Thomas Piketty and the Post-Plague World

The growing gulf between rich and poor has unleashed fierce debate since the French economist published “Capital and Ideology” in 2019. The economic meltdown from the Corvid-19 crisis gives the debate a bitter new immediacy.

Zugzwang, a forced move, is the despairing moment for the threatened chess player, when any choice will worsen his position – but neither does he have the option of doing nothing. The Coronavirus crisis is forcing governments to choose between saving lives or livelihoods. Death counts rise despite restrictions, frustrated citizens demand their withdrawal.

Most of those responsible – presidents, premier ministers, governors and mayors – have taken a clear stand on the priority of saving lives. Seems like an easy choice. But the elephant in the room is the collapsing economy, the basis of livelihood. “Subordinating all other concerns to the goal of saving lives is in its absolutism not correct,” said Wolfgang Schäuble, ex Finanzminister and leader of the house in the German parliament. In his interview with Der Tagesspiegel he added pointedly, that the German Constitution’s right to human dignity “does not exclude the possibility that we must die.” The debate will only become more intense in the coming weeks as encouraging infection numbers increase the pressures for relaxing the lockdown.

This is the story we are all following day for day. No easy choices.

Many losers, some winners

With near certainty this too will pass, there will be a time after Corvid-19, a post-Corona economy. The next question is: who will be the winners and who the losers? For however bleak everything looks at the moment, some will come out on top. 

The immediate losers are all too clear – gig economy workers, service industries food and hospitality, those on short-term contracts and pretty much anyone whose job cannot be done from home. The longer-term implications are not so clear, and the discussion is important. “Lockdown with collateral damage” headlined an enlightening summary by Aloysius Widmann April 27 in the daily Der Standard. The accompanying illustration showed a slaughtered pottery piggy bank, spilling out its guts of small change.

Widmann’s core message: The wealth gap between rich and poor will widen. Those with cash or property reserves will come out as winners, those at the bottom of the food chain will need longer to climb back, even as the economy revives. The ten percent of Austrian households with debts of €60,000 or more will really have to struggle, noted an economist at WIFO (an Austrian economic research institute). 

Not for sale

Other fallout is less obvious: Damaged companies with reduced evaluations will be easy pickings for foreign investors, analysts warned. The Chinese and the Americans particularly will be prowling for bargains. The EU Commission has already issued a general warning to members to be on the alert.

The Austrian government has put together a criteria template that identifies strategic areas – health, food and energy – where the country cannot afford to lose control, reports Luise Ungerboeck in Der Standard April 28. Participation from non-EU investors over the 25% threshold will trigger investigation and require permission. The tipping point might even be set lower, at 10% – the German model – for “areas of especially sensitive infrastructure.” Key industries like robotics and “everything that has to do with R&D” (basic research) could also be included, said Economics Minister Margarete Schrambök. A Munich-based thinktank suggested – so far unconfirmed – that the Austrian government is considering stepping in to buy a stake in certain strategically important companies.

In normal times EU competitive regulations strictly limit state ownership, and the governing ÖVP is generally opposed on principle. But these are not normal times. The pandemic could trigger a return to an earlier era, when government holding companies discreetly controlled strategic industries –  “the commanding heights of the economy,” in the ringing phrase of Britain’s Labor Party in its more red-blooded days.

More state or less state?

Back to longer-term winners and losers post Corona. French economist Thomas Piketty describes how the wealth cleavage in some countries – particularly the U.S. and the U.K. – had started to widen again in historical terms even before the pandemic. Piketty builds his case in precise layers of evidence, each confirming the previous with such inescapable logic that the reader is reduced to one of those mechanical nodding dogs: you have no choice but to agree.

His most convincing metric is the disparity between wealth or income of the upper centile (1%) and the bottom 50%. His principal concern is the sudden turnaround in a centuries-long positive trend – i.e., from the extreme wealth discrepancies of feudal societies to far more egalitarian distribution in mid-20th-century industrial nations. By the 1970’s-1980’s, the poverty gap began to open up again, most notably in the hard market economies USA and Great Britain, but also in newly commodity rich Russia and Saudi-Arabia. This for Piketty was a warning sign of potential social disaster that governments must meet with a robust response. None of this is new, it revives the old left-right debate: big state vs. small state, state ownership of key industries vs. free-wheeling market competition. Should we cut the cake more equitably or enlarge the cake? Should we squeeze the rich or rely on trickle-down economics? 

Pax Corona adieu

Here in Austria the ideological battle lines are becoming clear. “It shouldn’t be, that the wealthy come out unscathed,” pronounced Grüne party chair Sigrid Maurer. The implication is unmistakable: government intervention to re-adjust wealth distribution in favor of Piketty’s bottom 50%.  The rebuff was prompt: “We don’t need more state post-Corona, but less” thundered self-confessed neo-liberal Christian Ortner a few days later in the centrist right daily Die Presse.

The political truce is crumbling fast. “This is just the beginning of the fierce distribution debate we can expect,” wrote Eva Linsinger in the weekly Profil. But, she also pointed out, we may be in for some interesting ideological surprises, even within the conservative ÖVP. In a party that has always preached “more private, less state,” political hardliner Wolfgang Sobotka is now floating the idea that partial nationalization could indeed make sense.  In normal times, this would be party political heresy.

In such turbulent times as these, anything can happen. 

(Foto: Louis Hansel @shotsoflouis on Unsplash)

Simon Ballam
English, studied in NY and worked in London, Düsseldorf, NY, Fankfurt, Prague and Vienna. This covered stints in market research and the film industry, international advertising coordination and strategic planning. Currently business school lecturer and journalist.

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