many other
countries, including Britain, where the value of public assets also exceeded a year’s
national income in 1950—a level equal to that of France. The difference is that British
public debt at the time exceeded two years of national income, so that net public
wealth was significantly negative in the 1950s, and private wealth was that much greater.
Net public wealth did not turn positive in Britain until the 1960s–1970s, and even
then it remained less than 20 percent of national income (which is already quite large).
¹⁹

What is distinctive about the French trajectory is that public ownership, having thrived
from 1950 to 1980, dropped to very low levels after 1980, even as private wealth—both
financial and real estate—rose to levels even higher than Britain’s: nearly six years
of national income in 2010, or 20 times the value of public wealth. Following a period
of state capitalism after 1950, France became the promised land of the new private-ownership
capitalism of the twenty-first century.

What makes the change all the more striking is that it was never clearly acknowledged
for what it was. The privatization of the economy, including both liberalization of
the market for goods and services and deregulation of financial markets and capital
flows, which affected countries around the world in the 1980s, had multiple and complex
origins. The memory of the Great Depression and subsequent disasters had faded. The
“stagflation” of the 1970s demonstrated the limits of the postwar Keynesian consensus.
With the end of postwar reconstruction and the high growth rates of the Trente Glorieuses,
it was only natural to question the wisdom of indefinitely expanding the role of the
state and its increasing claims on national output. The deregulation movement began
with the “conservative revolutions” of 1979–1980 in the United States and Britain,
as both countries increasingly chafed at being overtaken by others (even though the
catch-up was a largely inevitable process, as noted in
Chapter 2
). Meanwhile, the increasingly obvious failure of statist Soviet and Chinese models
in the 1970s led both communist giants to begin a gradual liberalization of their
economic systems in the 1980s by introducing new forms of private property in firms.

Despite these converging international currents, French voters in 1981 displayed a
certain desire to sail against the wind. Every country has its own history, of course,
and its own political timetable. In France, a coalition of Socialists and Communists
won a majority on a platform that promised to continue the nationalization of the
industrial and banking sectors begun in 1945. This proved to be a brief intermezzo,
however, since in 1986 a liberal majority initiated a very important wave of privatization
in all sectors. This initiative was then continued and amplified by a new socialist
majority in the period 1988–1993. The Renault Company became a joint-stock corporation
in 1990, as did the public telecommunications administration, which was transformed
into France Telecom and opened to private investment in 1997–1998. In a context of
slower growth, high unemployment, and large government deficits, the progressive sale
of publicly held shares after 1990 brought additional funds into public coffers, although
it did not prevent a steady increase in the public debt. Net public wealth fell to
very low levels. Meanwhile, private wealth slowly returned to levels not seen since
the shocks of the twentieth century. In this way, France totally transformed its national
capital structure at two different points in time without really understanding why.

{FOUR}

From Old Europe to the New World

In the previous chapter, I examined the metamorphoses of capital in Britain and France
since the eighteenth century. The lessons to be learned from each country proved consistent
and complementary. The nature of capital was totally transformed, but in the end its
total amount relative to income scarcely changed at all. To gain a better understanding
of the different historical processes and mechanisms involved, the analysis must now
extend to other countries. I will begin by looking at Germany, which will round out
the European panorama. Then I will turn my attention to capital in North America (the
United States and Canada). Capital in the New World took some quite unusual and specific
forms, in the first place because land was so abundant that it did not cost very much;
second, because of the existence of slavery; and finally, because this region of perpetual
demographic growth tended to accumulate structurally smaller amounts of capital (relative
to annual income and output) than Europe did. This will lead to the question of what
fundamentally determines the capital/income ratio in the long run, which will be the
subject of
Chapter 5
. I will approach that question by extending the analysis first to all the wealthy
countries and then to the entire globe, insofar as the sources allow.

I begin with the case of Germany. It is interesting to compare the British and French
trajectories with the German, especially in regard to the issue of mixed economy,
which became important, as noted, after World War II. Unfortunately, the historical
data for Germany are more diverse, owing to the lateness of German unification and
numerous territorial changes, so there is no satisfactory way to trace the history
back beyond 1870. Still, the estimates we have for the period after 1870 reveal clear
similarities with Britain and France, as well as a number of differences.