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South Africa/Global: Piketty says "Tax the Rich"
AfricaFocus Bulletin
October 6, 2015 (151006)
(Reposted from sources cited below)
Editor's Note
"I think Europe and North America should stop having a double
language with Africa, which is on the one hand they always give
lessons about governance and transparency etcetera, and on the other
hand, their own multinational companies and their own wealthy
citizens are the very ones who are benefiting from financial opacity
and they are doing nothing at all about it." - Thomas Piketty, in
Nelson Mandela Annual Lecture
In a speech challenging both national and global inequality, with a
particular focus on France and South Africa, economist Thomas
Piketty concluded with calls for taxes on wealth, and a public
global registry of financial assets to make that possible. The
speech evoked a frenzy of comment in South Africa (do a search of
Google News for Piketty while limiting the search to South African
sites with the qualifier "site:.za," to sample some of the
reaction). It varied from praise to denunciations of Piketty's
analysis as "Marxist" or alternately, "unrealistic," to those who
criticized him for having a flawed analysis that disregarded Marxist
insights.
A few selected commentaries out of many:
Business Day http://tinyurl.com/pf2jrqn - "Piketty rouses us to
think anew" but "His theories certainly need to be subjected to
careful testing in SA's context"
Ismail Lagardien http://tinyurl.com/pwd7hhq - "We need fresh
thinking. Piketty has laid down an important marker for dealing with
capitalism in the 21st century."
John Catsikas http://tinyurl.com/pn5hx3w - "The likes of Cecil John
Rhodes, Andrew Carnegie, JP Morgan, John D Rockefeller and now Bill
Gates dispensed their wealth in meaningful ways that no government
can hope to emulate." [editor's question: he is senior partner at
John Nicholas Analytics in Johannesburg (Sandton); is this the same
John Nicholas with a website called www.offshorestlucia.com/?]
Patrick Bond http://tinyurl.com/qg49lzb - "Why inequality will not
be fixed with Pikettian posturing and distorted data" but "It is the
challenge of changing the political balance of forces that far
transcends our ideological bantering, isn't it?"
For previous AfricaFocus Bulletins on related issues, visit
http://www.africafocus.org/intro-iff.php and
http://www.africafocus.org/country/southafrica.php
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Transcript of Nelson Mandela Annual Lecture 2015
Nelson Mandela Foundation, 3 October 2015
http://www.nelsonmandela.org
[Excerpts: for full text, video, and audience reaction, visit
http://tinyurl.com/njftjgg]
This is an edited transcript of economist Professor Thomas Piketty's
address to the 13th Nelson Mandela Annual Lecture, which took place
at the University of Johannesburg's Soweto campus on 3 October 2015.
...
Of course, now that we are 25 years after the fall of apartheid, we
are all puzzled by the fact that inequality is not only still very
high in South Africa, but has been rising and, in some way, income
inequality is even higher today than 20 years ago, which is
extremely puzzling for all of us. This is something we want to
better understand.
We also know from historical experience, that extreme inequality of
the kind of levels we observe in South Africa is not good for
development and growth, and it can also lead to violent reactions
and violent events. And we all have in mind the very violent
episodes at Marikana three years ago, and we know from historical
experience that if inequality is not addressed through peaceful
means and peaceful democratic institutions it's always potentially a
source of violence. And, of course, this can happen again.
So, what I'd really like to do in this lecture is to try to see what
we can learn from the historical experience of other countries with
inequality in order to better analyse future opportunities for a
country like South Africa, but more generally for the world issue of
inequality.
Let me say right away, and I will speak more about this, the fact
that inequality today in some dimensions is higher in South Africa
than what it was 20 years ago in terms of concentration of income is
partly due to international factors which are not completely under
the control of the South African government. I will come back to
this later. I think the international community broadly speaking has
a big responsibility for the situation of inequality in South
Africa, in Africa ... and the world in general, and some of the
solutions will have to come from the international community.
But it is not enough to just blame international factors. I think
that there are also deeper reasons for the fact that, in terms of
the reduction of inequality, the South African revolution so to
speak, did not deliver as much as one might have expected. Generally
speaking, I would say the general reason is that equality in formal
rights and in basic civil rights even though it is of course very
important the right to move in your country, the right to take all
possible occupations, at least in theory, the right to vote all
these formal civil rights are extremely important, but equality in
formal rights are not sufficient to reach real equality.
So if you want effective rights to move, it's not enough to be
formally allowed to go to other parts of the country. If you cannot
pay rent or housing to go where the jobs are, in effect the right to
move remains a very limited right.
More generally I would argue that we now need to think harder about
how to secure effective rights, including the right to work for a
decent wage, the right to good quality education, the right to have
access to property, and finally, and maybe most importantly, the
right to real economic and political democracy including sharing of
economic power in companies and participatory governance in the
public and private sector.
In this presentation, I'm going to make three different points. In
the first part I will try to put the issue of inequality into
historical perspective, and see what we can learn from historical
experiences with the reduction of inequality in different countries.
Then, the second point will be about a solution for reducing
inequality in South Africa, that we can draw from historical
experiences, and the third part of the lecture will be about the
global response to inequality and the need for international action.
Let me first start with history and the historical perspective. I
think it's important, because there's a lot of historical amnesia in
the world sometimes about inequality, and I think it's important to
take this broad historical and comparative perspective.
As a scholar and academic, my work has been primarily the work of a
historian, trying to collect historical data on inequality and
wealth. I should stress that this was only possible through a very
collective research project. ...
... I think it is important to realise that issues of inequality,
income, wealth, capital, public debt are not technical issues
these are issues in which everybody must have an opinion because
ultimately they are what determine political change.
So if you look at this historical database that we have collected,
probably the most important finding is that we cannot simply rely on
market forces and "trickle-down" mechanisms in order to deliver the
right level of inequality.
...
In particular, one very important finding is that if you look at the
reduction of inequality that happened during the first half of the
20th century in North America, in Europe or in Asia, you can see
that this has nothing to do with natural, process-based market
forces.
It is due, to a large extent, to the very violent shocks of World
War I, the Great Depression, World War II and most importantly, to
the new policies, the new social policies, welfare state policies,
new fiscal policies, progressive taxation that were finally accepted
by the elites after these violent shocks and also after the
Bolshevik Revolution, which put strong pressures on the elite in
Western countries to accept reforms, which until 1914 and World War
I were refused.
...
So, there were privileges in the country [France] and at that time,
the hope during the French Revolution was that, if we have equal
rights to take all occupation, to move, equal rights to property
then this should be enough to bring a country of equals. And the
fact that it doesn't work this way and that, in fact, over the
course of the 19th century and in the earlier 20th century, we get
to a concentration of wealth that is in some ways even higher than
under the Ancien Régime, is very interesting because it shows
probably one of the deep reasons that I try to explain in my
research. It is that the fact of being a republic rather than a
monarchy doesn't really change the deep economic mechanisms through
which concentration of wealth is working; and in particular the fact
that all over the 19th century you have a rate of return to capital
that is markedly higher than the growth rate of the economy 4%,
5%, 6% per year for the new capital investment in the manufacturing
sector, as compared to a gross rate of 1% or 2% per year, well this
gap between the two can explain to a large extent why we continue
with the very large concentration of wealth until World War I.
So it's only very violent shocks which occurred in the 20th century,
which finally convinced the elite to accept a number of fiscal and
social reforms that were not adopted before.
I think this is of interest to South Africa, because, of course, I
don't want to compare the French revolution and the South African
revolution; it's completely a different context, and in a way the
inequality regime that existed under apartheid was much more
oppressive and violent than the Ancien Régime in France.
... the repression of basic rights which was happening under
apartheid was much more violent with restrictions to mobility and we
had a reference to this and expulsion [referring to previous speech]
and the very strong territorial discrimination, which did not really
exist in France in the 18th century, and which in some ways looked
more like the serfdom systems that we had a couple of centuries
before.
So, the challenges, the system from which South Africa comes from
is, in a way, a much more oppressive inequality system than France
and the Ancien Régime, and that's another reason why formal equal
rights is not sufficient to bring equality. ...
So now, let me now turn to the issue of inequality in South Africa
today and what kind of response to reduce inequality we can think
of.
First, what do we know about the level of inequality in South
Africa, how it has changed since the fall of apartheid and how does
this compare to other countries?
We know too little, in particular regarding wealth concentration,
but everything we know suggests an unusually high level of
inequality, higher than what we observed pretty much everywhere else
in the world. So just to take one number which I find particularly
striking if we use South African income tax data, together with a
national accounts household survey, and we do the same for other
countries, we find that the share of total income going to the top
10% income earners in South Africa currently, right now, is between
60% and 65% of total income for the top 10%.
...
Of course, this group historically has been predominantly, almost
exclusively, white. Even today if you look at the data, especially
within the top 1%-5%, it will be up to 80% white, so things have
changed a little bit, but we are still are very much with this same
structure of racial inequality that we used to have. So now how can
we make progress? Let me make it clear that I'm not here to give
lessons to South Africa, I am trying to see what we can learn from
historical experience.
Certainly, the international context has played a role in rising
inequality in South Africa since the 1990s. Let me mention a number
of reasons.
Certainly, financial deregulation, which has happened over the world
in the past 25 years, has contributed to rising inequality. More
generally, the fall of communism around 1990 has opened the way for
a new era, an unlimited phase in self-regulated markets, and in some
cases it has clearly gone too far. Financial deregulation is one
example and this has contributed to the rise of financial fragility,
and which eventually contributed to the financial crisis of 2008.
...
But, it will not be enough just to blame these international
factors.
I think there are domestic solutions to the inequality in South
Africa, so as I already said, there are four areas of rights where
we need to turn to a policy of effective rights rights to labour,
work for a decent wage, right to high-quality education, right of
access to property, and right to economic and political democracy.
So let me say just a bit more about these four rights.
Regarding right to work for a decent wage, I think the discussions
that South Africa is having right now about the introduction of a
national minimum wage is extremely important and I think from this
historical and comparative experience, I have, in my view, if we are
able to find the right level of the national minimum wage, then
definitely South Africa could and should introduce the national
minimum wage.
...
Now, this in itself is not going to solve the key problem, which is
the inability to access higher-paying jobs, and so here is a second
important effective right that needs to be strengthened, is the
right to high-quality education together with the right to adequate
public infrastructure, including transportation infrastructure.
Regarding public education, I think it is fair to say that the
quality of public, primary education and junior and secondary
education that is available to the most disadvantaged groups in this
country is not satisfactory, and that this should be a national
priority and a lot of progress could be made in this direction.
I understand that many people, in particular many business leaders
that I have met in recent days, are very sceptical about the
capacity of the government to deliver this, but on the other hand I
think there is no other option than to try to improve the
functioning and to contribute, to pay the tax that we need in order
to finance this public sector of education. ... privatising the
education ... will not work; I think what has worked in history, in
order to have sustainable and equitable growth is to have a wellfunctioning
public education and health system, and South Africa
should go in this direction.
The third, effective right which I want to stress is the right to
access to property. ...I think it's fair to say that black economic
empowerment (BEE) strategies, which were mostly based on voluntary
market transactions, [and or not] market values were not that
successful in spreading the wealth and limiting the extreme
concentration of wealth from which we start in South Africa. So I
think we need to think again about more ambitious land reform.
I also think that like many other countries, but maybe even more
than other countries, South Africa will benefit from increased
transparency about wealth and about who owns what in South Africa.
... in fact there is very little data in fact on wealth [in South
Africa]. That's partly because access to the estate tax data is
extremely difficult, to say the least, in South Africa. I think it
would be important and absolutely possible for South Africa to
introduce an annual tax on net wealth a progressive annual tax on
net individual wealth, even if it comes with a very low tax rate to
begin with. For example, zero percent for R1-million in wealth, 0.1%
between R1-million and R10-million and 0.5% above R10-million I'm
just putting numbers so that people have an idea.
I think even with relatively low tax rates such as these ones, the
big advantage of an annual tax on wealth is that it would produce
democratic transparency about wealth and we would know more about
who owns what in South Africa and how this is changing over time.
...
I understand that many people in the business community might be
against that, but then in the end, in the long run, I think it is in
the interest of the business community to promote transparency about
wealth. If you refuse transparency, it must be there is something to
hide. That's not good. In order to build trust in a country I think
it's very important to have that kind of transparency about income
and wealth dynamics.
And finally, the last and fourth effective right which I would like
to stress has to do with economic and political democracy. I think
it's important in South Africa, like in other countries in the
world, to have new discussions about worker participation in
companies and participatory governance. There are many countries in
the world, including countries that are doing very well in terms of
economic efficiency and exports and competitiveness, like Sweden and
Germany, where workers have strong power in the board of companies.
In Sweden, you have one-third of your seats in boards of companies
that go to workers; in Germany it's up to half, and apparently this
does not prevent them from producing good products and exporting all
over the world.
...
Now, let me turn to the third, and final part of this lecture, which
has to do with is the global response to inequality. I think it's
clear that South Africa cannot solve all inequality problems in the
world alone and there are many issues which rich countries,
particularly countries in the north, have a huge responsibility,
particularly in order to promote global financial transparency and
fight against tax havens. More generally, it's clear that countries
in the north have a huge historical responsibility for inequality in
the world today and poverty in many southern countries. Europe has a
direct responsibility for the existence of apartheid in the first
place and, more generally, the apartheid system was a simply one
extreme version of a form of a colonial inequality structure that
you see in French colonies, in British colonies, all across colonial
history.
The French Revolution, again, was very strong in terms of abstract
principles. Article 1 of the Declaration of the Rights of Man of
1789 was saying that all men should have equal rights, that social
distinction should be based only on common utility. But, in
practice, the French Republic went on to develop one of the worst
colonial empires in history. The French revolutionaries said in 1792
that they wanted to abolish slavery, but then, the government of
France under Napoleon reinstated slavery, which was finally and
abolished finally in 1848.
And when Haiti took the French Revolution seriously and decided that
they would be independent in 1804, not only was France very unhappy,
but France said in the end, in 1825: "You're going to be
independent, but you're going to pay a price for it and there is
going to be a large compensation to the slave owners, to us, for you
being free." A very large public debt was imposed on Haiti and Haiti
had to reimburse until the middle of the 20th century and all along
the 19th century, Haiti is paying interest to France as compensation
for the fact that the slave owners are not getting any income from
their slaves.
There is so much historical amnesia. We forget about these things.
When Haiti started to ask for compensation again a few years ago and
in 2004, when they were commemorating their 200th anniversary, the
French government said: "Okay, we won't go to Haiti for the
anniversary, because we don't want to hear about this compensation."
This is just an example to say that historical amnesia, and the
responsibility of northern countries in today's inequality situation
in the world is enormous. If we look at the future, because, just
talking about the past is not enough, although I think in this case
there is still time for compensation and reimbursing that debt that
was paid from Haiti to France. But if we look at the future, and
from a more global perspective, I think it's clear that Europe and
North America have a strong responsibility if we want to encourage
financial transparency in the world. I think Europe and North
America should stop having a double language with Africa, which is
on the one hand they always give lessons about governance and
transparency etcetera, and on the other hand, their own
multinational companies and their own wealthy citizens are the very
ones who are benefiting from financial opacity and they are doing
nothing at all about it. So it's really a double language, which I
think is absolutely terrible.
What Africa needs is not foreign aid. Africa is not asking for help.
What Africa needs is an international legal system that allows
African countries to make multinational companies and wealthy
citizens pay their fair tax. This is what Europe and North America
should now offer. So I think there are at least two concrete
proposals that northern countries should make, on which they should
make substantial progress.
The first one is that there should be a lot more transparency about
how much multinational companies from Europe and North America are
paying in tax when they are doing business in Africa ...
Now the second proposal, which I think is even more important, is
that Europe and North America should accept the creation of a world
financial register on financial assets, which would be a central
repository for financial assets so that we will know who owns what
financial assets all across the world.
Some of you might react by saying, "Oh, but this is completely
Utopian, how could we do that?" Well, let me tell you that in fact
we already have this kind central repository for assets, because
it's useful for private companies to know who owns them. ... So
these are private corporations who are offering these services to
financial companies, so that they keep track of who owns them. But
these private institutions do not collaborate with the public
institution, in particular do not send their information to the tax
administration. So I think it is time that governments in Europe and
North America, in particular, but all across the world, take control
of these private repository institutions and create a public wealth
registry of financial assets.
...
That will be very important for everybody in the world, but
particularly for Africa, because if we take the existing estimates
of what fraction of the world financial assets are held in tax
havens, the fraction is much bigger in African countries, or for the
Middle East, than it is for Europe or France. The best estimates we
have for Africa are between 30% and 50% of financial wealth is held
offshore. So clearly, this is in effect a way to take away from
Africa some of the resources that are necessary for development.
...
what we need really for the future is not so much to talk about aid,
but simply to change the international legal system so that African
governments can conduct a tax policy without being always
threatened, sometimes by their own business community, to go away
and not contribute to the common good.
I understand some people today are saying, "Okay, but we could just
organise the system through voluntary donations and charitable
giving" and I understand that people who have a lot of money would
like just to decide how much to contribute to such-and-such a
project, but it's very difficult to organise a society like this.
It's very difficult to organise a society where thousands of people
just want to decide for themselves how much they want to contribute
to the public good.
So we need a legal system, in particular, an international legal
system, that allows African countries to develop a fair tax system
that's asking as much from the people at the top, at least as much
as the people in the middle and at the bottom, which is not the case
as of today.
...
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