Capital in the Twenty-First Century (46 page)

In other words, there was no middle class in the specific sense that the middle 40
percent of the wealth distribution were almost as poor as the bottom 50 percent. The
vast majority of people owned virtually nothing, while the lion’s share of society’s
assets belonged to a minority. To be sure, this was not a tiny minority: the upper
decile comprised an elite far larger than the upper centile, which even so included
a substantial number of people. Nevertheless, it was a minority. Of course, the distribution
curve was continuous, as it is in all societies, but its slope was extremely steep
in the neighborhood of the top decile and centile, so that there was an abrupt transition
from the world of the poorest 90 percent (whose members had at most a few tens of
thousands of euros’ worth of wealth in today’s currency) to that of the richest 10
percent, whose members owned the equivalent of several million euros or even tens
of millions of euros.
¹⁹

The emergence of a patrimonial middle class was an important, if fragile, historical
innovation, and it would be a serious mistake to underestimate it. To be sure, it
is tempting to insist on the fact that wealth is still extremely concentrated today:
the upper decile own 60 percent of Europe’s wealth and more than 70 percent in the
United States.
²⁰
And the poorer half of the population are as poor today as they were in the past,
with barely 5 percent of total wealth in 2010, just as in 1910. Basically, all the
middle class managed to get its hands on was a few crumbs: scarcely more than a third
of Europe’s wealth and barely a quarter in the United States. This middle group has
four times as many members as the top decile yet only one-half to one-third as much
wealth. It is tempting to conclude that nothing has really changed: inequalities in
the ownership of capital are still extreme (see
Table 7.2
).

None of this is false, and it is essential to be aware of these things: the historical
reduction of inequalities of wealth is less substantial than many people believe.
Furthermore, there is no guarantee that the limited compression of inequality that
we have seen is irreversible. Nevertheless, the crumbs that the middle class has collected
are important, and it would be wrong to underestimate the historical significance
of the change. A person who has a fortune of 200,000 to 300,000 euros may not be rich
but is a long way from being destitute, and most of these people do not like to be
treated as poor. Tens of millions of individuals—40 percent of the population represents
a large group, intermediate between rich and poor—individually own property worth
hundreds of thousands of euros and collectively lay claim to one-quarter to one-third
of national wealth: this is a change of some moment. In historical terms, it was a
major transformation, which deeply altered the social landscape and the political
structure of society and helped to redefine the terms of distributive conflict. It
is therefore essential to understand why it occurred.

The rise of a propertied middle class was accompanied by a very sharp decrease in
the wealth share of the upper centile, which fell by more than half, going from more
than 50 percent in Europe at the turn of the twentieth century to around 20–25 percent
at the end of that century and beginning of the next. As we will see, this partly
invalidated Vautrin’s lesson, in that the number of fortunes large enough to allow
a person to live comfortably on annual rents decreased dramatically: an ambitious
young Rastignac could no longer live better by marrying Mademoiselle Victorine than
by studying law. This was historically important, because the extreme concentration
of wealth in Europe around 1900 was in fact characteristic of the entire nineteenth
century. All available sources agree that these orders of magnitude—90 percent of
wealth for the top decile and at least 50 percent for the top centile—were also characteristic
of traditional rural societies, whether in Ancien Régime France or eighteenth-century
England. Such concentration of capital is in fact a necessary condition for societies
based on accumulated and inherited wealth, such as those described in the novels of
Austen and Balzac, to exist and prosper. Hence one of the main goals of this book
is to understand the conditions under which such concentrated wealth can emerge, persist,
vanish, and perhaps reappear.

Finally, let us turn now to inequality of total income, that is, of income from both
labor and capital (see
Table 7.3
). Unsurprisingly, the level of inequality of total income falls between inequality
of income from labor and inequality of ownership of capital. Note, too, that inequality
of total income is closer to inequality of income from labor than to inequality of
capital, which comes as no surprise, since income from labor generally accounts for
two-thirds to three-quarters of total national income. Concretely, the top decile
of the income hierarchy received about 25 percent of national income in the egalitarian
societies of Scandinavia in the 1970s and 1980s (it was 30 percent in Germany and
France at that time and is more than 35 percent now). In more inegalitarian societies,
the top decile claimed as much as 50 percent of national income (with about 20 percent
going to the top centile). This was true in France and Britain during the Ancien Régime
as well as the Belle Époque and is true in the United States today.

Is it possible to imagine societies in which the concentration of income is much greater?
Probably not. If, for example, the top decile appropriates 90 percent of each year’s
output (and the top centile took 50 percent just for itself, as in the case of wealth),
a revolution will likely occur, unless some peculiarly effective repressive apparatus
exists to keep it from happening. When it comes to the ownership of capital, such
a high degree of concentration is already a source of powerful political tensions,
which are often difficult to reconcile with universal suffrage. Yet such capital concentration
might be tenable if the income from capital accounts for only a small part of national
income: perhaps one-fourth to one-third, or sometimes a bit more, as in the Ancien
Régime (which made the extreme concentration of wealth at that time particularly oppressive).
But if the same level of inequality applies to the totality of national income, it
is hard to imagine that those at the bottom will accept the situation permanently.

That said, there are no grounds for asserting that the upper decile can never claim
more than 50 percent of national income or that a country’s economy would collapse
if this symbolic threshold were crossed. In fact, the available historical data are
far from perfect, and it is not out of the question that this symbolic limit has already
been exceeded. In particular, it is possible that under the Ancien Régime, right up
to the eve of the French Revolution, the top decile did take more than 50 percent
and even as much as 60 percent or perhaps slightly more of national income. More generally,
this may have been the case in other traditional rural societies. Indeed, whether
such extreme inequality is or is not sustainable depends not only on the effectiveness
of the repressive apparatus but also, and perhaps primarily, on the effectiveness
of the apparatus of justification. If inequalities are seen as justified, say because
they seem to be a consequence of a choice by the rich to work harder or more efficiently
than the poor, or because preventing the rich from earning more would inevitably harm
the worst-off members of society, then it is perfectly possible for the concentration
of income to set new historical records. That is why I indicate in
Table 7.3
that the United States may set a new record around 2030 if inequality of income from
labor—and to a lesser extent inequality of ownership of capital—continue to increase
as they have done in recent decades. The top decile would them claim about 60 percent
of national income, while the bottom half would get barely 15 percent.

I want to insist on this point: the key issue is the justification of inequalities
rather than their magnitude as such. That is why it is essential to analyze the structure
of inequality. In this respect, the principal message of
Tables 7.1
–
3
is surely that there are two different ways for a society to achieve a very unequal
distribution of total income (around 50 percent for the top decile and 20 percent
for the top centile).

The first of these two ways of achieving such high inequality is through a “hyperpatrimonial
society” (or “society of rentiers”): a society in which inherited wealth is very important
and where the concentration of wealth attains extreme levels (with the upper decile
owning typically 90 percent of all wealth, with 50 percent belonging to the upper
centile alone). The total income hierarchy is then dominated by very high incomes
from capital, especially inherited capital. This is the pattern we see in Ancien Régime
France and in Europe during the Belle Époque, with on the whole minor variations.
We need to understand how such structures of ownership and inequality emerged and
persisted and to what extent they belong to the past—unless of course they are also
pertinent to the future.

The second way of achieving such high inequality is relatively new. It was largely
created by the United States over the past few decades. Here we see that a very high
level of total income inequality can be the result of a “hypermeritocratic society”
(or at any rate a society that the people at the top like to describe as hypermeritocratic).
One might also call this a “society of superstars” (or perhaps “supermanagers,” a
somewhat different characterization). In other words, this is a very inegalitarian
society, but one in which the peak of the income hierarchy is dominated by very high
incomes from labor rather than by inherited wealth. I want to be clear that at this
stage I am not making a judgment about whether a society of this kind really deserves
to be characterized as “hypermeritocratic.” It is hardly surprising that the winners
in such a society would wish to describe the social hierarchy in this way, and sometimes
they succeed in convincing some of the losers. For present purposes, however, hypermeritocracy
is not a hypothesis but one possible conclusion of the analysis—bearing in mind that
the opposite conclusion is equally possible. I will analyze in what follows how far
the rise of labor income inequality in the United States has obeyed a “meritocratic”
logic (insofar as it is possible to answer such a complex normative question).

At this point it will suffice to note that the stark contrast I have drawn here between
two types of hyperinegalitarian society—a society of rentiers and a society of supermanagers—is
naïve and overdrawn. The two types of inequality can coexist: there is no reason why
a person can’t be both a supermanager and a rentier—and the fact that the concentration
of wealth is currently much higher in the United States than in Europe suggests that
this may well be the case in the United States today. And of course there is nothing
to prevent the children of supermanagers from becoming rentiers. In practice, we find
both logics at work in every society. Nevertheless, there is more than one way of
achieving the same level of inequality, and what primarily characterizes the United
States at the moment is a record level of inequality of income from labor (probably
higher than in any other society at any time in the past, anywhere in the world, including
societies in which skill disparities were extremely large) together with a level of
inequality of wealth less extreme than the levels observed in traditional societies
or in Europe in the period 1900–1910. It is therefore essential to understand the
conditions under which each of these two logics could develop, while keeping in mind
that they may complement each other in the century ahead and combine their effects.
If this happens, the future could hold in store a new world of inequality more extreme
than any that preceded it.
²¹

Before turning to a country-by-country examination of the historical evolution of
inequality in order to answer the questions posed above, several methodological issues
remain to be discussed. In particular,
Tables 7.1
–
3
include indications of the Gini coefficients of the various distributions considered.
The Gini coefficient—named for the Italian statistician Corrado Gini (1884–1965)—is
one of the more commonly used synthetic indices of inequality, frequently found in
official reports and public debate. By construction, it ranges from 0 to 1: it is
equal to 0 in case of complete equality and to 1 when inequality is absolute, that
is, when a very tiny group owns all available resources.

In practice, the Gini coefficient varies from roughly 0.2 to 0.4 in the distributions
of labor income observed in actual societies, from 0.6 to 0.9 for observed distributions
of capital ownership, and from 0.3 to 0.5 for total income inequality. In Scandinavia
in the 1970s and 1980s, the Gini coefficient of the labor income distribution was
0.19, not far from absolute equality. Conversely, the wealth distribution in Belle
Époque Europe exhibited a Gini coefficient of 0.85, not far from absolute inequality.
²²

These coefficients—and there are others, such as the Theil index—are sometimes useful,
but they raise many problems. They claim to summarize in a single numerical index
all that a distribution can tell us about inequality—the inequality between the bottom
and the middle of the hierarchy as well as between the middle and the top or between
the top and the very top. This is very simple and appealing at first glance but inevitably
somewhat misleading. Indeed, it is impossible to summarize a multidimensional reality
with a unidimensional index without unduly simplifying matters and mixing up things
that should not be treated together. The social reality and economic and political
significance of inequality are very different at different levels of the distribution,
and it is important to analyze these separately. In addition, Gini coefficients and
other synthetic indices tend to confuse inequality in regard to labor with inequality
in regard to capital, even though the economic mechanisms at work, as well as the
normative justifications of inequality, are very different in the two cases. For all
these reasons, it seemed to me far better to analyze inequalities in terms of distribution
tables indicating the shares of various deciles and centiles in total income and total
wealth rather than using synthetic indices such as the Gini coefficient.