At an event in Beijing last November, I had the good fortune to meet the French economist Thomas Piketty, who has sold 1.5 million copies of his book, Capital in the Twenty-First Century, since it was first published in 2013. Pacing up and down in front of a packed auditorium, Thomas Piketty explained that because the rate of return on capital is now higher than the growth rate of the global economy, the proportion of the world’s wealth that is owned by a small elite will likely keep increasing; in other words, we should expect to see a divergence of wealth as the rich get much richer. As his book says, “capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.”
No strategic forecaster can afford to ignore this alarming prediction — or the enthusiastic response it got from the audience in Beijing. In the 20th century, the two world wars were the only force powerful enough to reverse the concentration of wealth in the elite and the mounting class conflict; in the 21st century, we seem to be falling back into a comparable world of revolution, political extremism and mass violence.
It was hard to be sure whether the members of the audience were enthusiastic because they thought Thomas Piketty was forecasting the collapse of Western democratic economies or because they thought his words applied equally well to their own society. After all, China could almost be the poster child for the process Thomas Piketty described. When Mao Zedong died in 1976, post-tax and -transfer income inequality stood at 0.31 on the Gini index. (The Gini coefficient runs from 0, meaning everyone in a country has the same income, to 1, meaning one person earns all the country’s income and everyone else earns nothing.) By 2009, China’s income inequality score had soared to 0.47, where it stubbornly remains after peaking at 0.51 in 2003. Though Chinese tax returns are too opaque to make reliable calculations regarding wealth inequality, or the uneven distribution of assets as opposed to income, he is almost certainly correct that this figure has risen even faster than the country’s income inequality.
When a group of us withdrew for lunch, though, our Chinese hosts pushed back against Thomas Piketty’s thesis: Hadn’t Deng Xiaoping taught us that getting rich is no sin? Isn’t rising inequality just the price China must pay to escape from poverty? Though Thomas Piketty would agree that there is nothing inherently wrong in accumulating a lot of wealth, he would also insist that it is very bad indeed if that accumulation results in too much inequality. The big issue in our discussion — what I have come to think of as “the lunch question” — is whether the world is now crossing into an era of too much inequality.
We failed to reach a consensus as we ate, but after thinking about the question for a few more months, I would like to use this column to make some suggestions. I suspect that our biggest mistake during that lunch was that we failed to analyze the question from a sufficiently long-term perspective. Thomas Piketty’s research looks back nearly 250 years, but to see the whole picture we need to consider the last 15,000 years, going back to the age before agriculture was invented. When we do, we begin to see that each age seems to get the inequality it needs. To put it more precisely, different economic systems function best with different levels of inequality, creating selective pressures that reward groups moving toward the most effective level and punish those moving away from it. It is also clear that transitions between systems can be particularly traumatic, and it is possible that we are on the verge of such a transition now.
A Brief History of Inequality
Let me take a moment to sketch what inequality has looked like over the past 15,000 years. Before the dawn of agriculture, mankind was made up of hunter-gatherers who captured the energy they needed to survive from wild plants and animals. This economic system rewarded those who lived in tiny bands and moved around constantly, and punished those who tried to live in large groups and stay in one place (they simply starved). It was very difficult to create permanent inequality because foraging bands had no room for kings and aristocrats and little more for accumulated wealth. Consequently, foragers tended to be desperately poor, but equally so. (Though the comparison is rather misleading, British economist Angus Maddison suggested that the typical hunter-gatherer had a daily income equivalent to $1.10 in 1990 U.S. values.) Anthropological studies of today’s few remaining foraging societies suggest that their Gini coefficients for both income and wealth inequality averaged around 0.25 — well below Maoist China’s score — and archaeological evidence for prehistoric foragers seems consistent with this figure.
Farming began around 9600 B.C. in what we now call the Middle East, appearing some 2,000 years later in Pakistan and China, another 1,000 years later in Mexico and Peru, and later still in several other parts of the world. Living off domesticated plants and animals changed man’s way of life and provided far more energy than foraging had. Bigger stores of food were able to sustain more people, for longer amounts of time, and the global population shot up from 6 million in 10,000 B.C. to 250 million in 1 B.C. Large social collectives that stayed in one place working their fields now flourished at the expense of smaller and less sedentary groups. (The Roman Empire had about 60 million subjects, 1 million of whom lived in the city of Rome itself.) Between 9600 B.C. and 1750 A.D., nearly all of the world’s foraging societies went extinct.
Although average incomes rose in agricultural communities (reaching an average of about $1.50-$2.20 per day, by Maddison’s calculations), the economic structure also rewarded societies that became less equal. The age of farming required much more complex divisions of labor than the foraging world, and while free markets did make a certain amount of specialization possible, laws backed by state violence played an even larger role. Some people became aristocrats or godlike kings, while others became peasants or slaves, and economic inequality surged. The average Gini coefficient for income inequality in agricultural societies was around 0.45, nearly twice as high as in foraging societies. The Roman Empire’s score probably lay between 0.42 and 0.44; in 1688 England, it reached 0.47; and in France on the eve of the revolution, it was an agonizing 0.59. Wealth inequality leaped higher still: Gini scores regularly topped 0.80, and one Roman plutocrat who died in 8 B.C. left in his will 7,200 oxen, 257,000 other animals, 4,116 slaves and enough cash to feed half a million people for a year.
The Industrial Revolution changed everything once again. The awesome power of fossil fuels released a new flood of energy as steam and electricity drove machines that vastly augmented human and animal labor. New factories churned out previously unimaginable quantities of goods and liberated people from much of the manual drudgery that characterized the agricultural age. As when farming displaced foraging,