For the past several months, readers around the world have been buying, discussing, and even occasionally reading Capital in the Twenty-First Century, French economist Thomas Piketty’s magisterial analysis of the relationship between capitalist development and inequality in Western advanced capitalist countries. But does Piketty’s framework apply to China, whose transition to capitalism has also produced massive economic imbalances? Or does China’s much more truncated and radically different historical pathway to capitalism make for a very different pattern? Yes, and yes.

Piketty tracks a U-shaped curve in which capitalism in the U.S. and Western Europe produced high levels of inequality from the nineteenth century to around 1930, when it dropped for four decades before heading back upward, starting in the 1970s, eventually reaching today’s stratospheric levels. The main driver is the ratio of the rate of return on capital (r) to the rate of economic growth (g). When r > g, inequality rises; when r ≦ g, inequality levels off or falls. The ratio at a given time or place is a function not so much of economics as of politics—especially tax policy and war (which stimulates growth). But inequality is made durable through inheritance, which keeps the return on capital much higher than economic growth, and will continue to do so for the foreseeable future unless the world adopts a global wealth tax, Piketty’s big policy proposal. That, in turn, will require genuine democracy, he argues.

Capital in the Twenty-First Century barely mentions China, but when it does it helps restore some welcome perspective. Piketty reminds us that in 2000-2010 the top 1% of the country’s share of national income was less than that of its counterparts in India, Indonesia, Britain, Canada, South Africa, Argentina, and the U.S., in that order. He credits knowledge and skill diffusion—policies which have their roots in the Maoist period—as a significant contributor to China’s stunning economic growth. And he lauds the country’s tax system as possessing the capacity to become a potent redistributive tool, for three reasons: it is already more progressive than Russian and most Eastern European flat taxes; it uses those revenues to fund social benefits; and, as a large regional hegemon, it doesn’t face competitive pressures to cut taxes the way, say, that Britain does to try to stay ahead of France or Germany. But to realize these potentialities and implement a real wealth tax, Piketty believes China will have to become democratic.

Aside from the little he does say about China, how can we use Piketty’s work on Western capitalism to illuminate China’s experience and prospects? There are four main areas. The first is to do with the trajectory, past and projected, of inequality. China has been through its own U-shaped curve of inequality, from high inequality in the late Qing and Republican periods to low inequality in the Maoist decades to the present high inequalities. Only the last of these can be chalked up to capitalist r > g, of course, and here Piketty points us toward a significant difference with the capitalist West. He argues that in the advanced industrial countries, the post-1970s spike in r > g has been due largely to declining growth. By contrast, in China growth has, of course, been rising steeply. This may go a long way toward explaining why, even in the face of vertiginous jumps in the returns to capital in both China and the West, popular mobilizations against inequality have begun to develop in the latter—the “Occupy” movements against the “1%”, and far-right working and even middle class populism—while in China inequality has not become a salient concern among even the poor. Looking forward, in the West Piketty foresees long-term economic stagnation alongside ongoing struggles by the rich to keep returns high while also maintaining unstinting political efforts to protect existing mega-fortunes intergenerationally. In China, the prospects for r and g are much less clear. As long as growth remains robust, so will returns on capital. But if growth slows, will wealthy capitalists be able to maintain the extraordinary returns to which they have become newly accustomed? Much will depend on the political relationships among the state, capital, and labor. From the state’s point of view, reduced growth threatens a huge unemployment crisis that could produce a political cataclysm. At that moment, would wealthy Chinese, until now still politically weak and dependent on state power, prefer to jettison the state and establish their own hegemony? Or would they continue to back a repressive state as a bulwark against a restive society, as they have for many years now? Historical sociology tells us that different groups and strata among China’s vast bourgeoisie would probably go different ways, engendering a complex and dangerous political crisis.

All this brings us to the second major issue for China raised by Piketty: “[O]ne should be wary of any economic determinism in regard to inequalities of wealth and income. The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms.” In the West, for over three decades now capital has managed to maintain high returns in the face of falling growth—producing extreme inequality. The driver has been politically reinvigorated capital and, initially, a state reeling from the fiscal and political crises induced by the collapse of the post-war boom and desperate for any way out. And the political mechanisms they have deployed include an all-out offensive against the working class, deregulation, privatization, financialization, taxation defense, globalization, and ideological offensives to support them all.

In China too, the transition to capitalism was originally driven by a state facing a profound political watershed: the political crisis of Maoism as expressed in the denouement of the Cultural Revolution. Therefore, the political change has been far more profound than in the West. The Chinese state conjured up a bourgeoisie—from large to petit—and re-grounded its social base in them; what is, in common parlance, blithely and most ideologically called “reform” has, in fact, amounted to a peaceful social revolution. Another major difference with the West, though, is that in China the state has managed to keep capital dependent and politically weak by preventing the rise of any independent business organizations, much less political institutions with actual power (such as a parliament). By contrast, at least in the U.S. and UK, capital has recaptured the state through the rise of extreme campaign financing, the revolving occupational door of political office and high corporate jobs,aggressive ideological and political campaigning in the U.S., and Thatcherism and Blair’s “third way” in the UK. When all is said and done, though, some of the same political mechanisms have produced lopsided r > g and yawning inequality. Ideologically, the Chinese state, like its Western counterparts, has refounded its legitimacy claim by telling both rich and poor that they will benefit from its pro-market policies, and that “class struggle” can only hurt them both. Also like them, it has severely curtailed the political power of its working class, which it favored in the Maoist decades just as Western states did.

Economic regulation has never been well developed in China, so the problem here is not deregulation but rather regulation’s ongoing underdevelopment, at least relative to palpable needs (such as breathing, eating and drinking). Privatization, especially of land, has probably been the most extreme measure for pumping up returns to capital. By contrast, financialization has not played the enormous role in China that it has in the West, thanks to the continuing domination of the state in banking and capital markets. Likewise, taxation is not nearly as potentially threatening a problem to Chinese capital as it is in the West; China does not have the West’s history of high taxation on the rich, and its present tax system is not full of loopholes and dodges (put there by the rich) which could be closed (as a growing popular mobilization is demanding in the West). Finally, globalization provides an intriguing contrast. Western states have promoted “free trade”—the WTO, EU, NAFTA, etc.—against considerable and ongoing political opposition in order to create opportunities for capital to roam in pursuit of r. China, by contrast, sought membership in the WTO to discipline its state enterprises, create space at home for the rise of domestic capital, and encourage ongoing foreign investment.

Third is the question of the capitalists themselves. For Piketty, in the West they are an inheritance-based oligarchy, which is why inequality is likely to remain very high (and mobility low) even as growth—which, after all, is the material basis of capital’s returns—lags. What about in China? Who are the capitalists, what do they do politically, and how secure is their wealth? On the first question, recent journalistic forays into the nefarious economic exploits of the families of the top leadership should not distract us from the fact that most wealth in China remains in the hands of private citizens who lack politically powerful parents or scions. On the second, of course such people have always been aware of the need to curry political favor. And Piketty, among so many others, reminds us that they also do so in the West on a daily basis. But Chinese private capitalists probably spend more of their time, energy, and resources on this because the Chinese state exercises so much more economic power. Third, Chinese capitalists, especially the wealthiest, certainly act as if they feel insecure: they scheme to export their capital (including their “human capital” in the form of their children); and they enter into partnerships with leading officials, a dangerous game in light of the unpredictable vagaries of élite political conflict. Piketty asks: “Are China’s millionaires and billionaires, whose names are increasingly prevalent in global wealth rankings, truly the owners of their wealth? Can they, for example, take their money out of China if they wish?” For Piketty, insecurity of capitalist property rights in China is a source of hope, of course. But whether they will remain relatively insecure remains, as he says, “shrouded in mystery” and dependent “on a complex and evolving set of rights and duties.”

All this goes to the fourth and last question that Piketty helps us raise about China. Because the political balance of power in China between capital and the state remains with the latter, and because, as mentioned above, the country is a regional hegemon not subject to competitive pressures to minimize taxation, is the Chinese state better equipped than Western states to bring inequality under control? Perhaps, as Piketty suggests. But would its leaders be inclined to do so even if they could? Thus far they’ve shown no such indication. Xi Jinping’s current offensives are focused on politically-linked rather than purely private wealth. The leadership remains too terrified of the consequences of falling g to do anything about r. And if the state were to be replaced by a democracy with Chinese characteristics, whatever that would mean, the track record of both Western and post-state socialist “democracies” provides scant basis for any optimism.

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