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Communist and Postcommunist Societies

Thus far, we have analyzed the fall of ownership society between 1914 and 1945 and the way in which the social-democratic societies that were constructed in the period 1950–1980 entered a period of crisis in the 1980s. For all its successes, social democracy proved unable to cope adequately with the rise of inequality because it failed to update and deepen its intellectual and political approach to ownership, education, taxation, and above all the nation-state and regulation of the global economy.

We turn now to the case of communist and postcommunist society, primarily in Russia, China, and Eastern Europe. The goal is to analyze communist society’s place in the history and future of inequality regimes. Communism, especially in its Soviet form as the Union of Socialist Soviet Republics (USSR), was the most radical challenge that proprietarian ideology—its diametrical opposite—ever faced. Whereas proprietarianism wagered that total protection of private property would lead to prosperity and social harmony, Soviet Communism was based on the complete elimination of private property and its replacement by comprehensive state ownership. In practice, this challenge to the ideology of private property ultimately reinforced it. The dramatic failure of the Communist experiment in the Soviet Union (1917–1991) was one of the most potent factors contributing to the return of economic liberalism since 1980–1990 and to the development of new forms of sacralization of private property. Russia, in particular, became a symbol of this reversal. After three-quarters of a century as a country that had abolished private property, Russia now stood out as the home of the new oligarchs of offshore wealth—that is, wealth held in opaque entities with headquarters in foreign tax havens: in the game of global tax evasion, Russia became a world leader. More generally, postcommunism in its Russian, Chinese, and East European variants has today become hypercapitalism’s best ally. It has also inspired a new kind of disillusionment, a pervasive doubt about the very possibility of a just economy, which encourages identitarian disengagement.

We will begin by analyzing the Soviet case, especially the reasons for the failure of communism and the inability to imagine any form of economic or social organization other than hypercentralized state ownership. We will also study the Russian regime’s kleptocratic turn since the fall of Communism and its place in the global rise of tax havens. We will then look at the case of China, who took advantage of Soviet and Western failures to build a dynamic mixed economy with which it was able to make up the ground lost under Maoism. In addition, the Chinese regime raises fundamental questions for Western parliamentary democracies. The answers it proposes, however, require a degree of opacity and centralism incompatible with effective regulation of the inequalities produced by private property. Finally, we will examine the postcommunist societies of Eastern Europe, their role in the transformation of the European and global inequality regime, and the way in which they reveal the ambiguities and limitations of the economic and political system currently in place in the European Union.

Is It Possible to Take Power Without a Theory of Property?

To study the Soviet Communist experience (1917–1991) today is first of all to try to understand the reasons for its dramatic failure, which still weighs heavily on any new attempt to think about how capitalism might be overcome. The Soviet failure is also one of the main political-ideological factors responsible for the global rise of inequality in the 1980s.

The reasons for this failure are numerous, but one is obvious. When the Bolsheviks took power in 1917, their action plan was not nearly as “scientific” as they claimed. It was clear that private property would be abolished, at least when it came to the major industrial means of production, which in any case were relatively limited in Russia at that time. But how would the new relations of production and property be organized? What would be done about small production units and about the commercial, transport, and agricultural sectors? How would decisions be made, and how would wealth be distributed by the gigantic state planning apparatus? In the absence of clear answers to these questions, power quickly became ultra-personalized. When results failed to measure up to expectations, reasons had to be found and scapegoats designated, which led to accusations of treason and capitalist conspiracies against the Communist state. The regime then resorted to purges and imprisonments, which to some extent continued until its downfall. It is easy to proclaim the abolition of private property and bourgeois democracy but more complex (as well as more interesting) to draw up detailed blueprints for an alternative political, social, and economic system. The task is not impossible, but it requires deliberation, decentralization, compromise, and experimentation.

My purpose is not to blame Marx or Lenin for the failure of the Soviet Union but simply to observe that before the seizure of power in 1917, neither they nor anyone else had envisioned solutions to the crucial problems involved in organizing an alternative society. To be sure, in Class Struggles in France (1850) Marx did warn that the transition to communism and a classless society would require a phase of “dictatorship of the proletariat,” during which all means of production would need to be placed in the hands of the state. The term “dictatorship” was hardly reassuring. But in reality this formula really said nothing about how the state should be organized, and it is very difficult to know what Marx would have recommended had he lived to see the Revolution of 1917 and its aftermath. As for Lenin, we know that shortly before his death in 1924 he favored the New Economic Policy (NEP), which envisioned an extended period of reliance on a regulated market economy and private property (even if the modes of regulation remained largely undefined). Joseph Stalin, wary of anything that might slow the process of industrialization, chose to avoid these complexities: in 1928 he ended the NEP and ordered immediate collectivization of agriculture and full state ownership of the means of production.

The absurdity of the new regime became quite apparent in the late 1920s when the government moved to criminalize independent workers who did not fit readily into standard categories but were nevertheless essential to urban life and the Soviet economy. Among those stripped of civil rights (including the right to vote and, above all, the right to rations, which made survival difficult) were not only members of the old Tsarist military and clerical classes but also anyone “deriving income from private commerce or wholesale activities” as well as anyone “hiring a worker for the purpose of earning a profit.” In 1928–1929, some 7 percent of the urban and 4 percent of the rural population were thus included on so-called listenzii lists for engaging in prohibited activities. In practice, this measure targeted a whole population of carters, food sellers, craftsmen, and tradespeople.

In their applications for rehabilitation, which involved endless bureaucratic paperwork, these people described their “little lives” and scant possessions—nothing more than a horse and cart or a humble food stand—and professed their bewilderment at being targeted by a regime they supported and whose forgiveness they implored.1 The absurdity of the situation stemmed from the fact that it is obviously impossible to organize a city or a society solely with authentic proletarians, if “proletarian” is defined as a worker in a large factory. People need to eat, dress, move about, and find housing, and these things require large numbers of workers in production units of various sizes, sometimes quite small, which can be organized only in a fairly decentralized way. Society depends on each person’s knowledge and aspirations and sometimes requires small businesses funded with private capital and employing a handful of workers.

The 1936 Constitution of the USSR, promulgated at a time when it was believed that these deviant practices had been definitively eradicated, instituted “personal property” alongside “socialist property” (meaning state property, including collective farms and cooperatives strictly controlled by the state). But personal property consisted solely of possessions acquired with the income from one’s work, as opposed to “private property,” which consisted of ownership of the means of production and therefore implied exploitation of the work of others, which was completely banned, no matter how small the production unit. To be sure, exceptions to the rule were regularly negotiated: for instance, collective farmworkers were allowed to sell a small part of their production at farmers’ markets, and Caspian Sea fishermen were permitted to sell part of their haul for their own benefit. The problem was that the regime devoted considerable time to undermining and renegotiating its own rules, partly out of ideological dogmatism and wariness of subversive practices and also because it needed scapegoats and “saboteurs” to blame for its failures and for the frustrations of its people.

At the time of Stalin’s death in 1953, more than 5 percent of the adult Soviet population was in prison, more than half for “theft of socialist property” and other minor larceny, the purpose of which was to make their daily lives more bearable. This was the “society of thieves” described by Juliette Cadiot—a symbol of the dramatic failure of a regime that was supposed to emancipate the people, not incarcerate them.² To find a similar incarceration rate, one would have to look at the black male population of the United States today (about 5 percent of adult black males are in prison). Looking at the United States as a whole, about 1 percent of the adult population was behind bars in 2018, enough to make the country the unchallenged world leader in this category in the early twenty-first century.³ The fact that the Soviet Union had an incarceration rate five times as high in the 1950s says a great deal about the magnitude of the human and political disaster. It is particularly striking to discover that the incarcerated were not just dissidents and political prisoners; the majority were economic prisoners, accused of stealing state property, which was supposed to be the means of achieving social justice on earth. Soviet prisons were full of hungry people who pilfered from their factories or collective farms: petty thieves accused of stealing a chicken or a fish and factory managers accused of corruption or embezzlement, often wrongly. Such people became targets of officials determined to brand “thieves” of socialist property as enemies of the people and were subject to five to twenty-five years of hard labor for minor thefts and capital punishment for more serious offenses. Interrogation and trial transcripts allow us to hear the voices and justifications of these alleged thieves, who do not hesitate to challenge the legitimacy of a regime that failed to keep its promise of improving living conditions.

It is interesting to note that one paradoxical consequence of World War II was that the Soviet regime briefly adopted a somewhat more expansive concept of private property, at least on the surface. This had to do with postwar Russian demands for indemnification and compensation for Nazi destruction and pillage in occupied parts of Russia between 1941 and 1944. Under international law at that time private losses would receive more generous indemnities than public losses. Soviet commissions therefore methodically set about collecting testimony about damage to private property, including losses by small production units that had supposedly been abolished by the constitution of 1936. In practice, however, this invocation of private property was essentially a rhetorical strategy that the regime deployed on the diplomatic and legal front, usually without direct consequences in terms of actual restitution to the individuals said to have suffered the losses.⁴

On the Survival of “Marxism-Leninism” in Power

Given these depressing results, it is natural to ask how the Soviet regime could have stayed in power for so long. Clearly its repressive capacity is part of the answer, but as with all inequality regimes, one must also consider its persuasive capacity. The fact is that “Marxist-Leninist ideology,” on which the Soviet ruling class relied to maintain itself in power, had, for all its weaknesses, a number of strengths. The most obvious was the comparison with the previous regime. Not only had the Tsarist regime been deeply inegalitarian; it had also failed dismally to develop Russia’s economy, society, and schools. The Tsarist government relied on noble and clerical classes directly descended from premodern trifunctional society. It abolished serfdom in 1861, only a few decades before the Russian Revolution of 1917. At that time serfs still accounted for nearly 40 percent of the population. At the time of abolition, the imperial government decreed that former serfs must pay an annual indemnity their former owners until 1910 in return for their freedom. The spirit was similar to that of the financial compensation awarded to slaveowners when the United Kingdom abolished slavery in 1833 and France in 1848, except that the serfs lived in the Russian heartland rather than on remote slave islands.5 Although most payments ended in the 1880s, the episode places the Tsarist regime and Russian Revolution in perspective by reminding us of the extreme forms that the sacralization of private property and the rights of property owners sometimes took before World War I (regardless of the nature and origin of the property).

With the Tsarist government as point of comparison, the Soviet regime had no difficulty portraying its project as one that held out greater promise for the future in terms of both equality and modernization. And in spite of repression, ultra-centralization, and state appropriation of all property, public investment in the period 1920–1950 clearly did lead to rapid modernization that brought the Soviet Union closer to Western European levels, especially in the areas of infrastructure, transportation, education (and literacy), science, and public health. Within a few decades the Soviet regime had considerably reduced the concentration of income and wealth while raising the standard of living, at least until the 1950s.

With respect to income inequality, recent work has shown that the top decile’s share of national income remained fairly low throughout the Soviet period, around 25 percent from the 1920s to the 1980s, compared with 45–50 percent under the Tsars (Fig. 12.1). The top centile’s share decreased to around 5 percent of total income in the Soviet era compared with 15–20 percent before 1917 (Fig. 12.2). To be sure, such estimates have their limits. The available data on monetary incomes have been corrected to reflect the in-kind benefits available to the privileged classes in the Soviet regime (including access to special stores, vacation centers, and so on), but such corrections are by their nature approximate.⁶ In the end, the data on income inequality in the Soviet period mainly demonstrate the fact that the Communist regime did not structure its inequalities around money. For one thing, capital income, which constitutes a large share of the income of high earners in other societies, was totally absent in the Soviet Union. For another, the pay differences between a worker, an engineer, and a government minister were relatively small.⁷ This was an essential characteristic of the new regime, which would have lost all internal ideological coherence and forfeited all legitimacy if it had begun paying its leaders salaries and bonuses one hundred times the pay of ordinary workers.

FIG. 12.1.  Income inequality in Russia, 1900–2015

Interpretation: The top decile share of total national income averaged 25 percent in Soviet Russia, lower than in Western Europe or the United States, before rising to 45–50 percent after the fall of communism, surpassing both Europe and the United States. Sources and series: piketty.pse.ens.fr/ideology.

FIG. 12.2.  The top centile in Russia, 1900–2015

Interpretation: The top centile share of total national income averaged 5 percent in Soviet Russia, lower than in Western Europe or the United States, before rising to 20–25 percent after the fall of communism, surpassing both Europe and the United States. Sources and series: piketty.pse.ens.fr/ideology.

However, this should not obscure the fact that the regime organized its inequalities in other ways by offering in-kind benefits and privileged access to certain goods to its officials. These are difficult to take fully into account. There were also stark status differences: the mass incarceration of whole classes of people is only the most extreme instance of this; there was also a sophisticated internal passport system, which restricted the mobility of some, including the ability of peasants, who suffered greatly from the collectivization of agriculture and the forced march toward industrialization, to migrate to the cities. Suspect or condemned groups were confined to certain areas, and workers were prevented from moving if planners felt that they were needed in certain places or that there was insufficient housing to accommodate them elsewhere.8 It would be misleading to try to integrate all these aspects of Soviet inequality into a single quantitative index based on monetary income. In my view, it is best to indicate what is known about monetary inequality while insisting on the fact that this was only one dimension of Soviet inequality (and not necessarily the most significant one); the same is true of other inequality regimes.

FIG. 12.3.  The income gap between Russia and Europe, 1870–2015

Interpretation: Expressed in terms of purchasing power parity, the national income per adult in Russia was 35–40 percent of the Western European average (Germany, France, and the United Kingdom) from 1870 to 1980, before rising from 1920 to 1950, then stabilizing at about 60 percent of the Western European level from 1950 to 1990. Sources and series: piketty.pse.ens.fr/ideology.

As for the evolution of the standard of living under Soviet rule, once again the evidence is incomplete. According to the best available estimates, the standard of living, as measured by per capita national income, stagnated in Russia in the period 1870–1910 at around 35–40 percent of the West European level (defined as the average of the United Kingdom, France, and Germany); it then rose gradually in the period 1920–1950 to about 60 percent of the West European level (Fig. 12.3). Although these comparisons should not be viewed as perfectly precise, the orders of magnitude may be taken as significant. There is no doubt that Russia began to catch up with Western Europe between the Revolution of 1917 and the 1950s. Some of this was of course due to the fact that Russia started out so far behind. Its progress was made more visible by the poor performance of the capitalist countries in the 1930s, when production collapsed in Western Europe and the United States, while the planned Soviet economy continued full speed ahead. For both structural and conjunctural reasons, then, it was possible in the 1950s to see the Soviet Union’s results as globally positive.

Over the next four decades (1950–1990), however, Russian national income stagnated at about 60 percent of the West European level (Fig. 12.3). This was clearly a failure, especially in view of the rapid advance in level of education during this period in Russia (as well as elsewhere in Eastern Europe), which should normally have led to continuation of the catch-up process and gradual convergence with Western Europe. The fault must therefore lie with the organization of the system of production. The frustration was even greater because the scientific, technological, and industrial achievements of the communist regimes were abundantly praised in the 1950s and 1960s both inside and outside the communist bloc. In the eighth edition (1970) of Paul Samuelson’s celebrated economics textbook, used by generations of North American students, it was predicted on the basis of observed trends in the period 1920–1970 that Soviet gross domestic product (GDP) might surpass that of the United States sometime between 1990 and 2000.⁹ During the 1970s, however, it became increasingly clear that the catch-up process had ground to a halt and that the Russian standard of living had stagnated compared to that of the capitalist countries.

It is also possible, moreover, that these comparisons underestimate the actual gap in standard of living between East and West, particularly at the end of the period. Indeed, if the poor quality of consumer goods (such as household appliances and cars) available in the communist countries is taken into account in the price indices used in these comparisons, it is quite possible that the gap grew even wider in the 1960s and afterward. Another complication stems from the bloated Soviet military sector, which represented as much as 20 percent of GDP during the Cold War, compared with 5–7 percent in the United States.¹⁰ To be sure, the concentration of material investments and intellectual resources in strategic sectors did lead to spectacular successes, such as the launching of the first Sputnik satellite in 1957, to the consternation of the United States. But none of that can mask the mediocrity of living conditions for ordinary citizens and the increasingly glaring backwardness relative to the capitalist countries in the 1970s and 1980s.

The Highs and Lows of Communist and Anticolonialist Emancipation

In view of the significant differences between Eastern and Western methods of tallying production and accounting for income as well as the multidimensional character of the gaps, the best way to measure how bad conditions in Soviet Russia were is probably to use demographic data. The numbers show a worrisome stagnation of life expectancy from the 1950s on. Indeed, in the late 1960s and early 1970s we even find a slight decrease in life expectancy for men, which is unusual in peacetime; in addition, infant mortality rates stopped decreasing.11 These figures point to a health system in crisis. In the 1980s, the efforts of Mikhail Gorbachev, the last president of the Soviet Union, to reduce alcohol abuse played an important role in the decline of his popularity and the ultimate collapse of the regime. Soviet Communism, once celebrated for rescuing the Russian people from Tsarist misery, had become synonymous with rampant poverty and shortened lives.

On the political-ideological level, the Soviet Union suffered in the 1970s from loss of the prestige it had enjoyed in the postwar era. In the 1950s the Soviet Union’s international reputation was enhanced by the decisive role it had played in the victory over Nazism and by the fact that, through the Communist International which it controlled, it was the only political and ideological force that stood in clear and radical opposition to colonialism and racism. In the 1950s, racial segregation was still widely practiced in the southern United States. It was not until 1963–1965 that American blacks mobilized to force the Democratic administrations of John F. Kennedy and Lyndon B. Johnson (who had no desire to send troops into the South to defend blacks) to grant civil and voting rights to African Americans. South Africa introduced and then reinforced apartheid in the 1940s and early 1950s with a series of laws intended to confine blacks to the townships and preventing them from setting foot in other parts of the country (Chapter 7). The South African regime, close to Nazism in its racialist inspiration, was supported by the United States in the name of anticommunism. It was not until the 1980s that international sanctions were imposed on South Africa, despite opposition from the Reagan administration in the United States, which continued until 1986 (when Reagan used his veto to try to thwart Congressional disapproval of apartheid but was overridden).¹²

In the 1950s, the decolonization movement had just begun, and France was on the verge of waging a fierce war in Algeria. While the Socialists participated in the government and supported increasingly violent operations to “maintain order” in Algeria, only the Communist Party spoke out unambiguously in favor of immediate independence and withdrawal of French troops. At that key point in time, the communist movement seemed to many intellectuals and to the international proletariat to be the only political force in favor of organizing the world on an egalitarian social and economic basis, while colonialist ideology continued to prefer an inegalitarian, hierarchic, racialist logic.

In 1966, a newly independent Senegal organized in Dakar a “World Festival of Negro Arts.” This was an important event for the pan-African movement and the idea of “negritude,” a literary and political concept elaborated by Léopold Senghor in the 1930s and 1940s. Senghor, a writer and intellectual, became the first president of Senegal in 1960 after trying in vain to form a broad West African federation.¹³ All the major powers, capitalist as well as communist, responded to the invitation and sought to make a good impression. At the Soviet stand, a delegation from Moscow displayed a brochure setting forth its convictions and political analyses. Russia, unlike the United States and France, did not need slavery to industrialize, this document argued. It was therefore in a better position to forge development partnerships with Africa on an egalitarian basis.¹⁴ This claim apparently surprised no one because it seemed so natural at the time.

By the 1970s, this Soviet moral prestige had almost totally dissipated. The era of decolonization was over, black Americans had obtained their civil rights, and antiracism and racial equality were among the values to which the capitalist countries laid claim now that they had become postcolonial and social-democratic. Of course, racial issues and the question of immigration would soon play a growing role in European and American political conflict in the 1980s and 1990s. I will say much more about this in Part Four. But the fact remains that by the 1970s the communist camp had lost its clear moral advantage on these issues, and critics of communism could now focus on its repressive and carceral policies, its treatment of dissidents, and its poor social and economic performance. In the television series The Americans, Elizabeth and Philip are KGB (the USSR’s Committee for State Security) agents operating in the United States in the early 1980s. Elizabeth has an affair with a black American activist, which shows that she remains more sincerely attached to the communist ideal than Philip, the Soviet agent posing as her husband, who wonders why he is doing what he is doing as the end of the Soviet regime draws near. Broadcast between 2013 and 2018, this series shows how much things had changed since the days when Soviet Communist was widely regarded as a champion of antiracism and anticolonialism.¹⁵

A similar though less dramatic shift occurred with feminism. In the period 1950–1980, when the patriarchal ideology of the housewife reigned supreme in the capitalist countries, communist regimes took the lead in advocating equality between men and women, particularly in the workplace. Support was offered in the form of public day care and preschools as well as contraception and family planning. This positioning was not free of hypocrisy, to judge by the fact that political leadership in the communist countries was as male-dominated as anywhere else.¹⁶ Still, soviets and other parliamentary assemblies in the Soviet Union and Eastern Europe were up to 30–40 percent female in the 1960s and 1970s, at which time women made up less than 5 percent of parliaments in Western Europe and the United States. Of course, assemblies in the communist countries had limited political autonomy and were often chosen by elections in which there was only one candidate or perhaps a token opposition candidate, with the Communist Party holding nearly all the real power. The inclusion of female candidates therefore had only limited consequences for the reality of power and its distribution.

In any case, the proportion of female representatives abruptly fell from 30–40 percent to little more than 10 percent in Russian and Eastern Europe in the 1980s and 1990s, roughly the same level as in the West or even slightly below.¹⁷ By the way, it is worth noting that China and several other countries in South and Southeast Asia were well ahead of the West in regard to the proportion of female representatives in the 1960s and 1970s. In Chimamanda Ngozi Adichie’s novel Half of a Yellow Sun, which is set in Nigeria in the early 1960s on the eve of the Nigerian civil war, the intellectual Igbo Odenigbo is passionate about his newly independent country’s politics. He follows the news as a citizen of the world, from the struggle for racial equality in Mississippi to the Cuban revolution, to say nothing of the election of the first female prime minister in Ceylon. In the 1990s the Western countries would take up the feminist cause, like so many others before it, with varying degrees of sincerity and effectiveness when it came to achieving actual equality between the sexes (I will come back to this).

Communism and the Question of Legitimate Differences

To return to the Soviet attitude toward poverty, it is important to try to understand why the government took such a radical stance against all forms of private ownership of the means of production, no matter how small. Criminalizing carters and food peddlers to the point of incarcerating them may seem absurd, but there was a certain logic to the policy. Most important was the fear of not knowing where to stop. If one began by authorizing private ownership of small businesses, would one be able to set limits? And if not, would this not lead step by step to a revival of capitalism? Just as the proprietarian ideology of the nineteenth century rejected any attempt to challenge existing property rights for fear of opening Pandora’s box, twentieth-century Soviet ideology refused to allow anything but strict state ownership lest private property find its way into some small crevice and end up infecting the whole system.18 Ultimately, every ideology is the victim of some form of sacralization—of private property in one case, of state property in another; and fear of the void always looms large.

With the advantage of hindsight and knowledge of the twentieth century’s successes and failures, it is possible to outline new ideas—such as participatory socialism and temporary shared ownership—with which it might be possible to go beyond both capitalism and the Soviet form of communism. Specifically, one can imagine a society that allows privately owned firms of reasonable size while preventing excessive concentration of wealth by means of a progressive wealth tax, a universal capital endowment, and power sharing between stockholders and employees. Historical experience can teach us to set limits and map boundaries. Of course, history cannot tell us with mathematical certainty what the perfect policies are in every situation. Instead, the lessons we draw must be subject to permanent deliberation and experimentation. Still, history can teach us where to begin in order to move ahead. For example, we now know that the top centile’s share of total wealth can fall from 70 to 20 percent without impeding growth (quite the contrary, as Western European experience in the twentieth century shows). We know from experience with Germanic and Nordic versions of co-management that employee and shareholder representatives can each control half the voting rights in a firm and that such power sharing can improve overall economic performance.¹⁹ The path from these concrete experiences to a fully satisfactory form of participatory socialism is complex, especially since it is hard to draw the line between small production units and large ones. Indeed, it is indispensable to conceptualize the entire system and to think about how firms of different sizes, from the smallest to the largest, might be flexibly regulated and taxed.²⁰ Nevertheless, history is sufficiently rich in lessons that we can draw from it many ideas about possible paths forward.²¹

Why did Bolshevik leaders reject the path of decentralized participatory socialism in the 1920s? It was not just because they lacked the experimental knowledge gained over the course of the twentieth and early twenty-first centuries, concerning most notably the successes and limitations of social democracy. Nor was it solely because they worried about the complexities mentioned earlier. To have a clear idea of the virtues of decentralization, one also has to articulate a clear vision of human equality—a vision that fully recognizes the many legitimate differences among individuals, especially with respect to knowledge and aspirations, and the importance of these differences in determining how social and economic resources are deployed. Soviet Communism tended to neglect the importance and especially the legitimacy of such differences, probably because it was in the grip of an industrial and productivist illusion. Specifically, if one believes that human needs are few in number and relatively simple (for, say, food, clothing, housing, education, and medical care) and can be satisfied by providing virtually identical goods and services to everyone (partly on the reasonable ground that all human beings share fundamentally the same hopes), then decentralization may seem unimportant. A centrally planned society and economy should be able to do the job, allocating every material and human resource as needed.

In fact, however, the problem of social and economic organization is more complex. It cannot be reduced to satisfying a basic set of simple, homogeneous needs. In all societies—whether in Moscow in 1920 or Paris or Abuja in 2020—individuals “need” an infinite variety of goods and services to lead their lives and fulfill their hopes and aspirations. Of course, some of these “needs” are artificial or exploitative or harmful or polluting and therefore inimical to the basic needs of others, in which case their expression must be limited through collective deliberation, laws, and institutions. But much of this diversity of human needs is legitimate, and if the central government attempts to suppress it, the government risks becoming oppressive to both individuality and individuals. In 1920s Moscow, for example, some people preferred, because of their personal history or social habits, to live in certain neighborhoods or eat certain foods or wear certain clothes. Others had come to own a cart or food stand or to possess certain specific skills. The only way such legitimate differences could be expressed and made to interact with one another would have been through decentralized organization. A centralized state could not do the job, not only because no state could ever gather enough relevant information about every individual but also because the mere attempt to do so would negatively affect the social process through which individuals come to know themselves.

On the Role of Private Property in a Decentralized Social Organization

Workers’ cooperatives were often discussed in debates around the NEP in 1920s Russia as well as in the 1980s in connection with Gorbachev’s perestroika (economic restructuring). Yet even cooperatives cannot respond fully to the challenges posed by the diversity of human needs and aspirations. Recall our discussion in Chapter 11 of the individual who wanted to open a restaurant or an organic grocery store. We saw there that it would not have made much sense to accord the same decision-making power to the person who had invested all her savings and energy in getting such a project off the ground as to the person hired as an employee the day before, who might be dreaming of starting his own business, in which it would make just as little sense to take away his primary role. Such individual differences with respect to both projects and aspirations are legitimate, and they will continue to exist even in a perfectly egalitarian society in which each person starts out with strictly the same economic and educational capital. In that case they would simply reflect the diversity of human aspirations, subjectivities, and personalities and the range of possible individual histories. Indeed, private ownership of the means of production, correctly regulated and limited, is an essential part of the decentralized institutional organization necessary to allow these various individual aspirations and characteristics to find expression and in due course come to fruition.

Of course, the resulting concentration of private property and the power that flows from it will need to be rigorously debated and controlled and should not exceed what is strictly necessary; this could be accomplished through devices such as a steeply progressive wealth tax, a universal capital endowment, and fair power sharing between a firm’s employees and shareholders. As long as private property is viewed in such purely instrumental terms, without sacralization of any kind, it is indispensable, provided that one agrees that the ideal socioeconomic organization must respect the diversity of aspirations, knowledge, talent, and skills that constitutes the wealth of humankind. By contrast, criminalizing every form of private property, down to the carter’s cart and the food vendor’s stand, as the Soviet authorities tried to do in the 1920s, comes down to assuming that this diversity of aspirations and subjectivities is of limited value when it comes to organizing production and building an industrial economy.

Finally, one additional element of complexity is worth pointing out. In practice, legitimate differences of aspiration have often been used rhetorically to justify quite dubious inequalities. For instance, parental preferences for different types of schools and curricula are often cited as justifications for inequality between schools and for disadvantaging children whose parents are less skilled at deciphering the codes and choosing the most promising schools and courses. A reasonable solution to this problem might be to banish market competition from the sphere of education and supply adequate and equal funding to all schools, which is what most countries have in fact done, at least at the primary and secondary level.²² In general, the rules appropriate to each sector should be decided by collective democratic deliberation. When a good or service is reasonably homogeneous—for instance, when a given community can agree on the knowledge and skills that every child of a certain age ought to have—then there is little need for competition among the units producing that good or service (much less for private profit-generating ownership of the means of production); indeed, competition may well prove harmful in such circumstances. By contrast, in sectors where there is a legitimate diversity of individual aspirations and preferences—for instance, in the supply of clothing or food—then decentralization, competition, and regulated private ownership of the means of production are justified.

This reflection on the extent of legitimate differences is of course complex. It is too simple to say that private ownership is the solution to every problem or, conversely, that it should be criminalized in all circumstances. The question must be dealt with, however, if the goal is to rethink property as temporarily private but ultimately social in the framework of a global strategy of emancipation designed not to reproduce the fatal errors of Soviet Communism.

Postcommunist Russia: An Oligarchic and Kleptocratic Turn

In contrast to the Soviet Union, a “society of petty thieves,” postcommunist Russia is a society of oligarchs engaged in grand larceny of public assets. Let us begin with a glance back at recent history. The dismantling of the Soviet Union and its productive apparatus in 1990–1991 led directly to a sharp decline in the standard of living in 1992–1995. In the late 1990s per capita income began to climb until in the 2010s it stood at about 70 percent of the West European level in terms of purchasing power parity (Fig. 12.3) but at half that level using current exchange rates (owing to the weakness of the ruble). On the whole, although the situation has improved since the end of communism, the results have been mediocre, especially since inequality increased dramatically in the 1990s (Figs. 12.1–12.2).

It is important to note that it is very difficult to measure and analyze income and wealth in postcommunist Russia because the society is so opaque. This is due in large part to decisions taken first by the governments headed by Boris Yeltsin and later by Vladimir Putin to permit unprecedented evasion of Russian law through the use of offshore entities and tax havens. In addition, the postcommunist regime abandoned not only any ambition to redistribute property but also any effort to record income or wealth. For example, there is no inheritance tax in postcommunist Russia, so there are no data on the size of inheritances. There is an income tax, but it is strictly proportional, and its rate since 2001 has been just 13 percent, whether the income being taxed is 1,000 rubles or 100 billion rubles.

Note, by the way, that no other country has gone as far as Russia in rejecting the very idea of a progressive tax. In the United States, the Reagan and Trump administrations did make reduction of top marginal tax rates a central plank in their platforms in the hope of stimulating economic activity and entrepreneurial spirits, but they never went so far as to reject the principle of progressive taxation itself: tax rates on the lowest income brackets remain lower in the United States than rates on the highest brackets, which Republican administrations reduced to 30–35 percent when they had the chance, but not to 13 percent.²³ A flat tax of 13 percent would trigger vigorous opposition in the United States, and it is hard to imagine an electoral or ideological majority willing to approve such a policy (at least for the foreseeable future). The fact that Russia did opt for such a tax policy shows that postcommunism is in a sense the ultimate form of the inegalitarian ultra-liberalism of the 1980s and 1990s.

Note, too, that there were no progressive income or inheritance taxes in the communist countries (or, if there were, their role was minor), because central planning and state control of firms allowed the state to set wages and incomes directly. When planning was abandoned and firms were privatized, however, progressive taxation could have played a role similar to the role it played in the capitalist countries in the twentieth century. The fact that this did not happen demonstrates once again how little countries share experiences and learn from one another.

As usual, the lack of a political commitment to progressive taxation coincided in Russia with a particularly opaque fiscal administration. The available tax data are extremely limited and rudimentary. With Filip Novokmet and Gabriel Zucman, however, we were able to access certain sources, which allowed us to show that official estimates, which are based on self-declared survey data and ignore top incomes almost entirely, seriously underestimate the increase of income inequality since the fall of communism. Concretely, the data show that the top decile’s share of total income, which was just over 25 percent in 1990, rose to 45–50 percent in 2000 and then stabilized at that very high level (Fig. 12.1). Even more dramatic was the increase in the top centile’s share from barely 5 percent in 1990 to about 25 percent in 2000, a level significantly higher than the United States (Fig. 12.2). Peak inequality was probably achieved in 2007–2008. The highest Russian incomes have probably declined since the crisis of 2008 and the imposition of economic sanctions on Russia after the Ukraine crisis of 2013–2014, although the level remains extremely high (and is no doubt underestimated owing to the limitations of the available data). Thus, in less than ten years, from 1990 to 2000, postcommunist Russia went from being a country that had reduced monetary inequality to one of the lowest levels ever observed to being one of the most inegalitarian countries in the world.

The rapidity of postcommunist Russia’s transition from equality to inequality between 1990 and 2000—a transition without precedent anywhere else in the world according to the historical data in the WID.world database—attests to the uniqueness of Russia’s strategy for managing the transition from communism to capitalism. Whereas other communist countries such as China privatized in stages and preserved important elements of state control and a mixed economy (a gradualist strategy that one also finds in one form or another in Eastern Europe), Russia chose to inflict on itself the famous “shock therapy,” whose goal was to privatize nearly all public assets within a few years’ time by means of a “voucher” system (1991–1995). The idea was that Russian citizens would be given vouchers entitling them to become shareholders in a firm of their choosing. In practice, in a context of hyperinflation (prices rose by more than 2,500 percent in 1992) that left many workers and retirees with very low real incomes and forced thousands of the elderly and unemployed to sell their personal effects on the streets of Moscow while the government offered large blocks of stock on generous terms to selected individuals, what had to happen did happen. Many Russian firms, especially in the energy sector, soon fell into the hands of small groups of cunning shareholders who contrived to gain control of the vouchers of millions of Russians; within a short period of time these people became the country’s new “oligarchs.”

According to the classifications published by Forbes, Russia thus became within a few years the world leader in billionaires of all categories. In 1990, Russia quite logically had no billionaires, because all property was publicly owned. By the 2000s, the total wealth of Russian billionaires listed in Forbes amounted to 30–40 percent of the country’s national income, three or four times the level observed in the United States, Germany, France, and China.²⁴ Also according to Forbes, the vast majority of these billionaires live in Russia, and they have done particularly well since Vladimir Putin came to power in the early 2000s. Note, moreover, that these figures do not include all the Russians who have accumulated not billions but merely tens or hundreds of millions of dollars; these Russians are far more numerous and more significant in macroeconomic terms.

In fact, what has distinguished Russia in the period 2000–2020 is that the country’s wealth is largely in the hands of a small group of very wealthy individuals who either reside entirely in Russia or divide their time between Russia and London, Monaco, Paris, or Switzerland. Their wealth is for the most part hidden in screen corporations, trusts, and the like, ostensibly located in tax havens so as to escape any future changes in Russia legal and tax systems (although Russian authorities have not shown themselves to be particularly vigilant). The use of screens, cutouts, and other legal subterfuges to place assets outside the legal jurisdiction of a given country while affording solid guarantees to the owners and while the actual economic activity of the firm takes place inside the country is a general characteristic of the economic, financial, and legal globalization that has taken place since the 1980s.²⁵ This has occurred because the international treaties and accords that Europe and the United States agreed on to liberalize capital flows in this period did not include any regulatory mechanisms or provisions for exchanges of information that would have allowed states to establish appropriate fiscal, social, and legal policies and cooperative structures for coping with this new environment (see Chapter 11). Responsibility for this state of affairs is therefore broadly shared. But even within this general landscape, Russian abuse of the system has attained unheard-of proportions, as recent work by legal scholars has shown.²⁶

When Offshore Assets Exceed Total Lawful Financial Assets

Note, too, that in terms of macroeconomic significance of capital flight, Russia is also in a league of its own. Because of the very nature of financial dissimulation, it is of course difficult to give a precise accounting. In Russia, however, the very magnitude of the sums involved simplifies things somewhat, as does the fact that the country enjoyed enormous trade surpluses in the period 1993–2018: Russia’s annual trade surplus averaged 10 percent of GDP over this twenty-five-year period, or a total of nearly 250 percent of GDP (2.5 years of national product). In other words, since the early 1990s, Russian exports, especially gas and oil, massively exceeded Russian imports of goods and services. In principle, then, the country should have accumulated enormous financial reserves of roughly the same amount. This is what we see in other petroleum-exporting countries such as Norway, whose sovereign wealth fund held assets in excess of 250 percent of GDP in the mid-2010s. But Russia’s official reserves in 2018 amounted to less than 30 percent of GDP. Something like 200 percent of Russian GDP has therefore gone missing (and this does not even take into account the income those assets should have produced).

Official Russian balance-of-payments statistics reveal other astonishing features. Public and private assets invested abroad seem to have obtained remarkably mediocre yields, with large capital losses in some years, whereas foreign investments in Russia invariably earned exceptional yields, especially in view of fluctuations in the value of the ruble, which would partly explain why the country’s net wealth position vis-à-vis the rest of the world did not increase more. It is quite possible that these statistics hide operations linked to capital flight. In any case, even if we accept these yield differentials as legitimate, the fact remains that the official reserves in the balance-of-payments data are still much too low. Using these very conservative assumptions, one can estimate that cumulative capital flight from 1990 to the mid-2010s amounts to roughly one year of Russian national income (Fig. 12.4). To be clear, this is a minimum estimate; the actual figure might be twice as high or even higher.²⁷ In any event, this minimum estimate implies that the financial assets tucked away in tax havens are roughly equal to the total amount of all financial assets legally owned by Russian households inside Russia (roughly one year of national income). In other words, offshore property has become at least as important in macroeconomic terms as legal financial property—and probably is more important. In a sense, then, illegality has become the norm.

FIG. 12.4.  Capital flight from Russia to tax havens

Interpretation: By examining the growing gap between cumulative Russian trade surpluses (nearly 10 percent a year on average from 1993 to 2015) and official reserves (barely 30 percent of national income in 2015), and using various hypotheses about yields obtained, one can estimate that the amount of Russian assets held in tax havens was between 70 and 110 percent of national income in 2015, with an average value of around 90 percent. Sources and series: piketty.pse.ens.fr/ideology.

There are also other sources that reveal (or confirm) the magnitude of Russian capital flight and, more generally, the unprecedented growth of tax havens around the world since the 1980s. For instance, one can look at inconsistencies in international financial statistics. In theory, looking at a country’s balance of payments should allow us to measure financial flows and in particular inward and outward flows of capital income (dividends, interest, and profits of all kinds). In principle, the total of all positive and negative flows should sum to zero every year at the international level. Of course, the complexity of the accounting may result in small discrepancies, but these should be both positive and negative and even out over time. Since the 1980s, however, there has been a systematic tendency for outward capital income flows to exceed inward flows. From these and other anomalies it is possible to estimate that in the early 2010s, financial assets held in tax havens and not registered in other countries amounted to nearly 10 percent of total global financial assets. All signs are that this has only increased since then.28

Furthermore, by exploiting data made public by the Bank for International Settlements (BIS) and the Swiss National Bank (SNB) on countries where assets are held, one can estimate each country’s approximate share of offshore assets held in tax havens relative to the total (lawful and unlawful) assets held by residents of each country. The results are as follows: “only” 4 percent for the United States, 10 percent for Europe, 22 percent for Latin America, 30 percent for Africa, 50 percent for Russia, and 57 percent for the petroleum monarchies (Fig. 12.5). Once again, these should be regarded as minimum estimates. These calculations exclude (or only partially account for) real estate and shares in unlisted companies.²⁹ Note, by the way, that financial opacity is a problem everywhere, particularly in the less developed countries, for which it is an obstacle to state building and to finding a standard of fiscal justice acceptable to a majority of citizens.

The Origins of “Shock Therapy” and Russian Kleptocracy

Why did postcommunist Russia go from the land of soviets and (monetary) income equality to the land of oligarchs and kleptocrats? It is tempting to see this as a “natural” swing of the pendulum: traumatized by the Soviet failure, the country moved energetically in the opposite direction, that of ruthless capitalism. This explanation cannot be totally wrong, but it leaves out a lot and is too deterministic. There was nothing “natural” about Russia’s postcommunist transformation, any more than the transformation of any other inequality regime. There were many choices available in 1990, as there always are. Rather than rehearse the various deterministic accounts, it is more interesting to see what happened as the fruit of contradictory and conflictual socioeconomic and political-ideological processes, which could have taken any number of paths and turned out differently had the balance of power and capacity for mobilization of the various contending groups been different.

FIG. 12.5.  Financial assets held in tax havens

Interpretation: By exploiting anomalies in international financial statistics and breakdowns by country of residence from the Bank for International Settlements (BIS) and the Swiss National Bank (SNB), one can estimate that the share of financial assets held in tax havens is 4 percent for the United States, 10 percent for Europe, and 50 percent for Russia. These figures exclude nonfinancial assets (such as real estate) and financial assets unreported to BIS and SNB, and should be considered minimum estimates. Sources and series: piketty.pse.ens.fr/ideology.

In the early 1990s, with Russia in a state of extreme weakness, there was brief but intense struggles about the choice of “shock therapy” for the post-Soviet transition. Among the proponents of shock therapy were many representatives of Western governments (especially the United States) and international organizations based in Washington, such as the World Bank and the International Monetary Fund. The general idea was that only an ultra-rapid privatization of the Russian could ensure that the changes would be irreversible and prevent any possibility of a return to communism. It is no exaggeration to say that the dominant ideology among economists working for these institutions in the early 1990s was much closer to Anglo-American capitalism in the Reagan-Thatcher mold than to European social democracy or Germano-Nordic co-management. Most Western advisers working in Moscow at the time were convinced that the Soviet Union had sinned by an excess of egalitarianism; hence, any possible increase of inequality in the wake of privatization and shock therapy should be considered a relatively minor worry.30

With the advantage of hindsight, however, we can see that the levels of (monetary) inequality observed in Soviet Russia in the 1980s were not very different from those observed at the same time in the Nordic countries, especially Sweden: in both cases the top decile claimed about 25 percent of total income and the top centile 5 percent, which never prevented Sweden from ranking among the countries with the highest standard of living and highest productivity levels in the world (see Figs. 10.2–10.3). Thus, the problem was not so much excessive equality as the way the economy and production were organized, which involved central planning and total abolition of private ownership of the means of production. It is reasonable to think that if Russia had adopted Nordic-style social-democratic institutions with a highly progressive tax system, an advanced system of social protection, and co-management by unions and shareholders, it would have been possible to preserve a certain level of equality while raising the level of productivity and standard of living. The choice that Russia made in the 1990s was very different: a small group of people (the future oligarchs) was offered the opportunity to take possession of most of the country’s wealth with a flat income tax of 13 percent (and no inheritance tax), which allowed them to entrench their position; contrast this with the adoption by most Western countries of progressive income and inheritance taxes in the twentieth century. It is sometimes shocking to discover the degree to which historical memory is lacking and just how little countries are able to share and learn from each other’s experiences. It is especially shocking when the people and institutions responsible for these failures are supposed to be the very ones whose presumed purpose is to further international cooperation through shared knowledge and expertise.

It would be a mistake, however, to attribute Russia’s political-ideological choices solely to outside influences. Internal disagreements also mattered. In the late 1980s, Mikhail Gorbachev tried without success to promote an economic model that would preserve the values of socialism while encouraging contributions from cooperatives and regulated (though ill-defined) forms of private ownership. Other groups inside the Russian government, particularly within the security apparatus, did not share Gorbachev’s views. In this respect, Vladimir Putin’s analyses in interviews conducted by (the very pro-Putin) filmmaker Oliver Stone in 2017 are particularly revealing. Putin mocks Gorbachev’s egalitarian illusions and his obsession with saving socialism in the 1980s, especially his liking for “French Socialists” (an approximate but significant reference, since French Socialists at the time represented what was most socialist in the Western political landscape). In substance, Putin concluded that only an unambiguous renunciation of egalitarianism and socialism in all their forms could restore Russia’s greatness, which depended above all on hierarchy and verticality in both politics and economics.

It is important to stress the fact that this trajectory was not foreordained. The post-Soviet economic transition took place in particularly chaotic circumstances, with no real electoral or democratic legitimacy. When Boris Yeltsin was elected president of the Russian Federation by universal suffrage in June 1991, no one knew exactly what his powers would be. The pace of events accelerated after the failed Communist putsch of August 1991, which led to the accelerated dismantling of the Soviet Union in December. Economic reforms then proceeded at full throttle, with the liberalization of prices in January 1992 and “voucher privatization” in early 1993. All this took place without new elections so that key decisions were imposed by the executive on a hostile parliament, which had been elected in March 1990 during the Soviet era (when only a handful of non-Communist candidates were allowed to run). This was followed by a violent clash between the president and parliament, which was settled by force in the fall of 1993 when the parliament was shelled and then dissolved. With the exception of the presidential election of 1996, which Yeltsin won with just 54 percent of the vote in the second round against a Communist candidate, no genuinely contested election has taken place in Russia since the fall of the Soviet Union. Since Putin came to power in 1999, the arrest of political opponents and clamp down on the media have left Russia under de facto authoritarian and plebiscitarian rule. The fundamentally oligarchic and inegalitarian orientation of policy since the fall of communism has never really been debated or challenged.

To sum up, Soviet and post-Soviet experience demonstrates in a dramatic way the importance of political-ideological dynamics in the evolution of inequality regimes. The Bolshevik ideology that dominated after the revolution of 1917 was relatively crude, in the sense that it was based on an extreme form of hypercentralized state rule. Its failures led to steadily increasing repression and a historically unprecedented rate of incarceration. Then the fall of the Soviet regime in 1991 led to an extreme form of hypercapitalism and an equally unprecedented kleptocratic turn. These episodes also demonstrate the importance of crises in the history of inequality regimes. Depending on what ideas are available when a switch point arrives, a regime’s direction may turn one way or another in response to the mobilizing capacities of the various groups and discourses in contention. In the Russian case, the country’s postcommunist trajectory reflects in part the failure of social democracy and participatory socialism to develop new ideas and a workable plan for international cooperation in the late 1980s and early 1990s, when the hypercapitalist and authoritarian-identitarian conservative agendas were in their ascendancy.

If we now look to the future, it is legitimate to ask why the countries of Western Europe have been so uninterested in the origins of Russian wealth and so tolerant of such massive misappropriations of capital. One possible explanation is that they were partly responsible for the shock therapy approach to the transition and benefited from infusions of capital invested by wealthy Russians in West European real estate, financial firms, sports teams, and media. This is obviously true not only of the United Kingdom but also of France and Germany. There is also the fear of a violent response by the Russian government.³¹ Still, instead of imposing trade sanctions, which affect the entire country, a better solution would be to freeze or severely penalize financial and real estate assets of dubious origin.³² One might then be able to influence Russian public opinion, since the Russian people themselves were the first victims of the kleptocratic turn. If European governments have not been more proactive, it is no doubt because they worry about not knowing where it will end if they begin to question past appropriations of common resources by private individuals (this is the Pandora’s box syndrome that we have encountered several times before).³³ Nevertheless, Europe might be better equipped to solve many of the other problems it faces if it were to engage more energetically in the fight against financial opacity by insisting on the creation of a true international register of financial assets.

On China as an Authoritarian Mixed Economy

We turn now to communism and postcommunism in China. It is well known that China drew lessons from the USSR’s failures as well as from its own mistakes in the Maoist era (1949–1976), during which the attempt to completely abolish private property and to initiate a forced march toward collectivization and industrialization ended in disaster. In 1978 the country began experimenting with a novel type of political and economic regime, which rests on two pillars: a leading role for the Chinese Communist Party (CCP), which has been maintained and even reinforced in recent years, and the development of a mixed economy based on a novel balance between private and public property, which has proved to be durable.

We begin with the second pillar, which is essential for understanding the specificities of the Chinese case. Another advantage of this choice is that the contrast with Western experience is illuminating. The best way to proceed is to pull together data from all available sources concerning the ownership of firms, farmland, residential real estate, and financial assets and liabilities of all kinds in order to estimate the share of property owned by the government (at all levels). The results are shown in Fig. 12.6, which compares China’s evolution with that of the leading capitalist countries (United States, Japan, Germany, United Kingdom, and France).³⁴

FIG. 12.6.  The fall of public property, 1978–2018

Interpretation: The share of public capital (public assets net of debt including all public assets: firms, buildings, land, investments, and financial assets) in national capital (total public and private) was roughly 70 percent in China in 1978; it then stabilized at around 30 percent in the mid-2000s. It was 15–30 percent in the capitalist countries in the 1970s and is near zero or negative in the late 2010s. Sources and series: piketty.pse.ens.fr/ideology.

The main conclusion is that the public share of capital was close to 70 percent in China in 1978, when economic reforms were inaugurated, but then fell sharply in the 1980s and 1990s before stabilizing at around 30 percent since the mid-2000s. In other words, the gradual privatization of Chinese property ended in 2005–2006: the relative shares of public and private property have barely moved since then. Because the Chinese economy has continued to grow at a rapid rate, private capital has obviously continued to increase: new land has been improved and new factories and apartment buildings have continued to be built at a breakneck pace, but publicly owned capital has also continued to increase at roughly the same rate as privately owned capital. China thus appears to have settled on a mixed-economy property structure: the country is no longer communist since nearly 70 percent of all property is now private, but it is not completely capitalist either because public property still accounts for a little more than 30 percent of the total—a minority share but still substantial. Because the Chinese government, led by the CCP, owns a third of all there is to own in the country, its scope for economic intervention is large: it can decide where to invest, create jobs, and launch regional development programs.

It is important to note that the 30 percent public share of capital is an average that hides very large difference between sectors and asset categories. For instance, residential real estate is almost entirely privatized. In the late 2010s, the government and firms owned less than 5 percent of the housing stock, which has become the leading private investment of Chinese households with sufficient means. This has caused the price of real estate to skyrocket, especially since other savings opportunities are limited and the public retirement system is underfunded and shaky. By contrast, the government held 55–60 percent of the total capital of firms in 2010 (including both listed and unlisted firms of all sizes in all sectors). This share has remained virtually unchanged since 2005–2006. In other words, the state and party continue to maintain tight control over the productive system—indeed, tighter than ever with respect to the largest firms.35 Since the mid-2000s there has been a significant decrease in the share of firm capital held by foreign investors, which has been offset by an increase in the share held by Chinese households (Fig. 12.7).³⁶

From the 1950s to the 1970s, the capitalist countries were also mixed economies, with important variations from country to country. Public assets took many forms, including infrastructure, public buildings, schools, and hospitals; in addition, many firms were publicly owned, and there was public financial participation in certain sectors. Furthermore, public debt was historically low owing to postwar inflation and government measures to reduce debt, such as exceptional taxes on private capital or even outright debt cancellation (see Chapter 10). All told, the share of public capital (net of debt) in national capital was generally 20–30 percent in the capitalist countries in the period 1950–1980.³⁷ In the late 1970s, available estimates show a level of 25–30 percent in Germany and the United Kingdom and 15–20 percent in France, the United States, and Japan (Fig. 12.6). To be sure, these levels are lower than the share of public capital in China today but not by much.

FIG. 12.7.  Ownership of Chinese firms, 1978–2018

Interpretation: The Chinese state (at all levels of government) in 2017 held roughly 55 percent of the capital of Chinese firms (both listed and unlisted, of all sizes in all sectors), compared with 33 percent for Chinese households and 12 percent for foreign investors. The share of the latter has decreased since 2006 and that of Chinese households has increased, while the share of the Chinese state has stabilized at around 55 percent. Sources and series: piketty.pse.ens.fr/ideology.

The difference is that the Western countries have long since ceased to be mixed economies. Owing to privatization of public assets (for instance, in the utilities and telecommunications sector), limited investment in sectors that have remained public (especially education and health), and the steady increase of public indebtedness, the share of net public capital in national capital has shrunk to virtually zero (less than 5 percent) in all the major capitalist countries; in the United States and United Kingdom, it is negative. In other words, in the latter two countries, public debts exceed the total value of public assets. This is a striking fact, and I will say more later about its significance and implications. At this stage, note simply how rapid the change has been. When I published Capital in the Twenty-First Century in 2013/2014, the latest available complete data sets pertained to the years 2010–2011; among developed countries, only Italy had public debt that exceeded public capital.38 Six years later, in 2019, with data available through 2016–2017, the United States and United Kingdom have also entered the realm of negative public wealth.

By contrast, China appears to have settled on a permanent mixed economy. Of course, it is impossible to predict how things will evolve in the long run: the Chinese case is in many ways unique.³⁹ The country is in the throes of debate about further privatizations, and it is difficult to predict what the outcome will be. For the foreseeable future the current equilibrium will most likely continue, especially since the demand for change is coming from opposing ideological camps and taking contradictory forms. A number of “social-democratic” intellectuals are demanding new forms of power sharing and decentralization with an important role for worker representatives and independent trade unions (which currently do not exist) and a diminished role for the party officials at both the state and local level.⁴⁰ By contrast, business circles are demanding further privatizations and reinforcement of the role of private shareholders and market mechanisms with an eye to moving China closer to a capitalist model of the Anglo-American type. Meanwhile, CCP leaders feel they have good reasons to oppose both sides, whose proposals they fear might threaten the country’s harmonious and balanced growth in the long run (as well as reduce their own role).

Before going further, several points deserve to be highlighted. In general, it is important to keep in mind that the very definitions of public and private property are not set in stone. They depend on specific features of each legal, economic, and political system. The temporal evolutions and international comparisons shown in Fig. 12.6 indicate rough orders of magnitude, but the precision of the data should not be overestimated.

For example, Chinese farmland was partly private before the 1978 reforms, in the sense that it could be passed on from parents to children (along with improvements to the land), provided that the children remained officially rural residents. China has a system of residential registration and mobility control under which every Chinese citizen holds an official residence permit, the hukou, which designates the holder as a rural or urban resident. A rural resident can work in a city and retain ownership of farmland but only if the migration is temporary. If the person wishes to move permanently to the city and satisfies the requirements (primarily years of residence), he may ask for his rural hukou to be converted into an urban one, which is often necessary for spouse and children to have access to schools and public services (such as health care). However, he must then forfeit ownership of any village land, including any capital gains on the land, which can be considerable because of rising land prices (which explains why some urban migrants prefer to hold on to their rural hukou). If the land is forfeited, it reverts to the local government, which can reassign it to other individuals who hold a rural hukou for that particular village. Such land is therefore a form of property somewhere between private and public; the exact rules governing its ownership have evolved over time, and we have tried to take this into account in our estimates, but the results are inevitably approximate.⁴¹

Negative Public Wealth, Omnipotence of Private Property

More generally, it is important to note that the notion of public capital used in these estimates is quite restrictive, in the sense that it is largely dependent on concepts and methods normally used for estimating the value of private property. The only public assets included are those that can be exploited economically or sold, and their value is evaluated in terms of the market price they would fetch if sold. For example, public buildings such as schools and hospitals are counted if there are examples of similar assets being sold at market prices that can be observed (or estimated in terms of the price per square foot of similar buildings).42 In all these estimates we have followed the official rules of national accounting as set forth by the United Nations.⁴³ I will say more about these rules in Chapter 13. They raise many issues, especially in regard to natural resources, which are not included in official national accounts until they begin to be exploited commercially. This inevitably results in underestimating the depreciation of natural capital and overestimating the real growth of GDP and national income, since growth depletes existing reserves while contributing to air pollution and global warming, neither of which is reflected in official national accounts.

At this stage, two points are worth mentioning. First, if one were really determined to assign a value to all public assets in the broadest sense of the term, including all aspects of man’s natural and intellectual patrimony (which very fortunately has not been fully privately appropriated, at least not yet)—encompassing everything from landscapes, mountains, oceans, and air to scientific knowledge, artistic and literary creations, and so on—then it is quite obvious that the value of public capital would be far greater than that of all private capital, no matter what definition one attached to the notion of “value.”⁴⁴ In the present case, it is by no means certain that such an effort of generalized accounting would make any sense or be in any way useful for public debate. Nevertheless, it is important to bear one essential fact in mind: the total value of public and private capital, evaluated in terms of market prices for national accounting purposes, constitutes only a tiny part of what humanity actually values—namely, the part that the community has chosen (rightly or wrongly) to exploit through economic transactions in the marketplace. I will discuss this point in detail in Chapter 13 in connection with the issues of global warming and knowledge appropriation.

Second, because natural capital has an inherent tendency to depreciate, the share of public capital (in the restricted sense of marketable assets) in official national accounts underestimates the magnitude of ongoing changes. The fact that public capital (in the narrow sense) has fallen to zero or below in most capitalist countries is extremely worrisome (Fig. 12.6). Indeed, it significantly reduces the maneuvering room of governments, especially when it comes to tackling major issues such as climate change, inequality, and education. Let me be clear about the meaning of negative public capital such as we find today in the official national accounts of the United States, United Kingdom, and Italy. Negative capital means that even if all marketable public assets were sold—including all public buildings (such as schools, hospitals, and so on) and all public companies and financial assets (if they exist)—not enough money would be raised to repay all the debt owed to the state’s creditors (whether direct or indirect). Concretely, negative public wealth means that private individuals own, through their financial assets, not only all public assets and buildings, on which they collect interest, but also a right to draw on future tax receipts. In other words, total private property is greater than 100 percent of national capital because private individuals own not only tangible assets but also taxpayers (or some of them, at any rate). If net public wealth becomes more and more negative, a growing and potentially significant share of tax revenues could go to pay interest on the debt.⁴⁵

There are several ways to analyze how this situation came to pass and what it portends for the future. The fact that net public capital fell to zero or below in nearly all the rich countries in the 1980s reflects a profound political-ideological transformation of the regime that existed in the period 1950–1970, when governments owned 20–30 percent of national capital. Capitalists found this situation untenable and decided to reassert control. Previously, in the 1950s, after two world wars and a Great Depression, governments faced with the challenge of communism had chosen to rapidly shed public debt stemming from the past to give themselves room to invest in public infrastructure, education, and health; they also nationalized previously private firms. By the 1980s, however, the ideological perspective had shifted. More and more people came to believe that public assets would be better managed outside the public sphere and should therefore be privatized. The decline of public capital was the result.

Note, moreover, that the increase in the total value of private property, which rose from barely three years of national income in the 1980s to five or six in the 2010s, far outweighed the decrease of public wealth.⁴⁶ In other words, the rich countries remain rich, but their governments chose to become poor. Recall, too, that on average the public debt of the rich countries (United States, Europe, and Japan) is held by residents of those countries, in the sense that their net wealth is positive: the value of financial assets in the rest of the world held by these countries is significantly greater than the value of assets of each country held by the rest of the world.⁴⁷

Embracing Debt and Renouncing Fiscal Justice

Why did public debt increase? To answer this question requires a more complex analysis. In the abstract, there are all sorts of reasons for accumulating public debt. For instance, there might be a glut of private savings, poorly invested for the short or long term. Or the government might see opportunities for physical investment (in infrastructure, transportation, energy, and so on) or intangible investment (in education, health care, or research) that promises to yield a social benefit greater than that of private investment or than the rate of interest at which the government can borrow. The problem is primarily one of how much to borrow and what the rate of interest is. If the debt is too large or the interest rate too high, the resulting debt burden can cripple the state’s ability to act on behalf of its people.48

In practice, rising public debt in the 1980s was in part the consequence of a deliberate strategy intended to reduce the size of the state. Reagan’s budget strategy in the 1980s may be taken as a typical example: it was decided to sharply reduce taxes on top earners, which added to the deficit, and this increased the pressure to cut social spending. In many cases, tax cuts for the rich were financed by the privatization of public assets, which in the end amounted to a free transfer of ownership: the wealthy paid $10 billion less in taxes and then used that $10 billion to buy government bonds. The United States and Europe have continued to pursue this same strategy to this day, increasing inequality and encouraging concentration of private wealth.⁴⁹

More generally, the debt increase can also be seen as a consequence of the perceived impossibility of a just tax. When the highest earners and wealthiest individuals cannot be made to pay their fair share, and when the lower and middle classes become increasingly reluctant to give their consent to the tax system, indebtedness becomes a tempting way out. But where does it lead? There is an important historical precedent: at the end of the Napoleonic Wars, the United Kingdom was saddled with a public debt in excess of two years of national income (equivalent to a third of all British private property), and net public wealth was seriously in the red. As noted earlier, the dilemma was resolved by running significant budget surpluses (amounting to roughly one-quarter of tax revenues) or, to put it another way, by having modest and middling British taxpayers transfer their earnings to bondholders for nearly a century, from 1815 to 1914. At the time, however, only the wealthy had the right to vote and held all political power (at least at the beginning of the period), and proprietarian ideology was more persuasive than it is today. Today, people are or should be aware that many countries quickly shed the debt that burdened them after two world wars, and it seems unlikely that middle- and lower-class taxes will be that patient. At the moment, however, the issue is less salient than it might be owing to the abnormally low rate of interest on most public debt. This state of affairs may not last, however, in which case the debt issue will quickly become a major factor in the reconfiguration of social and political conflict, especially in Europe. I will come back to this point.

Note, finally, the striking contrast between China’s trajectory and the trajectories of the Western countries in the first decades of the twenty-first century. While the share of public capital in total national capital has remained stable at around 30 percent in China since 2006, the financial crisis of 2007–2008 (which was caused by excessive deregulation of private finance and contributed to further private enrichment) has reduced public wealth in the West even more.

The point is of course not to idealize public property in China, much less to pretend to know the “ideal” share of public capital in a just society. Once the state assumes responsibility for producing certain goods and services (such as education and health care), it stands to reason that it would hold a share of productive capital correlated with its share of total employment (say, 20 percent). This is an inadequate rule of thumb, however, because it ignores the state’s potential role in using debt to channel savings toward the preservation of natural capital and the accumulation of nonphysical capital. The real question has to do with the forms of governance and power sharing associated with public and private property, which must be continually questioned, reevaluated, and reinvented. In the Chinese case, the mode of governance of public property is notable for its vertical authoritarian character and can hardly be taken as a universal model.

That said, there remains something paradoxical about the recent collapse of public wealth in the West in the wake of the financial crisis. Market deregulation made many people rich, governments went into debt to mitigate the severity of the recession and to save private banks and other firms, and in the end private wealth continued to grow, leaving lower- and middle-class taxpayers to foot the bill for decades to come. These episodes had deep repercussions on perceptions of what can and cannot be done in terms of economic and monetary policy—repercussions of which we have probably not yet seen the end.

On the Limits of Chinese Tolerance of Inequality

Back to inequality in China: How has the income distribution changed since the beginning of the process of economic liberalization and privatization of property in 1978? The available sources indicate a very sharp increase of income inequality from the time the reforms began until the mid-2000s, when the situation stabilized. In the late 2010s, China, to judge by the share of national income going to the top 10 percent and the bottom 50 percent, is only slightly less inegalitarian than the United States and significantly more so than Europe, whereas it was the most egalitarian of the three regions at the beginning of the 1980s (Fig. 12.8).

If we compare China to the other Asian giant, India, it is clear that since the early 1980s China has been both more efficient in terms of growth and more egalitarian in terms of income distribution (or, rather, less inegalitarian, in the sense that concentration of income has increased less dramatically than in India).⁵⁰ As noted earlier in the discussion of India (see Chapter 8), one reason for this difference is that China has been able to invest more in public infrastructure, education, and health care. China achieved a much higher level of tax revenues than India, where basic health-care and educational services remain notoriously underfinanced. Indeed, in the 2010s, China has nearly matched Western levels of taxation, taking in roughly 30 percent of national income in taxes (and roughly 40 percent if one includes profits from public firms and sale of public lands).⁵¹

These Chinese successes are well known, and they lead many people to conclude that the regime will go unchallenged as long as it continues to achieve this level of economic success (and can continue to rely on the fact that many Chinese fear that the country will split apart if not ruled with a firm hand). But there may be limits to the Chinese people’s tolerance of inequality. First, the fact that China so quickly became so much more inegalitarian than Europe was by no means inevitable and clearly represents a failure for the regime. In the 1980s, the level of income inequality was close to that of the most egalitarian countries in Europe, such as Sweden. The same is true of wealth inequality, which shows, by the way, how inegalitarian the privatization process was. The top decile’s share of total private wealth was 40–50 percent in the early 1990s, below that of Sweden and other European countries; in the 2010s it is close to 70 percent, a level close to that of the United States and only slightly lower than Russia’s.⁵²

FIG. 12.8.  Inequality in China, Europe, and the United States, 1980–2018

Interpretation: Income inequality increased sharply in China between 1980 and 2018, but it is still below that of the United States (though higher than Europe), according to available sources. Sources and series: piketty.pse.ens.fr/ideology.

Now, to go from Swedish to American levels of inequality in the space of a few decades is not an insignificant change for a country like China, which officially continues to promote “socialism with Chinese characteristics.” For some Chinese businessmen, who have long felt that such slogans have no real social or economic significance, this hardly matters because they find the Anglo-American model of capitalism so attractive. But for “social-democratic” intellectuals and much of the population, this extremely rapid rise of inequality is a problem, especially since no one knows where it will end. Given that Europe has demonstrated the possibility of achieving prosperity while limiting inequality, it is not clear why Chinese socialism should tolerate levels of inequality on a par with American capitalism.53 The situation raises questions about the way privatization was conducted, about redistributive policies in China, and more generally, about the reorientation of the reform process.

The existence of an internal passport and migration restrictions in China, especially between rural and urban zones when free circulation of labor has become the norm in Europe, may also help to explain China’s high level of inequality. More specifically, economic reform has primarily benefited urban centers, while rural areas have not reaped the gains they had hoped for. Modifications of the system over the decades have not proved sufficient to reduce the differences between urban and rural areas. Mobility restrictions are not the only reason for this because similar inequalities exist within urban zones (and to a lesser extent within rural zones).⁵⁴ Furthermore, despite easing of hukou restrictions, the system remains quite authoritarian, and in recent years it has been augmented by a potentially far more intrusive system of social control, including the awarding of “social grades” and “social credit” based on massive data collection through social networks. Recent research suggests that less advantaged social groups are less tolerant of these procedures, whose repressive aspects and connection with other social control policies also deserve to be emphasized.⁵⁵

On the Opacity of Inequality in China

The stabilization of Chinese inequality since the mid-2000s might suggest that the worst of the increase is over. Bear in mind, however, that Chinese income and wealth data are extremely opaque. The estimates shown in Fig. 12.8 are the most reliable we could establish on the basis of currently available Chinese sources. But the sources are flawed and full of holes, so it is quite possible that we are underestimating both the level and evolution of Chinese inequalities. In theory, China has a progressive tax system. It was established in 1980, shortly after the beginning of the economic reforms, and its marginal rates range from 5 percent on the lowest brackets to 45 percent on the highest (the rates have not changed since 1980).⁵⁶ Compared with the 13 percent flat tax in post-Soviet Russia, the Chinese system is therefore much more progressive, at least in theory.

The problem is that no detailed data about the Chinese income tax have ever been published. The only information regularly made public is the figure for total revenue. It is impossible to know how many taxpayers pay the tax each year, how many are in each tax bracket, or by how much the number of high-income taxpayers has increased in a particular city or province. The answers to such questions would help us to understand how the gains of Chinese growth have been distributed over the years. They might also help to realize that the tax laws are not always being applied as rigorously at the local level as they are supposed to be.⁵⁷ In 2006 the Chinese fiscal authorities published a bulletin requiring all taxpayers with incomes above 120,000 yuan (less than 1 percent of the adult population at the time) to fill out a special declaration, which was to be used in the fight against corruption. The results of this national survey were published from 2006 to 2011 but in a rudimentary form: only the total number of taxpayers above the threshold was indicated, sometimes together with their aggregate income, without any further breakdown. Publication was ended in 2011. It has been possible to find similar data in publications by regional tax authorities (in some cases with different thresholds, such as 500,000 yuan or 1 million yuan) in certain provinces between 2011 and 2017, but the information is irregular and inconsistent.

Such is the fragmentary nature of the data we have used. Though sadly incomplete, these data have allowed us to revise substantially upward official Chinese measures of inequality and its evolution—measures based solely on household declarations, which included very few households at this level of income.⁵⁸ The estimates obtained can be compared with those for Europe and the United States (which are based on much more detailed data, including tax records) in a more plausible and satisfactory way than could be done before (Fig. 12.8). Still, the Chinese estimates obviously remain quite fragile and may underestimate both the level and evolution of inequality in China. The fact that the authorities stopped publishing national data on high-income taxpayers in 2011 is especially worrisome. In some ways, public information about the workings of the income tax system is even scarcer in China than in Russia, which is setting the bar quite low.⁵⁹ Although lack of transparency about inequality is a global problem (about which I will say more in Chapter 13), it is clear that Russia and China are more opaque than most.

As for the recording and measurement of wealth in China, the situation is even worse than for income. In particular, there is no Chinese inheritance tax and therefore no data of any kind concerning inheritances, which greatly complicates the study of wealth concentration. It is truly paradoxical that a country led by a communist party, which proclaims its adherence to “socialism with Chinese characteristics,” could make such a choice. As long as the extent of private wealth remained limited, the absence of an inheritance tax was not very surprising. But now that two-thirds of Chinese capital is in private hands (Fig. 12.6), it is surprising that those who have benefited most from privatization and economic liberalization are allowed to pass all of their wealth on to their children without any tax, even a minimal one. Recall that after much variation over the course of the twentieth century, the tax rates applied to the largest estates settled between 30 and 55 percent in the leading capitalist countries (United States, United Kingdom, Japan, Germany, and France) in the period 2000–2020.⁶⁰ In Japan the top rate was even raised from 50 to 55 percent in 2015. In the other capitalist countries of East Asia, there are high inheritance taxes: for example, in South Korea the top rate is above 50 percent.

So we find ourselves in the early twenty-first century in a highly paradoxical situation: an Asian billionaire who would like to pass on his fortune without paying any inheritance tax should move to Communist China. A case that speaks volumes is that of Hong Kong, which had a high inheritance tax when it was a British colony but abolished it in 2005, shortly after it was handed back to the People’s Republic of China in 1997. In Taiwan, many businessmen favor integrating the country into the People’s Republic to do away with the inheritance tax. This tax competition in East Asia, partly driven by China, tends to reinforce the global trend while contributing to rising inequality in the region.⁶¹

The Hong Kong case illustrates a novel and particularly interesting trajectory. In the first place, it is the sole case of a capitalist country that became more inegalitarian by joining a Communist regime.⁶² Second, Hong Kong’s position as a financial center played a key role in the development of China. In particular, it enabled wealthy Chinese to move capital outside the country more easily than they could have done through the banking system of the People’s Republic of China. It also allowed large Chinese firms and the Chinese government itself to invest abroad and conduct foreign transactions more nimbly than they could have done otherwise. To date there is no evidence to suggest that capital flight from China was anywhere near as massive as what was observed in the Russian case. But given the extent of corruption in China, the tenuous nature of many of the property rights acquired through privatization, and the fact that the rapid growth of recent decades may not continue, capital flight may increase in the future and undermine the regime from within.⁶³

China: Between Communism and Plutocracy

The political system imposed on Hong Kong also illustrates the ambiguities of the Chinese regime, theoretically inspired by communism but in practice sometimes closer to a certain type of plutocracy. Until 1997, the governor of Hong Kong was appointed by the Queen of England. The colony was governed by a complex system of assemblies elected by indirect suffrage; in practice it was governed by committees dominated by economic elites. It was not an explicitly censitary system like those found in the United Kingdom and France in the nineteenth century (or until 1911 in Sweden, where the number of ballots a person could cast was proportional to that person’s wealth),64 but the effect was similar: power was essentially vested in the business elite. This proprietarian-colonialist system was only slightly modified when Hong Kong was handed over to Communist China. Today, Hong Kong holds nominally free elections, but candidates must first be approved by a nominating committee appointed by the authorities in Beijing and in practice controlled by Hong Kong business elites and other pro-Chinese oligarchs.

In the abstract, one can imagine a world in which China would join with Europe, the United States, and other countries to establish a more transparent financial system that would put an end to all tax havens, whether located in Hong Kong, Switzerland, or the Cayman Islands. This may someday come to pass. Broad segments of the Chinese population are scandalized by the country’s plutocratic turn. Some intellectuals have proposed social-democratic measures in direct contradiction with the policies preferred by the regime, while others have worked on new ways to combat inequality since the repression of the Tiananmen Square demonstrations in 1989.⁶⁵ At the moment, however, it is clear that we are still a long way from seeing such changes in China.

When questioned about these issues, Chinese officials and intellectuals close to the government often explain that the authorities are aware of the risk of capital flight such as occurred in Russia and that China will soon develop new forms of progressive income, inheritance, and wealth taxes. These predictions have yet to be borne out, however. A second response, no doubt more revealing, is that China has no need of such Western-style fiscal solutions, which are complex and often ineffective, and will need to invent its own remedies, like the merciless battle that the CCP and state authorities have waged against corruption.

Indeed, Xi Jinping (whose name was added in 2018 to the preamble of the Chinese constitution alongside Mao Zedong and Deng Xiaoping) has written abundantly about “socialism with Chinese characteristics,” and nowhere in these theoretical texts does one find any reference to progressive taxes, systems of co-management or self-management, or power sharing within firms. By contrast, one finds many assertions to the effect that the “invisible hand” of the market needs to be firmly counterbalanced by the “visible hand” of the government, which must detect and correct every abuse. Xi Jinping frequently alludes to the danger of a “potential degeneration of the party,” “owing to the duration of its exercise of power,” which only “an implacable struggle against corruption” can prevent.⁶⁶ The prospect of “new silk roads” is discussed at length, allowing Xi to discreetly but insistently develop the idea of a Chinese-led globalization, which would establish benevolent commercial ties between different parts of the world without political interference. This would at last put an end to Europe’s mad colonial ambitions and the damaging “unequal treaties” imposed on China and other countries. Geopolitically, a Eurasian power bloc with China at its center would ultimately relegate America to its proper place on the world periphery.

When it comes to concrete institutions for regulating inequality, ending injustice, and controlling corruption, however, it is clear that “socialism with Chinese characteristics” means nothing very specific. We are told that the “visible hand” of the government and party must be “implacable,” but it is difficult to find out exactly what this means. It is not clear that imprisoning oligarchs or state officials who have too conspicuously and scandalously enriched themselves is enough to meet the challenge. In the fall of 2018, film star Fan Bingbing was arrested after a star television news anchor revealed that she had a secret contract under which she was paid 50 million yuan, whereas her official pay was only 10 million yuan. The affair attracted a great deal of attention, and the government saw an ideal opportunity to show that it was prepared to take on excessive inequality and the cult of money. The case is certainly interesting, but there is good reason to doubt that inequality in a country of 1.3 billion people can be controlled simply by means of public denunciation and imprisonment without any systematic registration and taxation of wealth and estates, while journalists, citizens, and trade unions are prevented from developing the means to investigate abuses and the police arrest anyone who shows too much interest in wealth accumulated by people with close ties to the government. Nothing guarantees that the Chinese regime will be able to avoid a kleptocratic fate similar to Russia’s.

On the Effect of the Cultural Revolution on the Perception of Inequality

All things considered, the Chinese government apparently does not take very seriously the fact that a society based on private property, without sufficient fiscal and social safeguards, risks attaining a level of inequality that may prove harmful in the long run, as European experience in the nineteenth and first half of the twentieth centuries shows. This is probably yet another manifestation of the sense of being exceptional and refusing to learn from the experiences of others from which so many societies have suffered throughout history.67 Another historical and political-ideological factor specific to China should also be mentioned, however: namely, the extraordinary violence of the Maoist period and in particular the Cultural Revolution, which had a profound influence on perceptions of inequality and particularly of family transmission processes. China has only recently emerged from a major traumatic experience, in which the effort to interrupt the intergenerational reproduction of inequality took a particularly radical form with the arrest and ostracism of anyone whose family background was linked in any way to the former imperial landlord or intellectual classes. Large segments of Chinese society, including much of today’s ruling class, saw grandparents or other relatives killed or harshly treated during the Cultural Revolution. After such a violent repudiation of the transmission process, for which so many families paid dearly, the logic of accumulation has reasserted itself in China, at least for now.

In Brothers (2006), the Chinese novelist Yu Hua describes the intersecting destinies of two brothers to evoke the radical transformation of values in China from the time of the Cultural Revolution (when descendants of former landlords were hunted down and chastity was promoted) to the 2000s, when there was nothing that could not be bought or sold. This includes factories and land eagerly exchanged for cash by greedy local party officials to fake breasts and hymens used to manufacture contestants for a Virgin Beauty Contest for the delectation of the new Chinese man, who was eager to profit from everything the world had to offer, to say nothing of filling the pockets of the contest’s promoters. Once the economy was opened up and businesses were privatized, the watchword was “anything goes” as long as regional GDP statistics continued to soar. Li Guangtou (called Baldy Li in the English translation) and Song Gang, both born in 1960, are half-brothers. Li is clearly the less honest of the two, and it is he who becomes a billionaire. He starts out in the 1980s in the scrap business by recycling metal and manufacturing cardboard, makes a fortune in the 1990s by selling freighter loads of used Japanese suits (which replace the now-unfashionable Mao jackets), and in the 2000s becomes a multimillionaire who dresses in Armani and contemplates paying for a ride to the moon on a spaceship. In the end, however, he seems almost more likable than Song Gang, who allows himself to be ground to bits by the evolving system.

The Cultural Revolution (1966–1976), which is hard on both brothers, is portrayed as an attempt to reshape minds while blaming scapegoats for the failure of agricultural and industrial collectivization to yield the anticipated Great Leap Forward in the 1950s and 1960s. Song’s father, who is the pride and joy of both boys with his red armband and enthusiastic Communist spirit, is soon arrested, and the family home is searched. As the son of a landlord and himself a teacher, Song’s father embodies the former ruling class, which (whether it knows or not) is sabotaging the revolution because it is contemptuous of the people, of whom it knows nothing. The Red Guards make it their mission to remind the boy’s father that it is through cultural and ideological transformation that China will atone for its deeply inegalitarian past. For all their ideological zeal, the Red Guards also display a flair for practical realities: when they come to search the house, they empty all the closets in search of land deeds, “ready to be pulled out should there be any change of regime.” They do not find any, but Song Fanping is lynched anyway. The two boys, assisted by Tao Qing, wheel his body home through the streets of Lui Town in a cart. Beyond the drama of the tale, the book allows the reader to gauge the magnitude of the disturbing political-ideological transformation that led within a few decades from the Cultural Revolution to Chinese hypercapitalism, from the socialist-made “White Rabbit” caramels that delighted the young boys in the late 1960s and early 1970s (when only the district commander of the People’s Army was entitled to a new bicycle) to the “great national gold rush” of the 1990s, with its juicy business deals, and ultimately to today’s China, in which newly rich billionaires dream of traveling to the moon.⁶⁸

On the Chinese Model and the Transcendence of Parliamentary Democracy

Note, moreover, that the Chinese regime survives by capitalizing on the weaknesses of other models. Having learned from the failures of the Soviet and Maoist regimes, the Chinese have no intention of repeating the errors of the Western parliamentary democracies. In this respect, it is highly instructive to read the regime’s official newspaper, the Global Times, especially since the Brexit referendum and the election of Donald Trump. One finds lengthy and repeated denunciations of the West’s nationalist, xenophobic, and separatist deviations and of the explosive cocktail of vulgarity, reality TV, and the money-is-king mentality to which so-called free elections inevitably lead—so much for the marvelous political institutions that the West wants to impose on the rest of the world. The paper also emphasizes the respect with which Chinese leaders treat other world leaders, especially those of the African nations that the president of the United States, the supposed “leader of the free world,” has called “shithole countries.”

Reading all this is instructive and raises questions about the supposed civilizational and institutional superiority of Western electoral democracies. There is obviously something absurd about the idea that “Western” democratic institutions have achieved some sort of unique and unsurpassable perfection. The parliamentary regime, with universal suffrage and elections every four or five years to choose representatives who then have the power to make law, is a specific, historically determined form of political organization. It has its virtues but also its limits, which must be constantly questioned and transcended.69 Among the criticisms traditionally leveled at Western institutions by communist regimes such as the Russian and Chinese, two warrant particular attention.⁷⁰ First, equal political rights are illusory when the news media are captured by the power of money, which gives the wealthy control over minds and political ideology and thus tends to perpetuate inequality. The second criticism is closely related to the first: political equality remains purely theoretical if the way political parties are financed allows the wealthy to influence political platforms and policies. The fear that the wealthy will capture the political process has been especially potent in the United States since the 1990s and even more so since the Supreme Court gutted American campaign finance laws.⁷¹ The problem is actually much broader in scope, however.

Indeed, the implications of how the media and political parties are financed have never really been fully thought through. Admittedly, many countries have passed laws that seek to limit media monopolies and regulate political financing. But these laws are often quite inadequate, falling far short of what would be required to ensure equal participation in politics, to say nothing of the many setbacks regulatory efforts have suffered in recent decades (especially in the United States and Italy). By drawing on the lessons of history, however, one can identify new approaches, including the idea of establishing nonprofit and participatory media companies and working toward equality in the financing of political movements.⁷² I will come back to these issues in Part Four.⁷³

In any event, the capture of the media or political parties by the forces of money is not a reason to do away with elections or to require candidates to be approved by a committee on the basis of their compatibility with the party in power. Communist leaders in Russia and Eastern Europe did use such arguments to keep themselves in power by ensuring that there would be no authentic competition at the ballot box. History shows that this is the wrong way to oppose the power of money.

History also has many examples of regimes that used the power of money over the democratic process as a reason to clamp down on the political process by, for example, transforming the media into propaganda instruments, ostensibly to counter the competing propaganda spread by the private media. In some cases, the results of elections have simply been ignored. Think, for example, of the “Bolivarian” regime in Venezuela under Hugo Chavez (1998–2013) and Nicolas Maduro (2013–). This regime portrays itself as a new type of “plebiscitary socialism,” in the sense that it has used the proceeds from its sale of petroleum in a more egalitarian and social manner than previous governments (which is not setting the bar very high given the oligarchic practices of previous regimes, but it is still important), while relying on personalized, authoritarian, hypercentralized statist rule periodically validated by elections and direct dialogue with “the people.” Think of the famous television program Alo presidente, in which Chavez spoke directly to the people for the better part of every Sunday (his record was more than eight hours). After winning numerous elections and surviving a coup attempt in 2002 (with US support for the putschists), to say nothing of other episodes that would far exceed the scope of this book, the regime was finally defeated unambiguously in the 2015 legislative elections. It refused to accede to the decision of the voters, however, leading to a serious and violent crisis against a background of hyperinflation and economic collapse, which continues as of this writing (2019).⁷⁴

Chavez’s relation to the media is interesting because there is no doubt that the leading private media in Venezuela (as in most countries in Latin America and throughout the world) have often been biased in favor of the worldview of their owners (as well as the interests of their financial backers, mostly linked to hyper-inegalitarian exploitation of petroleum resources in partnership with the major Western firms). Still, to use this state of affairs as a pretext to take control of public media and then reject the results of an election that fails to turn out as hoped is not a satisfactory response. In the end, such tactics only reinforce the proprietarian ideology they claim to combat. As the present situation makes clear, for hypercentralized power to ride roughshod over democratic institutions resolves nothing. A more promising approach is to radically reform the system for financing and governing the media and political parties so that each person has an equal opportunity to express him- or herself (“one person, one vote” rather than “one dollar, one vote”) while respecting the diversity of points of view and the need for alternation. I will come back to this.

Electoral Democracy, Borders, and Property

The role of money in the financing of the media and political parties is an important issue but by no means the only grounds on which Western parliamentary democracies can be criticized. Suppose the problem of equal access to the media and political financing were fully resolved. Western democratic theory would still need to deal with three major conceptual shortcomings: namely, the lack of a theory of borders, a theory of property, and a theory of deliberation.

The border question is obvious: over what territory and to what human community is the law of the majority supposed to apply? Can a city, neighborhood, or family decide by majority vote to secede from the political community, reject the law of the majority, and become a legitimate sovereign state unto itself, governed by the majority of the tribe? The fear of endless and unlimited separatist escalation has often been used by authoritarian regimes as their main argument for refusing elections. This is true of the Chinese regime, which derives its identity largely from its ability to keep the peace in a community of 1.3 billion human beings, in contrast to Europe, which has always been torn by tribal hatreds. In the eyes of the Chinese regime, this is a sufficient reason to reject so-called free elections, which in reality merely spur identitarian and nationalist passions. This Chinese response is interesting, but once again it is a brittle response to a genuine question. A more satisfactory answer might take the form of a transnational theory of democracy based on social-democratic federalism and the construction of norms of socioeconomic justice at the regional and ultimately global level. This task is anything but simple, but there are not many other options.75

The question of property poses an equally difficult challenge to Western democratic theory. Can the majority pass laws that totally redefine and immediately redistribute rights to property? In the abstract, of course, it might make sense to set rules and procedures (such as qualified majority voting) to lend a degree of permanence to certain aspects of the legal, social, fiscal, and educational system. The goal would be to avoid sudden changes but not to block social and economic change altogether when the need is widely felt. The problem is that this argument has often been exploited by proprietarian ideologies to constitutionally enshrine rules that preclude any possibility of peaceful legal change, even when wealth has become hyperconcentrated or where it was initially acquired in an especially dubious or even totally indefensible manner.⁷⁶

Note, too, that this same stability argument has also been used by various one-party states to justify placing certain decisions (such as public ownership of the means of production) outside the scope of electoral debate or even to dispense with elections altogether (or to require prospective candidates to obtain the approval of party committees). This has been true of regimes other than strictly communist ones. After achieving independence, for example, some African countries established one-party states, at least temporarily, in some cases to avoid secession and civil war and in others because it was impossible to judge the effects of certain social or economic policies after a period of just four or five years.⁷⁷ Without going that far, the pension and health insurance systems that one finds in most European social democracies are governed by complex systems that grant large roles to social security administrations and trade unions. This has helped to immunize these systems against changes of government: a sufficiently large and durable parliamentary majority could regain control, but it would take a particularly large measure of democratic legitimacy to do so. More generally, there are good reasons to ponder the merits of granting more substantial constitutional protections to social rights, educational justice, and fiscal progressivity.

To all these legitimate and complex questions, the Chinese regime has one answer: namely, that reliance on solid intermediary bodies such as the CCP (with a membership of roughly 90 million in 2015, or 10 percent of the adult population) makes it possible to organize the process of deliberation and decision making so as to achieve a stable, harmonious, and rational development model that is protected from the identitarian instincts and centrifugal forces rampant in the Western electoral supermarket. This position was forcefully articulated at a 2016 colloquium organized by the Chinese authorities on “the role of political parties in global economic governance,” and it is regularly discussed on the website of the Global Times.⁷⁸ Note that the very large membership of the CCP is roughly comparable to the participation in presidential primaries in the United States and France (about 10 percent of the adult population in the most recent primaries in both countries). Active membership of Western political parties is much lower (at most a few percent of the population).⁷⁹ Participation in legislative and presidential elections is much higher, however (generally more than 50 percent, although there has been an alarming decline in recent decades, particularly in the working-class population).⁸⁰

In every case, the Chinese argument rests on the idea that deliberation and decision making within an organization such as the CCP will be more profound and rational than Western-style democracy in the public square. Instead of relying on a few minutes of the voters’ superficial attention every four or five years, as in the West, China’s party-managed democracy is supposed to be guided by a significant minority of the population, made up of party members (about 10 percent of the adult population) who are fully involved and informed and who deliberate collectively and in depth for the good of the country as a whole. Such a system, it is argued, is better equipped to strike reasonable compromises in the interests of the nation and the entire community, particularly when it comes to questions of borders and property.

Hu Xijin, the current editor-in-chief of the Global Times, has given an account of his career which illustrates the Chinese belief in the ability of party-managed democracy to deal more effectively with border questions than electoral democracy. As a young student, Hu was deeply involved in the Tiananmen demonstrations of 1989. He tells of being traumatized by the sudden dismantling of the Soviet Union and even more by the separatist and tribal wars that tore apart the former Yugoslavia, which brought home to him the need for the party to play a peacemaking role and the impossibility of leaving such decisions to the voters’ whimsical passions.⁸¹

Note, too, that a standard (and well-honed) Chinese criticism of pro-democracy militants in Hong Kong is that they are selfish, especially when they oppose (or express doubts about) immigration from the People’s Republic of China. In other words, the accusation is that the Hong Kong democrats’ supposed love of democracy and “free” elections is actually intended to keep the privileges they enjoy in their city-state enclave entirely to themselves. In fact, only a minority within the Hong Kong movement call for independence; the movement’s main demand is for democracy in a federal China that allows free circulation of people and political pluralism—a demand that is rejected out of hand by the CCP.⁸²

On the Single-Party State and the Reformability of Party-Managed Democracy

Another key CCP argument is that the party represents all strata of the population. Even if only a minority are active members, it is a minority more motivated and determined than the average Chinese citizen (because party members are carefully selected and must prove their continued dedication) as well as more profoundly representative than Western parties and electoral democracies allow. In fact, according to available data, of the 90 million members of the CCP in 2015, 50 percent were workers, employees, or peasants; 20 percent retirees; and 30 percent administrators or technical managers in state firms.83 Admittedly, managers are overrepresented (they constitute only 20–30 percent of the population), but the gap is not very wide and certainly narrower than in most Western countries.⁸⁴

These arguments for the superiority of Chinese party-managed democracy are interesting and potentially convincing in strictly theoretical terms, but they nevertheless run into a number of serious difficulties. First, it is quite difficult to know what role workers, employees, and peasants really play in the actual functioning of the party at the local level. At the highest level—that of the National People’s Congress (NPC), which is the primary legislative body in the Chinese constitution, and to an even greater extent at the level of its Standing Committee, which wields the real power at the NPC’s annual meetings—we find that Chinese billionaires and the world of business in general are dramatically overrepresented.⁸⁵

The Western press often harps on these points as evidence of the hypocrisy of the Chinese regime, which is closer to plutocracy than to communism with its deliberative, socially representative cells. The critique is on the mark. Note, however, that the available data are far from precise. The wealthy are undeniably overrepresented in the NPC but perhaps not much more than in the US Congress (which is not particularly reassuring). Still, the overrepresentation of the wealthy seems much greater than what we see in Europe, where the disadvantaged classes are severely underrepresented in parliament, but it is the intellectual professions rather than businessmen and wealthy who are overrepresented.⁸⁶ In any case, there is little support at this stage for the notion that Chinese-style party-managed democracy is more representative than Western electoral democracy.

Furthermore, as things currently stand, the idea that deliberation within an enlightened minority of party members is somehow more profound poses a major problem. There is no record of these deliberations, so that Chinese citizens (much less anyone outside China) cannot form their own opinions of what was actually discussed or how decisions were taken and therefore cannot judge the ultimate legitimacy of the party-led deliberative model. Things could be done differently: debates among party members could be made entirely public, and decisions and candidate selections could be subject to genuinely open, competitive votes. At this point, however, there is no sign that the Beijing regime will evolve in this direction anytime soon.

There are interesting historical examples of single-party systems that eventually allowed candidates from other parties and opinion groups. Senegal, for instance, was a one-party state from independence until the constitutional reform of 1976 but eventually authorized selected parties of other ideological stripes to present candidates. It was a foregone conclusion that the Socialist Party (the party of President Senghor when Senegal was a one-party state) would win the first pseudo-free elections in the 1980s, but the playing field was gradually leveled and eventually Abdoulaye Wade’s Senegalese Democratic Party won in 2000. Without idealizing the Senegalese case, it does show that political transitions can follow many pathways.⁸⁷

To sum up, China’s party-managed democracy has yet to demonstrate its superiority over Western electoral democracy, owing in part to its flagrant lack of transparency. The very sharp increase of inequality in China and the extreme opacity of Chinese data also raise serious doubts about the degree to which the lower classes are actually involved in the supposedly representative deliberative process that the CCP claims to embody. Nevertheless, China’s many criticisms of Western political systems should be taken seriously. The power of money over the media and parties and the structural difficulty of dealing with the problems of borders and property rights are important issues, as is the fact that parliamentary institutions are increasingly dominated by closed circles of insiders in both the European Union and the United States. What is more, traditional representative mechanisms need to be complemented by arrangements allowing for true deliberation and participation rather than just casting a ballot every four or five years. There is always a need to reinvent democracy in its concrete forms, and to that end it is useful to compare different models and historical experiences, assuming that the comparison can be conducted without prejudice or nationalist arrogance.

Eastern Europe: A Laboratory of Postcommunist Disillusionment

We turn now to communist and postcommunist societies in Eastern Europe. Communism’s imprint on Eastern Europe is not as deep as its imprint on Russia, partly because the communist experience was shorter and partly because most East European countries were more highly developed than Russia was when communism arrived. In addition, most of the East European countries that were communist in the period 1950–1990 joined the European Union in the early 2000s. Being integrated in a politically and economically prosperous region helped to close the gap in standard of living somewhat more quickly and encouraged political stabilization around elected parliamentary regimes. Nevertheless, the process has also given rise to increasingly powerful frustrations and misunderstandings within the EU, so that Europe has become a veritable laboratory of postcommunist disillusionment.

To begin with, let’s focus on the more positive aspects. First, it is particularly striking that if one measures income inequality for all of Europe (East and West combined), it is of course higher than in Western Europe alone but still significantly lower than in the United States (Fig. 12.9). The gap between average income in the poorest and richest EU member states—between, say, Romania or Bulgaria and Sweden or Germany—is of course substantial: larger, for instance, than the gap among US states. But this gap has shrunk, and, more importantly, inequality within European states (in both East and West) is sufficiently smaller than inequality within US states such that overall inequality across Europe is much lower than inequality across the United States. Specifically, the bottom 50 percent of the income distribution in Europe receives 20 percent of total income, compared with barely 12 percent in the United States. Note, moreover, that the gap would be even larger if one included Mexico and Canada with the United States. Such a comparison would make sense, partly because then the total populations would be closer and partly because the North American countries, like the European countries, are members of a customs union. Of course, social, economic, and political integration is more limited in North America than in the European Union, which provides so-called structural funds to less developed regions and allows free circulation of workers; at the moment, the latter seems totally out of the question in North America.

FIG. 12.9.  Regional inequality in the United States and Europe

Interpretation: Income inequality is higher when one combines Eastern and Western Europe (population 540 million) than if one looks only at Western Europe (420 million) and excludes Eastern Europe (120 million), given the persistent average income gaps between West and East. In any case, inequality is much smaller than in the United States (population 320 million). Sources and series: piketty.pse.ens.fr/ideology.

The fact that income inequality is lower in the former communist countries of Eastern Europe than in the United States or post-Soviet Russia is due to several factors, most notably the existence in Eastern Europe of relatively highly developed egalitarian systems of education and social protection inherited from the communist period. In addition, the transition from communism proceeded more gradually and in a less inegalitarian fashion than in Russia. For example, in Poland (a country that opted, along with the Czech Republic, for “shock therapy” in the 1990s), the transition was actually much more gradual and peaceful than in Russia. To be sure, the Poles did apply voucher privatization to small business in the period 1990–1992, especially in the retail and crafts sectors, but this was not extended to large firms until 1996 and even then only gradually as the new legal and fiscal systems took effect, which made it possible to limit the tendency for a small group of oligarchs to capture most of the shares, as was the case in Russia. The postponement of the privatization of large firms, initially planned to take place quickly after passage of the law of 1990, came about in response to vigorous opposition from the Solidarność (Solidarity) union, more than from the former Communist Party, which became the Social Democratic Party (SLD) and played a leading role during the transition.88 Recent work has shown that this gradualism contributed to the success of the Polish transition and to the strong growth observed between 1990 and 2018.⁸⁹

Nevertheless, while the East European transition from communism was undoubtedly a success compared with Russia’s turn to oligarchy and kleptocracy, it is important to put things in perspective. First, while inequality did not skyrocket as in Russia, it did increase sharply in all the countries of Eastern and Central Europe. The top decile’s share of national income was less than 25 percent in 1990 and roughly 30–35 percent in 2018 in Hungary, the Czech Republic, Bulgaria, and Romania and as high as 35–40 percent in Poland. The share of the bottom 50 percent fell in similar proportions.⁹⁰ The degree to which the countries of the East have caught up with those of the West should also not be exaggerated. The average income in Eastern Europe (in terms of purchasing power parity) has indeed risen from 45 percent of the European average in 1993 to 65–70 percent in 2018. But in view of the decrease in output and income that followed the collapse of the communist system in the period 1980–1993, the level attained by the late 2010s still remains well below West European levels and is not that different from East European levels in the 1980s (about 60–65 percent, as far as the available data allow us to judge).⁹¹

FIG. 12.10.  Inflows and outflows in Eastern Europe, 2010–2016

Interpretation: Between 2010 and 2016, the annual flow of EU transfer payments (difference between payments received and contributions to the EU budget) averaged 2.7 percent of GDP for Poland, while over the same period outflows of profits and other capital income (net of corresponding inflows) averaged 4.7 percent of GDP. For Hungary the same figures were 4.0 and 7.2 percent. Sources and series: piketty.pse.ens.fr/ideology.

These mixed results help us to understand why frustration and incomprehension have grown in the European Union over the past two decades. The euphoria that followed the integration of the Eastern bloc countries into Europe rapidly gave way to disappointment and recrimination. In West European eyes, the citizens of the East have no cause for complaint. They benefited from joining the EU, which rescued them from the bad pass in which communism had left them—not to mention that they received and continue to receive generous public transfers from the West. Indeed, if one looks at the differences between monies received (especially structural funds) and monies paid as recorded by Eurostat (the official EU statistical agency), one finds that countries like Poland, Hungary, the Czech Republic, and Slovakia received net transfers of 2–4 percent of GDP between 2012 and 2016 (Fig. 12.10). By contrast, the largest West European countries, starting with Germany, France, and the United Kingdom, paid out net transfers on the order of 0.2–0.3 percent of GDP—a fact that proponents of Brexit trumpeted in the campaign ahead of the 2016 referendum.⁹² In view of these generous outlays, West Europeans find it difficult to understand the frustration and rancor of the East and the election—particularly in Hungary and Poland—and of nationalist governments openly contemptuous of Brussels, Berlin, and Paris.

Perceptions in the East are totally different. There, many people believe that their income has stagnated because the powers that dominate the EU have placed Eastern Europe in a position of permanent economic subordination, leaving them in the position of second-class citizens. A story widely believed in Warsaw, Prague, and Budapest is that Western (especially German and French) investors exploited their countries for the enormous profits to be made from pools of cheap labor. Indeed, after the collapse of communism, Western investors did gradually become owners of much of the capital of the former Eastern bloc: about a quarter if one considers the entire capital stock (including real estate) but more than half if one looks only at firms (and even greater if one considers only large firms).

Filip Novokmet’s illuminating work shows that inequality in Eastern Europe has not grown as much as in Russia or the United States largely because much of the substantial return on East European capital goes abroad (as it did before communism, when much of the Eastern capital stock was already owned by German, French, and Austrian investors).⁹³ Basically, it was only during the communist era that Eastern Europe was not owned by Western investors. But the region was then dominated militarily, politically, and ideologically by its giant neighbor to the east, a still more painful situation to which no one wants to return. This intractable dilemma is no doubt part of the reason for the disarray.

The consequences of these cross-border capital holdings for income flows are far from negligible. National accounts data indicate that outflows from profits and other capital income (interest, dividends, etc.) net of corresponding inflows averaged 4–7 percent of GDP between 2010 and 2016, which substantially exceeds the inward flow of EU funds in Poland, Hungary, the Czech Republic, and Slovakia (Fig. 12.10).

On the “Naturalization” of Market Forces in the European Union

Of course, the above comparison of the two flows is not meant to imply that joining the EU was a bad deal for these countries (despite what nationalist leaders sometimes say). The outflow of profits is the result of investments made (and in some cases of advantageous privatizations), which may have increased overall productivity and therefore the wage level in Eastern Europe. Still, wages have not increased as rapidly as hoped, in part because of the bargaining power of Western investors, who can threaten to withdraw their capital if profits are too low; this has helped to limit wage hikes.

In any case, the flows are large enough for the question to be raised. The level of wages and profits is not decreed from on high. It depends on prevailing institutions, rules, and union bargaining power in each country as well as on taxes and regulations (or their absence) at the European level (especially since it is difficult for a small country to influence the forces that determine wages). The question is especially pertinent in a historical context where the wage share of value added by firms has been trending downward in Europe and indeed globally since the 1980s, while the profit share has been rising. This phenomenon can be attributed in part to the evolution of the respective bargaining power of firms and unions.94 Different European institutions and wage rules might have led (and might still lead) to higher wages in Eastern Europe and therefore to a significant reduction in the outward flow of profits. The potential macroeconomic impact is quite large—of the same order as the flows into Eastern Europe from the European Union.⁹⁵ The question therefore cannot be dismissed out of hand. It is hard to deny that the countries of Western Europe have derived substantial commercial and financial benefits from the integration of the Eastern bloc into the European Union (this is especially true of Germany, largely because of its geographical location and industrial specialization). Therefore, the question of how to share the resulting profits is legitimate and important, especially since those profits have contributed to Germany’s unprecedented trade surplus.⁹⁶

Europe’s dominant powers, especially Germany and France, tend to ignore this issue of private profits flowing out of Eastern Europe entirely, however. The implicit assumption is that the “market” and “free competition” automatically yield a just distribution of wealth, and transfers that depart from this “natural” equilibrium are seen as an act of generosity on the part of the winners (on this view, only transfers of public funds count as “transfers,” whereas flows of private profits are considered part of the “natural” functioning of the system). In reality, relations of ownership and production are always complex, especially within human communities as large as the EU, and cannot be regulated by the “market” alone. They always depend on specific institutions and rules, which are based on particular sociohistorical compromises; these include the legal, fiscal, and social systems, labor law, corporate law, and worker bargaining power. The fact that the European Union is based primarily on free circulation of capital and goods and regional competition without much in the way of common fiscal and social policy inevitably affects the level of wages and profits; the current state of affairs tends to favor the most mobile actors (hence investors and owners rather than workers).

The tendency of dominant economic actors to “naturalize” market forces and the resulting inequalities is common, both within and between countries. It is particularly striking in the European Union and in the period 1990–2020 led to bafflements and misunderstandings not only between East and West but also between North and South. These threatened the European project, especially during the Eurozone debt crisis and periods of speculation on interest rates. The Maastricht Treaty of 1992, which set the rules governing the common currency, was silent about the usefulness of combining the public debt of member states or harmonizing tax systems. The compromise that was struck among the various countries involved consisted in postponing these complex political questions until later and concentrating instead on simple rules such as setting deficit limits and above all on the makeup and powers of the European Central Bank (ECB), a powerful federal institution whose decisions need only a simple majority to be approved.⁹⁷ In the first few years after the introduction of the euro in 1999, the assumption was naturally that the common currency was here to stay. Quite logically, interest rates converged to virtually identical levels for all Eurozone member states. Between 2002 and 2008, interest on ten-year sovereign bonds was roughly 4 percent not only for Germany and France but also for Italy, Spain, Portugal, and Greece. This situation, though not surprising as long as markets remained calm, would not prevail for long, however.

Indeed, in 2007–2008, as the financial crisis triggered by the collapse of subprime mortgages in the United States and the failure of Lehman Brothers deepened, and after the ECB itself helped to create a panic around Greek debt, interest rates on European sovereign debt began to diverge widely.⁹⁸ The rates demanded of the countries deemed to be the safest and most solid (such as Germany and France) fell to less than 2 percent while those demanded of Italy and Spain rose to 6 percent (and even as high as 12 percent for Portugal and 16 percent for Greece in 2012). As always with financial markets, market movement due to speculation became a self-fulfilling prophecy: once the market anticipates that a country is going to have to pay higher interest on its future debt, the question of potential insolvency arises, which reinforces the determination of bond buyers to demand still higher interest rates. In view of the growing financialization of the economy and the increased role of speculative capital (which, by the way, it would be wise to regulate more strictly), only determined action by central banks and governments could stem the panic. This is what happened in 2011–2012, when the ECB and the leaders of France and Germany finally realized that there was no other option if the euro was to be saved. Their action came too late, however, to prevent a serious recession in Greece and southern Europe and a slowing of economic activity throughout the Eurozone.⁹⁹

In the next chapter I will say more about recent changes in the role of central banks and their place in today’s hyper-financialized world—a question that extends well beyond the Eurozone.¹⁰⁰ At this stage, note simply that the ECB’s belated intervention coincided with a new budgetary agreement, which tightened deficit rules;¹⁰¹ a European Stability Mechanism (ESM) financed by member states in proportion to their GDP and authorized to lend to countries under attack by speculators was also created by a separate treaty in 2012.¹⁰² In concrete terms, the ESM enabled wealthy countries such as Germany and France to lend to Greece at rates below those demanded by financial markets (which were astronomical at the time) but still well above the (near-zero) rates at which these generous lenders could themselves borrow. People in Germany and France often imagine that they helped the Greeks: they look at market prices (in this case interest rates) and see any deviation from them as an act of generosity. Greeks interpret these events very differently: they see the handsome margins that their French and German lenders enjoyed after imposing a heavy dose of austerity on their country, which consequently suffered from skyrocketing unemployment, especially among the young (not to mention the ensuing clearance sale of Greek public assets, often to the benefit of German and French property owners).

To sacralize market prices and the resulting inequalities is a simple way of looking at things. It avoids having to worry about what might happen if Pandora’s box were opened—a recurrent fear that we have touched on several times already. It is always tempting for the most powerful economic actors to defend market forces. Yet their defense is selfish and short-sighted. As Karl Polanyi observed in The Great Transformation,¹⁰³ markets are always socially and politically embedded, and their sacralization only exacerbates nationalistic and identitarian tensions. This is especially true of the labor and money markets, which set wages and interest on sovereign debt. Young Greeks and Hungarians are no more responsible for their countries’ sovereign debt and for the market interest rates they pay than young Bavarians or Bretons are for the interest they earn. If Europe has nothing more to offer than market relations, it is by no means certain that it will hold together permanently. By contrast, if Greeks, Hungarians, Bavarians, and Bretons began to think of themselves as members of the same political community, with equal rights to deliberate and approve common social regulations, laws, and tax systems and with common procedures for setting wages and progressive income and wealth tax rates and so on, it might then be possible to transcend differences of identity and rebuild Europe on a postnational socioeconomic basis. I will say more later about the European treaties and the possibility of revising them to work toward a truly social-democratic project embodying norms of justice acceptable to the majority.¹⁰⁴

Postcommunism and the Social-Nativist Trap

Let us return now to the specific political-ideological situation of postcommunist Eastern Europe, notably in relation to the rise of social nativism. There is no doubt that all the postcommunist countries are suffering from widespread disillusionment in the wake of rising inequality and, more generally, in regard to the question of whether capitalism can be regulated and transcended. In Eastern Europe, as in Russia and China, many people feel that they have paid the price for the ill-considered promises of past communist and socialist revolutionaries, and they are generally skeptical of anyone who gives the impression of wanting to pursue similar fantasies yet again. One can of course regret that such reactions often lack subtlety and precision and tend to confuse very different historical experiences. As noted earlier, the fact that Soviet Communism failed dramatically cannot alter the fact that Swedish social democracy was a great success, and it is unfortunate that postcommunist Russia (or Eastern Europe) did not try to establish social-democratic institutions rather than turn to inegalitarian oligarchy. Nevertheless, the fact remains that disillusionment is very deeply rooted in all postcommunist societies; today’s neo-proprietarian ideology rests on it, as does, more generally, a certain form of economic conservatism.

In the particular case of Eastern Europe, this general factor is reinforced by the fact that the countries in question are small in terms of both population and natural resources, which limits their possibilities for pursuing autonomous development strategies. By contrast, Russia and China are countries of continental dimensions, and this allows them more scope to do as they wish (for better or for worse). In addition, the countries of Eastern Europe are integrated into the European Union, which has no common fiscal policy or strategy for reducing inequality; fiscal competition between member states also severely limits options for redistribution and offers smaller countries strong incentives to become virtual tax havens.

Taken together, these factors explain why socialist and social-democratic parties have virtually disappeared from the electoral chessboard in the East. Poland is the paradigmatic case: there, the contest is now between the conservative liberals of the Civic Platform (PO) and the conservative nationalists of Law and Justice (PiS). Both parties are fairly conservative economically, especially on the issue of fiscal progressivity, but PO portrays itself as pro-European while PiS harps on nationalism, claiming that Poland is treated as a second-class country. Above all, PiS defends what it sees as traditional Polish and Catholic values, including opposition to abortion and same-sex marriage, and denies any Polish anti-Semitism or complicity in the Shoah (to the point of making it a criminal offense to search for evidence to the contrary). It has also tried to assert control over the media and courts (which the party claims are threatened by liberal values) and stands firmly opposed to any immigration from outside Europe. The migrant crisis of 2015, when Germany briefly opened its doors to Syrian refugees, was an important and revealing moment in this political reconfiguration. It allowed a faction of PiS to take a strong stand against a proposal, briefly entertained by EU leaders, to impose refugee quotas on all member states. It was also an opportunity to attack PO, whose former leader, Donald Tusk, had become president of the European Council, as a vassal of overlords in Brussels, Berlin, and Paris.105 At the same time, PiS sought, not without success, to portray itself as the champion of the lower and middle classes by promoting redistributive social policies and attacking the rigidity of EU budget rules. In the end, the ideological stance of PiS is in some ways similar to the “social nativism” we encountered previously in our discussion of the Democratic Party in the United States in the late nineteenth and early twentieth centuries,¹⁰⁶ despite many differences, beginning with postcommunist disillusionment. What is certain in any case is that the confrontation of conservative nationalists with conservative liberals, which we also see in Hungary and other East European countries, has little in common with the “traditional” left-right conflict between social democrats and conservatives that defined politics in Western Europe and the United States during much of the twentieth century.

In Part Four I will delve into these political-ideological transformations in greater detail. I see them as essential for understanding the evolution of inequality and the possibility of reconstituting an egalitarian and redistributive coalition in the future. At this stage, note that the clash between conservative liberals and conservative nationalists is not simply a curiosity of postcommunist Eastern Europe. It is one of the possible trajectories toward which political conflict may move in many Western democracies, as recent developments in France, Italy, and the United States suggest. Broadly speaking, it is one of the forms that ideological conflict may take in societies that take the reduction of socioeconomic inequalities off the table while opening up the space for identitarian conflict. The only way to overcome such contradictions is to work toward a novel internationalist political platform to achieve greater equality.

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1.     1.  See N. Moine, “Peut-on être pauvre sans être un prolétaire? La privation de droits civiques dans un quartier de Moscou au tournant des années 1920–1930,” Le Mouvement social, 2001.

2.     2.  See J. Cadiot, La société des voleurs. La protection de la propriété socialiste sous Staline (EHESS, 2019). See also J. Cadiot, “L’affaire Hain. Kyiv, hiver 1952,” Cahiers du Monde Russe, 2018.

3.     3.  By comparison, the incarceration rate (in percent of the adult population) is currently 0.7 percent in Russia, 0.3 percent in China, and less than 0.1 percent in all the countries of Western Europe. See the online appendix (piketty.pse.ens.fr/ideology).

4.     4.  See N. Moine, “La perte, le don, le butin. Civilisation stalinienne, aide étrangère et biens trophés dans l’Union soviétique des années 1940,” Annales. Histoire, sciences sociales, 2013; N. Moine, “Evaluer les pertes matérielles de la population pendant la Seconde guerre mondiale en URSS : vers la légitimation de la propriété privée?” Histoire et mesure, 2013.

5.     5.  See Chap. 6.

6.     6.  If we looked only at monetary income, the top decile’s share would be barely 20 percent of total income (rather than 25 percent) and the top centile’s less than 4 percent (instead of 5 percent). See the online appendix and F. Novokmet, T. Piketty, and G. Zucman, “From Soviets to Oligarchs: Inequality and Property in Russia, 1905–2016,” WID.world, 2017; also in Journal of Economic Inequality, 2018.

7.     7.  Specifically, a top centile share of 4–5 percent means that the average income of the best paid 1 percent was four to five times that of the average income overall and generally eight to ten times that of the wages of the lowest paid (which are generally close to half the overall average income).

8.     8.  N. Moine, “Le système des passeports à l’époque stalinienne. De la purge stalinienne au morcellement du territoire (1932–1953),” Revue d’histoire moderne et contemporaine, 2003.

9.     9.  See P. Samuelson, Economics, 8th ed. (McGraw-Hill, 1970), p. 831.

10.   10.  See, for example, M. Mann, The Sources of Social Power (Cambridge University Press, 2013), vol. 4, p. 182.

11.   11.  See E. Todd, La chute finale. Essai sur la décomposition de la sphère soviétique (R. Laffont, 1976).

12.   12.  At the end of a long congressional battle, Reagan vetoed the Comprehensive Anti-Apartheid Act passed by the US Congress, but Congress overrode the veto, and the bill became law.

13.   13.  See Chap. 7.

14.   14.  See Dakar 66: Chroniques d’un festival panafricain (exhibition, Musée du quai Branly, Paris, February 16–May 15, 2016).

15.   15.  In January 1988, when apartheid was still in force, the Cuban air force intervened in Angola against South African tanks. “We decided to resolve the problem at our own risk, as allies of Angola,” Castro explained on July 26, 1991, with Nelson Mandela in attendance. Mandela, who had come to express “a great debt of gratitude to the Cuban people,” stressed the historic significance of the defeat that “destroyed the myth of the invincibility of the white oppressor,” which was “a turning point in the struggle” against apartheid. See the collection of speeches by F. Castro and N. Mandela, Cuba et l’Afrique: La victoire de l’égalité (Bègles, 2018).

16.   16.  The history of communist attitudes toward contraception is also far from straightforward. The USSR was the first country to legalize abortion in 1920 but prohibited it in 1936 (Stalin took a hard natalist line), then legalized it again in 1955.

17.   17.  See the interesting data in S. Carmichael, S. Dilli, and A. Rijpma, “Gender inequality since 1820,” in How Was Life? Global Well-Being Since 1820, ed. J. van Zanden, J. Baten, M. d’Ercole, A. Rijpma, C. Smith, and M. Timmer (Organisation for Economic Co-operation and Development [OECD], 2014), p. 238, fig. 12.9.

18.   18.  In Land and Freedom (1995), Ken Loach depicts a village council in Spain in 1936. There is conflict over communal land: Does it belong to the government or to individuals? This exacerbates squabbling among anarchists, Stalinists, and Trotskyists and inevitably strengthens the enemy: Franquists, clergy, and landlords.

19.   19.  See Chaps. 10–11.

20.   20.  In practice, employment and output are divided in a very balanced way among firms of different sizes (with, for example, about 20 percent of private-sector jobs in firms of fewer than ten employees, 20 percent between ten and fifty employees, 20 percent between fifty and 250 employees, and so on). This necessitates a range of solutions in regard to power sharing and ownership of these various structures. See Chap. 11.

21.   21.  See Chap. 17.

22.   22.  See Fig. 11.11.

23.   23.  See Fig. 10.11.

24.   24.  See the online appendix and Novokmet, Piketty, and Zucman, “From Soviets to Oligarchs,” fig. 2.

25.   25.  K. Pistor, The Code of Capital: How the Law Creates Wealth and Inequality (Princeton University Press, 2019).

26.   26.  See D. Nougayrède, “Outsourcing Law in Post-Soviet Russia,” Journal of Eurasian Law, 2014; D. Nougayrède, “Yukos, Investment Round-Tripping and the Evolving Public-Private Paradigm,” American Review of International Arbitration, 2015; D. Nougayrède, “The Use of Offshore Companies in Emerging Market Economies: A Case Study,” Columbia Journal of European Law, 2017. See also T. Gustafson, Wheel of Fortune: The Battle for Oil and Power in Russia (Harvard University Press, 2012).

27.   27.  For details about this estimate, see Novokmet, Piketty, and Zucman, “From Soviets to Oligarchs,” pp. 19–23.

28.   28.  See G. Zucman, “The Missing Wealth of Nations: Are Europe and the US Net Debtors or Net Creditors?” Quarterly Journal of Economics, 2013; G. Zucman, The Hidden Wealth of Nations (University of Chicago Press, 2017); G. Zucman, “Global Wealth Inequality,” Annual Review of Economics, 2019.

29.   29.  See G. Zucman, “Taxing Across Borders: Tracking Personal Wealth and Corporate Profits,” Journal of Economic Perspectives, 2014; A. Alstadsæter, N. Johannesen, and G. Zucman, “Who Owns the Wealth in Tax Havens? Macro Evidence and Implications for Global Inequality,” Journal of Public Economics, 2018.

30.   30.  For a book reflecting this state of mind, see M. Boycko, A. Shleifer, and R. Vishny, Privatizing Russia (MIT Press, 1995).

31.   31.  In a sense, Russia (or at any rate its elites) has as much to lose in the fight against tax havens and financial opacity as the United States has in the struggle against global warming (see Chap. 13).

32.   32.  Trade sanctions were imposed on Russia in the wake of its annexation of Crimea and of Russian military intervention in eastern Ukraine in 2014. That crisis followed an attempt by Ukraine to align itself commercially and politically with Europe rather than with Russia.

33.   33.  European courts have at times been receptive to claims against “ill-gotten” wealth. For example, a French court ordered the seizure of property belonging to members of the family of Teodoro Obiang, the ruler of Guinea. This shows, by the way, that it is technically quite possible to freeze or expropriate assets. See T. Piketty, Capital in the Twenty-First Century (Harvard University Press, 2014), pp. 446–447. Russian misappropriation of capital is so extensive, however, that judicial tools are not enough; fiscal tools are also required. It is also possible that the courts are more likely to become involved where the theft involves natural resources (like the Guinean forests at the root of Obiang’s wealth) in a very poor country; or it may also be that wealth is more suspect when it belongs to someone with black skin.

34.   34.  For details on sources and methods, see T. Piketty, G. Zucman, and L. Yang, “Capital Accumulation, Private Property and Rising Inequality in China, 1978–2015,” WID.world, 2017; also in American Economic Review, 2019. See the online appendix.

35.   35.  See J. Ruet, Des capitalismes non alignés. Les pays émergents, ou la nouvelle relation industrielle du monde (Raisons d’agir, 2016). The author also stresses a continued state role in industry in India, Brazil, and Indonesia (less extensive than in China but more extensive than in Europe, the United States, and Japan). In Russia, the share of public capital in national capital fell much more rapidly than in China, but it remained significant, roughly 15–20 percent in the late 2010s, despite capital flight. The reason for this is the extent of natural resources and the continued existence of some very large public energy firms. See F. Novokmet, T. Piketty, L. Yang, and G. Zucman, “From Communism to Capitalism: Private vs. Public Property and Inequality in China and Russia,” American Economic Association Papers & Proceedings, 2018.

36.   36.  For detailed series by asset category, see Piketty, Zucman, and Yang, “Capital Accumulation,” figs. 5–6, and the online appendix.

37.   37.  To gauge orders of magnitude, net public capital generally amounted to a year of national income (around 150 percent of national income for public assets and barely 50 percent for public debt) at a time when total private wealth (also net of debt) was close to three years of national income. See Fig. 10.8. See also the online appendix and T. Piketty and G. Zucman, “Capital Is Back: Wealth-Income Ratios in Rich Countries, 1700–2010,” Quarterly Journal of Economics, 2014, for detailed series by country.

38.   38.  See Piketty, Capital in the Twenty-First Century, chap. 5, pp. 183–187 and fig. 5.5.

39.   39.  Recall that in a very different political-ideological and socioeconomic context, ecclesiastical organizations held 25–30 percent of all property in Europe in the sixteenth to eighteenth centuries (for example, in France and Spain as well as in Britain until the dissolution of the monasteries). This gave them the means to structure society and orient its moral and material development. See Fig. 2.3. The comparison is suggestive but can hardly be used to predict the future of the Chinese model.

40.   40.  See, for example, the work of the economist and historian Qin Hui, collected and translated in The Chinese Economy, July–October 2005. On Qin’s career since the Cultural Revolution, see Qin Hui, “Dividing the Big Family Assets,” New Left Review, 2003.

41.   41.  In view of changes in the law, we estimate that the public share of farmland fell gradually from 70 percent in 1978 to 40 percent in 2015. If we had worked with other assumptions, the effect on the overall evolution of Chinese property structure would have been small (owing to the limited value of farmland compared to capital in firms and urban real estate). See Piketty, Zucman, and Yang, “Capital Accumulation.”

42.   42.  By contrast, unique assets, for which no comparable sales have been recorded to date, such as the Louvre or Eiffel Tower, are not counted or are counted on the basis of hypothetical values (based on surface area or replacement cost), which in practice seriously underestimates their potential market value.

43.   43.  The so-called System of National Accounts (SNA) 2013 rules. The SNA rules are revised every ten years or so by a consortium of international organizations and statistical agencies, and in principle all countries should abide by them. For the Western countries, the estimates indicated in Fig. 12.8 are taken from official national accounts. For China, where there is no official wealth accounting, we have applied the same definitions to data taken from various available primary sources. See the online appendix.

44.   44.  Even if we limited the scope to the contribution of immaterial capital, scientific and technological knowledge, and human skills to GDP (as currently defined), we would end up with a capitalized value roughly twice the total value of private property (because the labor share in national accounts is generally at least twice the capital share). Such a narrow-minded calculation of public capital would in any case omit experiences generally regarded as life’s most desirable (such as breathing pure mountain air, profiting from works inherited from the past, etc.), which fortunately are not included in GDP or national income.

45.   45.  In strictly theoretical terms, there is no limit on how negative public wealth can go. Strictly speaking, one could reach a point where private individuals through their financial assets owned the totality of all future tax revenues or even the totality of everyone else’s income, so that everyone would de facto be working for the bondholders. This happened frequently in ancient times (when slavery was a consequence of heavy debt or military tribute; see Chap. 6). Without going so far, it is clear that net public capital could become even more negative in the future.

46.   46.  See Fig. 10.8 and the online appendix, Fig. S10.8. Privatizations and the declining value of public assets explain only part of the increase in private wealth (between a fifth and a third, depending on the country). The rest was due to the accumulation of savings in a context of slower growth and, above all, rising real estate and stock market prices, a rise due in part to changes in the legal and political regime favorable to property owners. See Chap. 10 and the online appendix for a detailed breakdown.

47.   47.  The positions of Japan and Germany are positive, those of the United States and United Kingdom negative, and those of other European countries close to balance. The official position of the entire group is slightly negative, but if one includes assets held in tax havens by private owners from the rich countries, all signs are that the actual position is significantly positive. See Zucman, “The Missing Wealth of Nations.”

48.   48.  On average, in the period 1970–2015, the interest on the public debt was equivalent to the secondary deficit in nearly all the rich countries (with the exception of Italy, where interest dominated), which corresponds to a virtually zero primary deficit (despite a sharp increase of total debt over the period). See the online appendix. In Chap. 16 I will say more about European budget rules and the notions of primary and secondary deficit.

49.   49.  For a recent (and highly controversial) example, see the proposal to privatize Groupe ADP, who owns the Paris airports. Approved by the French government in 2019, this plan is supposed to yield 8 billion euros, which will partly replace the yearly 5 billion euros lost through suppression of the wealth tax (ISF) and the progressive tax on capital income.

50.   50.  See Fig. 11.1.

51.   51.  See B. Naughton, “Is China Socialist?” Journal of Economic Perspectives, 2017, fig. 1. See also Piketty, Zucman, and Yang, “Capital Accumulation,” table A313.

52.   52.  See Fig. 13.8.

53.   53.  On the fears aroused by rising inequality in China, see, for example, Shi Li, H. Sato, and T. Sicular, eds., Rising Inequality in China: Challenges to a Harmonious Society (Cambridge University Press, 2013).

54.   54.  See Piketty, Zucman, and Yang, “Capital Accumulation.”

55.   55.  See G. Kostka, China’s Social Credit Systems and Public Opinion: Explaining High Levels of Approval (Freie Universität Berlin, SSRN, 2018). See also Xiaojun Yan, “Engineering Stability: Authoritarian Political Control over University Students in Post-Deng China,” China Quarterly, 2014; A. Nathan, “The Puzzle of the Chinese Middle Class,” Journal of Democracy, 2016. On the way in which massive accumulation of personal data and individual grading seeks to define itself as a morally acceptable form of capitalist accumulation and extraction of economic value, see M. Fourcade, “The Fly and the Cookie: Alignment and Unhingement in 21st-century Capitalism,” Socio-Economic Review, 2017 ; M. Fourcade and K. Healy, “Seeing Like a Market,” Socio-Economic Review, 2017.

56.   56.  On the establishment and (extremely opaque) operation of the Chinese income tax since 1980, see T. Piketty and N. Qian, “Income Inequality and Progressive Income Taxation in China and India,” American Economic Journal: Applied Economics, 2009.

57.   57.  For instance, we know that some provinces and cities have been granted special income tax exemptions, but little is known about such practices.

58.   58.  For detailed comparisons between the official and corrected series, see T. Piketty, G. Zucman, and L. Yang, “Capital Accumulation, Private Property and Rising Inequality in China, 1978–2015,” WID.world 2017, American Economic Review 2019 and the online appendix.

59.   59.  The fiscal data that Russia has made public for the period 2008–2017 have at least one merit: they include a large number of brackets (including one for people earning more than 10 billion rubles), although the concept of income used is not very clear and is in many ways inconsistent. See Novokmet, Piketty, and Zucman, “From Soviets to Oligarchs.”

60.   60.  See Fig. 10.12.

61.   61.  On this see N. Kim, “Top Incomes in Korea, 1933–2016,” WID.world, 2018; C. T. Hung, “Income Inequality in Hong Kong and Singapore, 1980–2016,” WID.world, 2018; C. Chu, T. Chou, and S. Hu, “Top Incomes in Taïwan, 1977–2013,” WID.world, 2015.

62.   62.  See Hung, “Income Inequality in Hong Kong and Singapore.”

63.   63.  See M. Pei, China’s Crony Capitalism: The Dynamics of Regime Decay (Harvard University Press, 2016).

64.   64.  See Chap. 5.

65.   65.  See S. Veg, Minjian: The Rise of China’s Grassroots Intellectuals (Columbia University Press, 2019).

66.   66.  See Xi Jinping, La gouvernance de la Chine (anthology), Beijing, 2014, pp. 137–141, 470–475.

67.   67.  Take, for example, France before 1914, when the political and economic elites of the Third Republic argued that France was so egalitarian (thanks to the French Revolution) that it had no need of the fiscal reforms already adopted by Germany and the United Kingdom. See Chap. 4.

68.   68.  Note, too, the importance in Brothers of public toilets and mediocre sanitary facilities to evoke the misery of the 1960s and 1970s (and also to allow the young criminal Li Guangtou to exchange his knowledge of the female anatomy for bowls of three-flavored noodles).

69.   69.  On this see J. Goody, The Theft of History (Cambridge University Press, 2006), Chap. 9. The author notes that the historical pathways leading to these institutions were to some degree halting and contingent and in no way a reflection of distinct civilizational essences. For instance, the United States would probably not have granted African Americans the right to vote in the 1960s if they had constituted a majority of the population (or even too large a minority), and the country might today be governed by a regime close to South African apartheid (p. 252).

70.   70.  Another general criticism should be added to these two. We have mentioned it before and will come back to it again: in Western parliamentary regimes, laws usually must conform to a fairly rigid constitution and pass muster with constitutional judges, which often has the effect of protecting existing property rights.

71.   71.  Of the many works dealing with the capture of American politics by the wealthy, see especially J. Hacker and P. Pierson, Winner-Take-All Politics: How Washington Made the Rich Richer—and Turned its Back on the Middle Class (Simon and Schuster, 2010); K. Schlozman, S. Verba, and H. Brady, The Unheavenly Chorus: Unequal Political Voice and the Broken Promise of American Democracy (Princeton University Press, 2012); T. Kuhner, Capitalism v. Democracy: Money in Politics and the Free Market Constitution (Stanford University Press, 2014); L. Bartels, Unequal Democracy: The Political Economy of the New Gilded Age (Princeton University Press, 2016).

72.   72.  See esp. J. Cagé, Saving the Media, trans. A. Goldhammer (Harvard University Press, 2016); J. Cagé, Le prix de la démocratie (Fayard, 2018); also in English as The Price of Democracy, trans. P. Camiller (Harvard University Press, 2020).

73.   73.  See Chap. 17.

74.   74.  The government tried to institute a new constituent assembly in 2017, but the opposition refused to participate in the new elections. The president of the assembly elected in 2015 declared himself president in 2018 with support from the United States and other Western countries (while Maduro received support from China and Russia). New elections may take place in 2019. For an analysis of the Chavez years, see K. Roberts, Changing Course in Latin America: Party Systems in the Neoliberal Era (Cambridge University Press, 2014). In the author’s view, the disintegration and brutalization of the Venezuelan party system, which had been relatively stable, can be linked to the spectacular train wreck that followed the 1988 elections: the center-left Democratic Action (AD) party won the election with an attack on the International Monetary Fund but then proceeded within a few months to make drastic budget cuts, leading to bloody riots in Caracas in 1989 followed by the removal from office of the AD president for corruption in 1993 and the election in 1998 of Chavez (the man behind another coup attempt in 1992).

75.   75.  See Chaps. 16–17.

76.   76.  Recall the debates during the French Revolution over the appropriation of noble estates or the Irish question in the United Kingdom in the nineteenth century (Chaps. 3–5), slave and colonial appropriations (Chaps. 6–9), or the appropriation of natural resources and public companies by Russian and Chinese oligarchs discussed in the present chapter.

77.   77.  See Goody, The Theft of History, p. 251.

78.   78.  See the online appendix for documents circulated at the 2016 colloquium. Reading the Global Times is probably the best way to become familiar with Chinese arguments on these issues.

79.   79.  The notion of a party “activist” is itself being redefined as are other forms of participation (reduced frequency of section meetings, rise of online militancy), all in a context in which the traditional parties are in a state of collapse (for example, in Italy and France).

80.   80.  I will come back to this decrease in participation in Part Four.

81.   81.  See interview with Hu Xijin: H. Thibault and B. Pedroletti, “Chine: le ‘Global Times,’ porte-parole décomplexé,” Le Monde, October 18, 2017.

82.   82.  On the complexity of the political-ideological evolution of the Hong Kong democratic movement, see S. Veg, “The Rise of ‘Localism’ and Civic Identity in Post-handover Hong Kong: Questioning the Chinese Nation-State,” China Quarterly, 2017.

83.   83.  C. Li, “China’s Communist Party-State: The Structure and Dynamics of Power,” in Politics in China: An Introduction, 2nd ed., ed. W. Joseph (Oxford University Press, 2014), pp. 203–205, fig. 6.4. See also C. Li, Chinese Politics in the Xi Jinping Era: Reassessing Collective Leadership (Brookings, 2016), pp. 42–44.

84.   84.  Until the 1970s, Western socialist, communist, and social-democratic parties relied on large battalions of working-class militants, but since then their membership has shifted largely toward managers and intellectual professions (and so did their electorate). See Part Four, Chap. 14–16.

85.   85.  The NPC comprises some 3,000 members and meets only ten days a year, whereas the Standing Committee has 175 members (elected by the NPC) and remains in session year-round under a mandate approved during the NPC’s annual session. Under the terms of the Chinese constitution, the NPC wields extensive powers (to pass laws, elect the president of the People’s Republic, and so on), and it is elected by all Chinese citizens. In practice, the vote has several layers of indirectness, and all candidates at each level must be approved by committees controlled by the CCP.

86.   86.  See Piketty, Capital in the Twenty-First Century, pp. 534–537.

87.   87.  See R. B. Riedl, Authoritarian Origins of Democratic Party Systems in Africa (Cambridge University Press, 2014). The author supports the view that transitions organized by the former single party (as in Senegal and Ghana) are generally more successful than those that come about when the single ruling party collapses (as in Benin).

88.   88.  The SLD, in power in 1993–1997 and 2001–2005, played a major role in Poland’s postcommunist transition before disintegrating in the 2005 elections and giving way to a contest between the conservative liberals of the Civic Platform (PO) and the conservative nationalists of the Law and Justice Party (PiS). See Chap. 16.

89.   89.  See M. Piatkowski, Europe’s Growth Champion: Insights from the Economic Rise of Poland (Oxford University Press, 2018), pp. 193–195. The author also stresses the positive role played by the egalitarian educational system inherited from the communist period, which helped break down the hyper-inegalitarian social structure that was still in place in the interwar years.

90.   90.  See the online appendix, and T. Blanchet, L. Chancel, and A. Gethin, “How Unequal Is Europe? Evidence from Distributional National Accounts, 1980–2017,” WID.world, 2019, fig. 9. See F. Alvaredo et al., World Inequality Report 2018 (Harvard University Press, 2018); also available online at https://wir2018.wid.world/; and F. Novokmet, Between Communism and Capitalism. Essays on the Evolution of Income and Wealth Inequality in Eastern Europe 1890–2015 (Czech Republic, Poland, Bulgaria, Croatia, Slovenia, Russia) (EHESS, 2017).

91.   91.  See the online appendix and Blanchet, Chancel, and Gethin, “How Unequal Is Europe?” fig. 4.

92.   92.  The total budget of the European Union is about 1 percent of European GDP. It draws on payments proportion to the gross national income (GNI) of each member state. The budget is jointly approved by the European Parliament and the European Council (consisting of heads of state, who must vote unanimously). See the online appendix for budget details.

93.   93.  See Novokmet, Between Communism and Capitalism. Individual country studies are available on WID.world. See the online appendix.

94.   94.  On the various factors explaining the declining wage share, see the online appendix. See also Piketty, Capital in the Twenty-First Century, chap. 6, and L. Karabarbounis and B. Neiman, “The Global Decline of the Labor Share,” Quarterly Journal of Economics, 2014.

95.   95.  For example, if the outflow of profits from Hungary or the Czech Republic were reduced by 30 percent, those countries would gain 2–3 percent of GDP annually. See Fig. 12.10.

96.   96.  German and French exports and imports were similar until the 1990s (around 20–25 percent of GDP), but Germany’s trade flows doubled in the period 1995–2015 (to 40–45 percent in 2015), while France’s increased much less (to 30 percent in 2015), more in line with the overall global evolution of trade. The reason for the difference has to do with the deep integration of Germany’s production system with Eastern Europe. This has coincided with a significant increase in Germany’s trade surplus and corresponding accumulation of foreign financial assets. See the online appendix and Fig. S12.10. See also Fig. 7.9.

97.   97.  The Governing Council of the ECB consists of the governors of the central banks of Eurozone member states (one seat per country) and a six-member directorate (consisting of the president, vice president, and four other members) appointed for eight years by the European Council under qualified majority voting (55 percent of the states representing 65 percent of the population), which generally increases the representation of the large countries on the Governing Council. In 2019, the directorate has representatives from Italy, Spain, France, Germany, Belgium, and Luxembourg. The euro, introduced as money of account for banks and firms on January 1, 1999, and in general circulation since January 1, 2002, was adopted by eleven of fifteen EU member states in 1999 and is today used by nineteen of twenty-eight member states.

98.   98.  See the online appendix, Fig. S12.11. “Subprimes” are ultra-risky mortgages whose issuance was encouraged by financial deregulation in the United States. Lehman Brothers was a major US investment bank, and its failure in September 2008 triggered the worst financial panic since 1929, until the Federal Reserve intervened massively to prevent a series of cascading bank failures. In late 2009, the ECB declared that it would no longer accept Greek sovereign debt as collateral if the ratings agencies downgraded it, which was tantamount to placing the fate of the common currency in the hands of agencies that had not distinguished themselves for honesty in previous years. This encouraged a wave of speculation on European sovereign debt.

99.   99.  See the online appendix, Figs. S12.12a–S12.12c. Because of the slowing of the European economy in 2011, it was not until 2015 that Eurozone GDP returned to its 2007 level (whereas the United States, despite being the origin of the crisis, was already 10 percent above its 2007 level); it was not until 2018–2019, moreover, that Eurozone GDP per capita returned to its pre-crisis level.

100. 100.  See esp. Figs. 13.12–13.13.

101. 101.  The Treaty on Stability, Coordination, and Governance (TSCG), signed in 2012, set a maximum deficit of 0.5 percent—compared with 3 percent under the Maastricht Treaty (1992)—together with a system of automatic sanctions if the rules were not respected (which has not really functioned, however). See the online appendix and Chap. 16.

102. 102.  The European Stability Mechanism was also created by a separate treaty in 2012.

103. 103.  See Chap. 10.

104. 104.  See esp. Chap. 16.

105. 105.  On the relation of the European Council to other EU institutions, see Chap. 16.

106. 106.  See Chap. 6.