theatlantic | As I wrote last week,
the profound impact of Piketty’s book is largely a result of the fact
that it was published at a time when growing economic inequality has
become an American preoccupation. Since the United States has proven so
adept at globalizing its anxieties and exporting its policy debates, the
Piketty phenomenon is extending to places where inequality has been
pervasive for so long that the public seemed inured to it and resigned
to passively accept it. Now, members of many of these societies are
actively debating how to bring inequality down.
In order for this discussion to be valuable, however, the problem
requires a more complete diagnosis. It is not accurate to assert that in
countries like Russia, Nigeria, Brazil, and China, the main driver of
economic inequality is a rate of return on capital that is larger than
the rate of economic growth. A more holistic explanation would need to
include the massive fortunes regularly created by corruption and all
kinds of illicit activities. In many countries, wealth grows more as a result of thievery and malfeasance than as a consequence of the returns on capital invested by elites (a factor that is surely at work too).
To channel Piketty, inequality will continue to rise in societies
where “c > h.” Here, “c” stands for the degree to which corrupt
politicians and public employees, along with their private-sector
cronies, break laws for personal gain, and “h” represents the degree to
which honest politicians and public employees uphold fair governing
practices. Corruption-fueled inequality flourishes in societies where
there are no incentives, rules, or institutions to hinder corruption.
And having honest people in government is good, but not enough. The
practices of pilfering public funds or selling government contracts to
the highest bidder must be seen as risky, routinely detected, and
systematically punished.
Most of the roughly 20 nations from which Piketty forms his analysis
classify as high-income countries and rank among the least-corrupt in
the world, according to Transparency International.
Unfortunately, most of humanity lives in countries where “c > h” and
dishonesty is the primary driver of inequality. This point has not
attracted as much attention as Piketty’s thesis. But it should.
