Capital in the Twenty-First Century (44 page)

In order to have a clear idea of what these figures really mean, we need to relate
distributions expressed as percentages of total income to the paychecks that flesh-and-blood
workers actually receive as well as to the fortunes in real estate and financial assets
owned by the people who actually make up these wealth hierarchies.

Concretely, if the best paid 10 percent receive 20 percent of total wages, then it
follows mathematically that each person in this group earns on average twice the average
pay in the country in question. Similarly, if the least well paid 50 percent receive
35 percent of total wages, it follows that each person in this group earns on average
70 percent of the average wage. And if the middle 40 percent receive 45 percent of
the total wage, this means that the average wage of this group is slightly higher
than the average pay for society as a whole (45/40 of the average, to be precise).

For example, if the average pay in a country is 2,000 euros per month, then this distribution
implies that the top 10 percent earn 4,000 euros a month on average, the bottom 50
percent 1,400 euros a month, and the middle 40 percent 2,250 a month.
⁶
This intermediate group may be regarded as a vast “middle class” whose standard of
living is determined by the average wage of the society in question.

To be clear, the designations “lower class” (defined as the bottom 50 percent), “middle
class” (the middle 40 percent), and “upper class” (top 10 percent) that I use in
Tables 7.1
–
3
are quite obviously arbitrary and open to challenge. I introduce these terms purely
for illustrative purposes, to pin down my ideas, but in fact they play virtually no
role in the analysis, and I might just as well have called them “Class A,” “Class
B,” and “Class C.” In political debate, however, such terminological issues are generally
far from innocent. The way the population is divided up usually reflects an implicit
or explicit position concerning the justice and legitimacy of the amount of income
or wealth claimed by a particular group.

For example, some people use the term “middle class” very broadly to encompass individuals
who clearly fall within the upper decile (that is, the top 10 percent) of the social
hierarchy and who may even be quite close to the upper centile (the top 1 percent).
Generally, the purpose of such a broad definition of the middle class is to insist
that even though such individuals dispose of resources considerably above the average
for the society in question, they nevertheless retain a certain proximity to the average:
in other words, the point is to say that such individuals are not privileged and fully
deserve the indulgence of the government, particularly in regard to taxes.

Other commentators reject any notion of “middle class” and prefer to describe the
social structure as consisting of just two groups: “the people,” who constitute the
vast minority, and a tiny “elite” or “upper class.” Such a description may be accurate
for some societies, or it may be applicable to certain political or historical contexts.
For example, in France in 1789, it is generally estimated that the aristocracy represented
1–2 percent of the population, the clergy less than 1 percent, and the “Third Estate,”
meaning (under the political system of the Ancien Régime) all the rest, from peasantry
to bourgeoisie, more than 97 percent.

It is not my purpose to police dictionaries or linguistic usage. When it comes to
designating social groups, everyone is right and wrong at the same time. Everyone
has good reasons for using certain terms but is wrong to denigrate the terms used
by others. My definition of “middle class” (as the “middle” 40 percent) is highly
contestable, since the income (or wealth) of everyone in the group is, by construction,
above the median for the society in question.
⁷
One might equally well choose to divide society into three thirds and call the middle
third the “middle class.” Still, the definition I have given seems to me to correspond
more closely to common usage: the expression “middle class” is generally used to refer
to people who are doing distinctly better than the bulk of the population yet still
a long way from the true “elite.” Yet all such designations are open to challenge,
and there is no need for me to take a position on this delicate issue, which is not
just linguistic but also political.

The truth is that any representation of inequality that relies on a small number of
categories is doomed to be crudely schematic, since the underlying social reality
is always a continuous distribution. At any given level of wealth or income there
is always a certain number of flesh-and-blood individuals, and the number of such
individuals varies slowly and gradually in accordance with the shape of the distribution
in the society in question. There is never a discontinuous break between social classes
or between “people” and “elite.” For that reason, my analysis is based entirely on
statistical concepts such as deciles (top 10 percent, middle 40 percent, lower 50
percent, etc.), which are defined in exactly the same way in different societies.
This allows me to make rigorous and objective comparisons across time and space without
denying the intrinsic complexity of each particular society or the fundamentally continuous
structure of social inequality.

My fundamental goal is to compare the structure of inequality in societies remote
from one another in time and space, societies that are very different a priori, and
in particular societies that use totally different words and concepts to refer to
the social groups that compose them. The concepts of deciles and centiles are rather
abstract and undoubtedly lack a certain poetry. It is easier for most people to identify
with groups with which they are familiar: peasants or nobles, proletarians or bourgeois,
office workers or top managers, waiters or traders. But the beauty of deciles and
centiles is precisely that they enable us to compare inequalities that would otherwise
be incomparable, using a common language that should in principle be acceptable to
everyone.

When necessary, we will break down our groups even more finely, using centiles or
even thousandths to register more precisely the continuous character of social inequality.
Specifically, in every society, even the most egalitarian, the upper decile is truly
a world unto itself. It includes some people whose income is just two or three times
greater than the mean and others whose resources are ten or twenty times greater,
if not more. To start with, it is always enlightening to break the top decile down
into two subgroups: the upper centile (which we might call the “dominant class” for
the sake of concreteness, without claiming that this term is better than any other)
and the remaining nine centiles (which we might call the “wealthy class” or “well-to-do”).

For example, if we look at the case where inequality of income from labor is relatively
low (think Scandinavia), represented in
Table 7.1
, with 20 percent of wages going to the best paid 10 percent of workers, we find that
the share going to the top 1 percent is typically on the order of 5 percent of total
wages. This means that the top 1 percent of earners make on average five times the
mean wage, or 10,000 euros per month, in a society in which the average wage is 2,000
euros per month. In other words, the best paid 10 percent earn 4,000 euros a month
on average, but within that group the top 1 percent earn an average of 10,000 euros
a month (and the next 9 percent earn on average 3,330 euros a month). If we break
this down even further and looked at the top thousandth (the best paid 0.1 percent)
in the top centile, we find individuals earning tens of thousands of euros a month
and a few earning hundreds of thousands, even in the Scandinavian countries in the
1970s and 1980s. Of course there would not be many such people, so their weight in
the sum total of all wages would be relatively small.

Thus to judge the inequality of a society, it is not enough to observe that some individuals
earn very high incomes. For example, to say that the “income scale goes from 1 to
10” or even “1 to 100” does not actually tell us very much. We also need to know how
many people earn the incomes at each level. The share of income (or wealth) going
to the top decile or centile is a useful index for judging how unequal a society is,
because it reflects not just the existence of extremely high incomes or extremely
large fortunes but also the number of individuals who enjoy such rewards.

The top centile is a particularly interesting group to study in the context of my
historical investigation. Although it constitutes (by definition) a very small minority
of the population, it is nevertheless far larger than the superelites of a few dozen
or hundred individuals on whom attention is sometimes focused (such as the “200 families”
of France, to use the designation widely applied in the interwar years to the 200
largest stockholders of the Banque de France, or the “400 richest Americans” or similar
rankings established by magazines like
Forbes
). In a country of almost 65 million people such as France in 2013, of whom some 50
million are adults, the top centile comprises some 500,000 people. In a country of
320 million like the United States, of whom 260 million are adults, the top centile
consists of 2.6 million individuals. These are numerically quite large groups who
inevitably stand out in society, especially when the individuals included in them
tend to live in the same cities and even to congregate in the same neighborhoods.
In every country the upper centile occupies a prominent place in the social landscape
and not just in the income distribution.

Thus in every society, whether France in 1789 (when 1–2 percent of the population
belonged to the aristocracy) or the United States in 2011 (when the Occupy Wall Street
movement aimed its criticism at the richest 1 percent of the population), the top
centile is a large enough group to exert a significant influence on both the social
landscape and the political and economic order.

This shows why deciles and centiles are so interesting to study. How could one hope
to compare inequalities in societies as different as France in 1789 and the United
States in 2011 other than by carefully examining deciles and centiles and estimating
the shares of national wealth and income going to each? To be sure, this procedure
will not allow us to eliminate every problem or settle every question, but at least
it will allow us to say something—and that is far better than not being able to say
anything at all. We can therefore try to determine whether “the 1 percent” had more
power under Louis XVI or under George Bush and Barack Obama.

To return for a moment to the Occupy Wall Street movement, what it shows is that the
use of a common terminology, and in particular the concept of the “top centile,” though
it may at first glance seem somewhat abstract, can be helpful in revealing the spectacular
growth of inequality and may therefore serve as a useful tool for social interpretation
and criticism. Even mass social movements can avail themselves of such a tool to develop
unusual mobilizing themes, such as “We are the 99 percent!” This might seem surprising
at first sight, until we remember that the title of the famous pamphlet that Abbé
Sieyès published in January 1789 was “What Is the Third Estate?”
⁸

I should also make it clear that the hierarchies (and therefore centiles and deciles)
of income are not the same as those of wealth. The top 10 percent or bottom 50 percent
of the labor income distribution are not the same people who constitute the top 10
percent or bottom 50 percent of the wealth distribution. The “1 percent” who earn
the most are not the same as the “1 percent” who own the most. Deciles and centiles
are defined separately for income from labor, ownership of capital, and total income
(from both labor and capital), with the third being a synthesis of the first two dimensions
and thus defining a composite social hierarchy. It is always essential to be clear
about which hierarchy one is referring to. In traditional societies, the correlation
between the two dimensions was often negative (because people with large fortunes
did not work and were therefore at the bottom of the labor income hierarchy). In modern
societies, the correlation is generally positive but never perfect (the coefficient
of correlation is always less than one). For example, many people belong to the upper
class in terms of labor income but to the lower class in terms of wealth, and vice
versa. Social inequality is multidimensional, just like political conflict.

Note, finally, that the income and wealth distributions described in
Tables 7.1
–
3
and analyzed in this and subsequent chapters are in all cases “primary” distributions,
meaning before taxes. Depending on whether the tax system (and the public services
and transfer payments it finances) is “progressive” or “regressive” (meaning that
it weighs more or less heavily on different groups depending on whether they stand
high or low in the income or wealth hierarchy), the after-tax distribution may be
more or less egalitarian than the before-tax distribution. I will come back to this
in
Part Four
, along with many other questions related to redistribution. At this stage only the
before-tax distribution requires consideration.
⁹

To return to the question of orders of magnitude of inequality: To what extent are
inequalities of income from labor moderate, reasonable, or even no longer an issue
today? It is true that inequalities with respect to labor are always much smaller
than inequalities with respect to capital. It would be quite wrong, however, to neglect
them, first because income from labor generally accounts for two-thirds to three-quarters
of national income, and second because there are quite substantial differences between
countries in the distribution of income from labor, which suggests that public policies
and national differences can have major consequences for these inequalities and for
the living conditions of large numbers of people.