Capital in the Twenty-First Century — In the Rest of the World

Abstract

Recent work has documented a spiraling upward trend in inequality since the 1970s. Most prominently, Thomas Piketty argues in “Capital in the 21st Century” that this is partially due to the fact that capitalism is hardwired to exacerbate the gap between the rich and poor. In seeking to critically evaluate recent literature on these topics, this article offers three big contributions. We advance an alternative explanation for the long-term U-shaped nature of inequality that Piketty examines. Something other than war and globalization can account for the, at first sharply falling, then sharply rising, pattern of inequality over the long 20th century. We also demonstrate that this pattern only really holds for a handful of industrialized economies and a subset of developing countries. Finally, we provide a unified framework centered on two unorthodox assumptions that can explain inequality patterns beyond the U-shaped one. Capitalists and landholders actually prefer democracy if they can first strike a deal that protects them after transition. This is because dictators are hardly the loyal servants of the economic elite — in fact, they are often responsible for soaking, if not destroying, the rich under autocracy.

Keywords: Inequality, redistribution, capitalism, regime types