Capital in the Twenty-First Century (113 page)

9
. The term “social state” captures the nature and variety of the state’s missions
better than the more restrictive term “welfare state,” in my view.

10
. See Supplemental Table S13.2, available online, for a complete breakdown of public
spending in France, Germany, Britain, and the United States in 2000–2010.

11
. Typically 5–6 percent for education and 8–9 percent for health. See the online technical
appendix.

12
. The National Health Service, established in 1948, is such an integral part of British
national identity that its creation was dramatized in the opening ceremonies of the
2012 Olympic games, along with the Industrial Revolution and the rock groups of the
1960s.

13
. If one adds the cost of private insurance, the US health care system is by far the
most expensive in the world (nearly 20 percent of national income, compared with 10–12
percent in Europe), even though a large part of the population is not covered and
health indicators are not as good as in Europe. There is no doubt that universal public
health insurance systems, in spite of their defects, offer a better cost-benefit ratio
than the US system.

14
. By contrast, social spending on education and health reduces the (monetary) disposable
income of households, which explains why the amount of the latter decreased from 90
percent of national income at the turn of the twentieth century to 70–80 percent today.
See
Chapter 5
.

15
. Pensions systems with capped payments are usually called, after the architect of
Britain’s social state, “Beveridgian” (with the extreme case a flat pension amount
for everyone, as in Britain), in contrast to “Bismarckian,” “Scandinavian,” or “Latin”
systems, in which pensions are almost proportional to wages for the vast majority
of the population (nearly everyone in France, where the ceiling is exceptionally high:
eight times the average wage, compared with two to three times in most countries).

16
. In France, which stands out for the extreme complexity of its social benefits and
the proliferation of rules and agencies, fewer than half of the people who were supposed
to benefit from one welfare-to-work program (the so-called active solidarity income,
a supplement to very low part-time wages) applied for it.

17
. One important difference between Europe and the United States is that income support
programs in the United States have always been reserved for people with children.
For childless individuals, the carceral state sometimes does the job of the welfare
state (especially for young black males). About 1 percent of the adult US population
was behind bars in 2013. This is the highest rate of incarceration in the world (slightly
ahead of Russia and far ahead of China). The incarceration rate is more than 5 percent
for adult black males (of all ages). See the online technical appendix. Another US
peculiarity is the use of food stamps (whose purpose is to ensure that welfare recipients
spend their benefits on food rather than on drink or other vices), which is inconsistent
with the liberal worldview often attributed to US citizens. It is a sign of US prejudices
in regard to the poor, which seem to be more extreme than European prejudices, perhaps
because they are reinforced by racial prejudices.

18
. With variations between countries described above.

19
. “We hold these truths to be self-evident, that all men are created equal, that they
are endowed by their Creator with certain inalienable Rights, that among these are
Life, Liberty and the pursuit of Happiness; that to secure these rights, Governments
are instituted among Men, deriving their just powers from the consent of the governed.”

20
. The notion of “common utility” has been the subject of endless debate, and to examine
this would go far beyond the framework of this book. What is certain is that the drafters
of the 1789 Declaration did not share the utilitarian spirit that has animated any
number of economists since John Stuart Mill: a mathematical sum of individual utilities
(together with the assumption that the utility function is “concave,” meaning that
its rate of increase decreases with increasing income, so that redistribution of income
from the rich to the poor increases total utility). This mathematical representation
of the desirability of redistribution bears little apparent relation to the way most
people think about the question. The idea of rights seems more pertinent.

21
. It seems reasonable to define “the most disadvantaged” as those individuals who
have to cope with the most unfavorable factors beyond their control. To the extent
that inequality of conditions is due, at least in part, to factors beyond the control
of individuals, such as the existence of unequal family endowments (in terms of inheritances,
cultural capital, etc.) or good fortune (special talents, luck, etc.), it is just
for government to seek to reduce these inequalities as much as possible. The boundary
between equalization of opportunities and conditions is often rather porous (education,
health, and income are both opportunities and conditions). The Rawlsian notion of
fundamental goods is a way of moving beyond this artificial opposition.

22
. “Social and economic inequalities … are just only if they result in compensating
benefits for everyone, and in particular for the least advantaged members of society”
(John Rawls,
A Theory of Justice
[Cambridge, MA: Belknap Press, 15]). This 1971 formulation was repeated in
Political Liberalism,
published in 1993.

23
. These theoretical approaches have recently been extended by Marc Fleurbaey and John
Roemer, with some tentative empirical applications. See the online technical appendix.

24
. Despite the consensus in Europe there is still considerable variation. The wealthiest
and most productive countries have the highest taxes (50–60 percent of the national
income in Sweden and Denmark), and the poorest, least developed countries have the
lowest taxes (barely 30 percent of national income in Bulgaria and Romania). See the
online appendix. In the United States there is less of a consensus. Certain substantial
minority factions radically challenge the legitimacy of all federal social programs
or indeed of social programs of any kind. Once again, racial prejudice seems to have
something to do with this (as exemplified by the debates over the health care reform
adopted by the Obama administration).

25
. In the United States and Britain, the social state also grew rapidly even though
economic growth was significantly lower, which may have fostered a powerful sense
of loss reinforced by a belief that other countries were catching up, as discussed
earlier (see
Chapter 2
in particular).

26
. According to the work of Anders Bjorklund and Arnaud Lefranc on Sweden and France,
respectively, it seems that the intergenerational correlation decreased slightly for
cohorts born in 1940–1950 compared with those born in 1920–1930, then increased again
for cohorts born in 1960–1970. See the online technical appendix.

27
. It is possible to measure mobility for cohorts born in the twentieth century (with
uneven precision and imperfect comparability across countries), but it is almost impossible
to measure intergenerational mobility in the nineteenth century except in terms of
inheritance (see
Chapter 11
). But this is a different issue from skill and earned income mobility, which is what
is of interest here and is the focal point of these measurements of intergenerational
mobility. The data used in these works do not allow us to isolate mobility of capital
income.

28
. The correlation coefficient ranges from 0.2–0.3 in Sweden and Finland to 0.5–0.6
in the United States. Britain (0.4–0.5) is closer to the United States but not so
far from Germany or France (0.4). Concerning international comparisons of intergenerational
correlation coefficients of earned income (which are also confirmed by twin studies),
see the work of Markus Jantti. See the online technical appendix.

29
. The cost of an undergraduate year at Harvard in 2012–2013 was
$
54,000, including room and board and various other fees (tuition in the strict sense
was
$
38,000). Some other universities are even more expensive than Harvard, which enjoys
a high income on its endowment (see
Chapter 12
).

30
. See G. Duncan and R. Murnane,
Whither Opportunity? Rising Inequality, Schools, and Children’s Life Chances
(New York: Russell Sage Foundation, 2011), esp. chap. 6. See the online technical
appendix.

31
. See Jonathan Meer and Harvey S. Rosen, “Altruism and the Child Cycle of Alumni Donations,”
American Economic Journal: Economic Policy
1, no. 1 (2009): 258–86.

32
. This does not mean that Harvard recruits its students exclusively from among the
wealthiest 2 percent of the nation. It simply means that recruitment below that level
is sufficiently rare, and that recruitment among the wealthiest 2 percent is sufficiently
frequent, that the average is what it is. See the online technical appendix.

33
. Statistics as basic as the average income or wealth of parents of students at various
US universities are very difficult to obtain and not much studied.

34
. The highest tuition fee British universities may charge was increased to £1,000
in 1998, £3,000 in 2004, and £9,000 in 2012. The share of tuition fees in total resources
of British universities in 2010 is almost as high as in the 1920s and close to the
US level. See the interesting series of historical studies by Vincent Carpentier,
“Public-Private Substitution in Higher Education,”
Higher Education Quarterly
66, no. 4 (October 2012): 363–90.

35
. Bavaria and Lower Saxony decided in early 2013 to eliminate the university tuition
of 500 euros per semester and offer free higher education like the rest of Germany.
In the Nordic countries, tuition is never more than a few hundred euros, as in France.

36
. One finds the same redistribution from bottom to top in primary and secondary education:
students at the most disadvantaged schools and high schools are assigned the least
experienced and least trained teachers and therefore receive less public money per
child than students at more advantaged schools and high schools. This is all the more
regrettable because a better distribution of resources at the primary level would
greatly reduce inequalities of educational opportunity. See Thomas Piketty and M.
Valdenaire,
L’impact de la taille des classes sur la réussite scolaire dans les écoles, collèges
et lycées français
(Paris: Ministère de l’Education Nationale, 2006).

37
. As in the case of Harvard, this average income does not mean that Sciences Po recruits
solely among the wealthiest 10 percent of families. See the online technical appendix
for the complete income distribution of parents of Sciences Po students in 2011–2012.

38
. According to the well-known Shanghai rankings, 53 of the 100 best universities in
the world in 2012–2013 were in the United States, compared with 31 in Europe (9 of
which were in Britain). The order is reversed, however, when we look at the 500 best
universities (150 for the United States and 202 for Europe, of which 38 are in Britain).
This reflects significant inequalities among the 800 US universities (see
Chapter 12
).

39
. Note, however, that compared with other expenses (such as pensions), it would be
relatively easy to raise spending on higher education from the lowest levels (barely
1 percent of national income in France) to the highest (2–3 percent in Sweden and
the United States).

40
. For example, tuition at Sciences Po currently ranges from zero for parents with
the least income to 10,000 euros a year for parents with incomes above 200,000 euros.
This system is useful for producing data on parental income (which unfortunately has
been little studied). Compared with Scandinavian-style public financing, however,
such a system amounts to a privatization of the progressive income tax: the additional
sums paid by wealthy parents go to their own children and not to the children of other
people. This is evidently in their own interest, not in the public interest.

41
. Australia and Britain offer “income-contingent loans” to students of modest background.
These are not repaid until the graduates achieve a certain level of income. This is
tantamount to a supplementary income tax on students of modest background, while students
from wealthier backgrounds received (usually untaxed) gifts from their parents.

42
. Emile Boutmy,
Quelques idées sur la création d’une Faculté libre d’enseignement supérieur
(Paris, 1871). See also P. Favre, “Les sciences d’Etat entre déterminisme et libéralisme:
Emile Boutmy (1835–1906) et la création de l’Ecole libre des sciences politiques,”
Revue française de sociologie
22 (1981).

43
. For an analysis and defense of the “multi-solidarity” model, see André Masson,
Des liens et des transferts entre générations
(Paris: Editions de l’EHESS, 2009.

44
. See
Figures 10.9
–
11
.

45
. Recall that this volatility is the reason why PAYGO was introduced after World War
II: people who had saved for retirement by investing in financial markets in 1920–1930
found themselves ruined, and no one wished to try the experiment again by imposing
a compulsory capitalized pension system of the sort that any number of countries had
tried before the war (for example, in France under the laws of 1910 and 1928).

46
. This was largely achieved by the Swedish reform of the 1990s. The Swedish system
could be improved and adapted to other countries. See for example Antoine Bozio and
Thomas Piketty,
Pour un nouveau système de retraite: Des comptes individuels de cotisations financés
par répartition
(Paris: Editions rue d’Ulm, 2008).