Capital in the Twenty-First Century (56 page)

The share of the top 0.1 percent highest incomes in total income rose sharply since
the 1970s in all Anglo-Saxon countries, but with varying magnitudes.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

Furthermore, the higher one climbs in the income hierarchy, the more spectacular the
raises. Even if the number of individuals benefiting from such salary increases is
fairly limited, they are nevertheless quite visible, and this visibility naturally
raises the question of what justifies such high levels of compensation. Consider the
share of the top thousandth—the best remunerated 0.1 percent—in the national income
of the English-speaking countries on the one hand (
Figure 9.5
) and continental Europe and Japan on the other (
Figure 9.6
). The differences are obvious: the top thousandth in the United States increased
their share from 2 to nearly 10 percent over the past several decades—an unprecedented
rise.
¹⁷
But there has been a remarkable increase of top incomes everywhere. In France and
Japan, the top thousandth’s share rose from barely 1.5 percent of national income
in the early 1980s to nearly 2.5 percent in the early 2010s—close to double. In Sweden,
the same share rose from less than 1 percent to more than 2 percent in the same period.

To make clear what this represents in concrete terms, remember that a 2 percent share
of national income for 0.1 percent of the population means that the average individual
in this group enjoys an income 20 times higher than the national average (or 600,000
euros a year if the average income is 30,000 per adult). A share of 10 percent means
that each individual enjoys an income 100 times the national average (or 3 million
euros a year if the average is 30,000).
¹⁸
Recall, too, that the top 0.1 percent is by definition a group of 50,000 people in
a country with a population of 50 million adults (like France in the early 2010s).
This is a very small minority (“the 1 percent” is of course 10 times larger), yet
it occupies a significant place in the social and political landscape.
¹⁹
The central fact is that in all the wealthy countries, including continental Europe
and Japan, the top thousandth enjoyed spectacular increases in purchasing power in
1990–2010, while the average person’s purchasing power stagnated.

FIGURE 9.6.
   The top decile income share in Continental Europe and Japan, 1910–2010

As compared to Anglo-Saxon countries, the top 0.1 percent income share barely increased
in Continental Europe and Japan.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

From a macroeconomic point of view, however, the explosion of very high incomes has
thus far been of limited importance in continental Europe and Japan: the rise has
been impressive, to be sure, but too few people have been affected to have had an
impact as powerful as in the United States. The transfer of income to “the 1 percent”
involves only two to three points of national income in continental Europe and Japan
compared with 10 to 15 points in the United States—5 to 7 times greater.
²⁰

The simplest way to express these regional differences is no doubt the following:
in the United States, income inequality in 2000–2010 regained the record levels observed
in 1910–1920 (although the composition of income was now different, with a larger
role played by high incomes from labor and a smaller role by high incomes from capital).
In Britain and Canada, things moved in the same direction. In continental Europe and
Japan, income inequality today remains far lower than it was at the beginning of the
twentieth century and in fact has not changed much since 1945, if we take a long-run
view. The comparison of
Figures 9.2
and
9.3
is particularly clear on this point.

Obviously, this does not mean that the European and Japanese evolutions of the past
few decades should be neglected. On the contrary: their trajectory resembles that
of the United States in some respects, with a delay of one or two decades, and one
need not wait until the phenomenon assumes the macroeconomic significance observed
in the United States to worry about it.

Nevertheless, the fact remains that the evolution in continental Europe and Japan
is thus far much less serious than in the United States (and, to a lesser extent,
in the other Anglo-Saxon countries). This may tell us something about the forces at
work. The divergence between the various regions of the wealthy world is all the more
striking because technological change has been the same more or less everywhere: in
particular, the revolution in information technology has affected Japan, Germany,
France, Sweden, and Denmark as much as the United States, Britain, and Canada. Similarly,
economic growth—or, more precisely, growth in output per capita, which is to say,
productivity growth—has been quite similar throughout the wealthy countries, with
differences of a few tenths of a percentage point.
²¹
In view of these facts, this quite large divergence in the way the income distribution
has evolved in the various wealthy countries demands an explanation, which the theory
of marginal productivity and of the race between technology and education does not
seem capable of providing.

Note, moreover, that the United States, contrary to what many people think today,
was not always more inegalitarian than Europe—far from it. Income inequality was actually
quite high in Europe at the beginning of the twentieth century. This is confirmed
by all the indices and historical sources. In particular, the top centile’s share
of national income exceeded 20 percent in all the countries of Europe in 1900–1910
(see
Figures 9.2
–
4
). This was true not only of Britain, France, and Germany but also of Sweden and Denmark
(proof that the Nordic countries have not always been models of equality—far from
it), and more generally of all European countries for which we have estimates from
this period.
²²

The similar levels of income concentration in all European countries during the Belle
Époque obviously demand an explanation. Since top incomes in this period consisted
almost entirely of income from capital,
²³
the explanation must be sought primarily in the realm of concentration of capital.
Why was capital so concentrated in Europe in the period 1900–1910?

It is interesting to note that, compared with Europe, inequality was lower not only
in the United States and Canada (where the top centile’s share of national income
was roughly 16–18 percent at the beginning of the twentieth century) but especially
in Australia and New Zealand (11–12 percent). Thus it was the New World, and especially
the newest and most recently settled parts of the New World, that appear to have been
less inegalitarian than Old Europe in the Belle Époque.

It is also interesting to note that Japan, despite its social and cultural differences
from Europe, seems to have had the same high level of inequality at the beginning
of the twentieth century, without about 20 percent of national income going to the
top centile. The available data do not allow me to make all the comparisons I would
like to make, but all signs are that in terms of both income structure and income
inequality, Japan was indeed part of the same “old world” as Europe. It is also striking
to note the similar evolution of Japan and Europe over the course of the twentieth
century (
Figure 9.3
).

I will return later to the reasons for the very high concentration of capital in the
Belle Époque and to the transformations that took place in various countries over
the course of the twentieth century (namely, a reduction of concentration). I will
show in particular that the greater inequality of wealth that we see in Europe and
Japan is fairly naturally explained by the low demographic growth rate we find in
the Old World, which resulted almost automatically in a greater accumulation and concentration
of capital.

At this stage, I want simply to stress the magnitude of the changes that have altered
the relative standing of countries and continents. The clearest way to make this point
is probably to look at the evolution of the top decile’s share of national income.
Figure 9.7
shows this for the United States and four European countries (Britain, France, Germany,
and Sweden) since the turn of the twentieth century. I have indicated decennial averages
in order to focus attention on long-term trends.
²⁴

FIGURE 9.7.
   The top decile income share in Europe and the United States, 1900–2010

In the 1950s–1970s, the top decile income share was about 30–35 percent of total income
in Europe as in the United States.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

What we find is that on the eve of World War I, the top decile’s share was 45–50 percent
of national income in all the European countries, compared with a little more than
40 percent in the United States. By the end of World War II, the United States had
become slightly more inegalitarian than Europe: the top decile’s share decreased on
both continents owing to the shocks of 1914–1945, but the fall was more precipitous
in Europe (and Japan). The explanation for this is that the shocks to capital were
much larger. Between 1950 and 1970, the upper decile’s share was fairly stable and
fairly similar in the United States and Europe, around 30–35 percent of national income.
The strong divergence that began in 1970–1980 led to the following situation in 2000–2010:
the top decile’s share of US national income reached 45–50 percent, or roughly the
same level as Europe in 1900–1910. In Europe, we see wide variation, from the most
inegalitarian case (Britain, with a top decile share of 40 percent) to the most egalitarian
(Sweden, less than 30 percent), with France and Germany in between (around 35 percent).

FIGURE 9.8.
   Income inequality in Europe versus the United States, 1900–2010

The top decile income share was higher in Europe than in the United States in 1900–1910;
it is a lot higher in the United States in 2000–2010.

Sources and series: see
piketty.pse.ens.fr/capital21c
.

If we calculate (somewhat abusively) an average for Europe based on these four countries,
we can make a very clear international comparison: the United States was less inegalitarian
than Europe in 1900–1910, slightly more inegalitarian in 1950–1960, and much more
inegalitarian in 2000–2010 (see
Figure 9.8
).
²⁵

Apart from this long-term picture, there are of course multiple national histories
as well as constant short- and medium-term fluctuations linked to social and political
developments in each country, as I showed in
Chapter 8
and analyzed in some detail in the French and US cases. Space will not permit me
to do the same for every country here.
²⁶