Skip to main content Accessibility help

Thomas Piketty's Capital and the Developing World

  • Nancy Birdsall


Thomas Piketty's Capital in the Twenty-First Century is a tour de force—a compelling and accessible read that presents an eloquent and convincing warning about the future of capitalism. Capitalism, Piketty argues, suffers from an inherent tendency to generate an explosive spiral of increasing inequality of wealth and income. This inegalitarian dynamic of capitalism is not due to textbook failures of capitalist markets (for example, natural monopolies) or failures of economic institutions (such as the failure to regulate these monopolies), but to the way capitalism fundamentally works. Unless the spiral is controlled by far more progressive taxation than is now the norm, the political fallout could undermine the viability of the successful “social state” (p. 471) in the advanced economies, putting the democratic state itself at risk.

  • View HTML
    • Send article to Kindle

      To send this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about sending to your Kindle. Find out more about sending to your Kindle.

      Note you can select to send to either the or variations. ‘’ emails are free but can only be sent to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

      Find out more about the Kindle Personal Document Service.

      Thomas Piketty's Capital and the Developing World
      Available formats

      Send article to Dropbox

      To send this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Dropbox.

      Thomas Piketty's Capital and the Developing World
      Available formats

      Send article to Google Drive

      To send this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you use this feature, you will be asked to authorise Cambridge Core to connect with your <service> account. Find out more about sending content to Google Drive.

      Thomas Piketty's Capital and the Developing World
      Available formats



Hide All


1 Based on purchasing power parity measures of income (using 2005 International Comparison Project prices, adjusted in real terms to 2010).

2 For contrasting examples, see Cowen and Stiglitz. Tyler Cowen, “Capital Punishment,” Foreign Affairs (June 2014), Joseph Stiglitz, “Phony Capitalism,” Harper's Magazine, September 2014, Solow and Milanovic provide clear and largely friendly (to Piketty) explications of the economic model. Robert M. Solow, “Thomas Piketty Is Right,” New Republic, April 22, 2014, Branko Milanovic, “The Return of ‘Patrimonial Capitalism’: Review of Thomas Piketty's Capital in the 21st Century,” World Bank Policy Research Working Paper 6974, July 2014, On the technical side, Lawrence Summers, among others, questions Piketty's assumption that more and more capital can be substituted for labor without a reduction in the rate of return that is sufficient to offset the rate at which capital is increasing, and his assumption of a constant or rising savings ratio with increasing wealth. Lawrence H. Summers, “The Inequality Puzzle,” Democracy Journal, no. 31 (2014), On this issue, raised by many economists, the question is the extent to which the assumption of a law of diminishing returns to any one factor of production applies to the case of “capital” as Piketty defines it, which includes real estate and financial capital to the extent it is not allocated to economically productive uses. Chris Giles, in a series of online articles in the Financial Times, raised questions about the data and its presentation. For a summary and comment on the data issues, see John Cassidy, “Forces of Divergence,” New Yorker, March 31, 2014,

3 See his table 7.2. More recent estimates by Saez and Zucman suggest that the top 1 percent's wealth share was about 40 percent in the United States in 2012, with the top 10 percent owning close to 75 percent of total wealth. Emmanuel Saez and Gabriel Zucman, “The Distribution of U.S. Wealth, Capital Income, and Returns Since 1913,” Working Paper (2014).

4 James K. Galbraith, “Kapital for the Twenty-First Century?,” Dissent, Spring 2014,

5 He illustrates this point using data on the average real rates of return in the last thirty years to U.S. university endowments of different sizes (table 12.2).

6 Milanovic, “The Return of ‘Patrimonial Capitalism.’”

7 So that the New York settings of Henry James and Edith Wharton novels were an exception, restricted largely to the Europe-looking and striving upper middle class of the East Coast.

8 He argues strenuously for developing countries making available whatever tax data they have. “Clearly, household surveys, which are often the only source used by international organizations (in particular the World Bank) and governments for gauging inequality, give a biased and misleadingly complacent view of the distribution of wealth” (p. 330).

9 See Facundo Alvaredo and Julia Landino Valez, “High Incomes and Personal Taxation in a Developing Economy: Colombia 1993–2010,” Commitment to Equity Working Paper No. 12, 2013. They report that the top 1 percent of the income distribution accounted for over 20 percent of total income in 2010, on the basis of tax data.

10 Economists have not always agreed even on equal opportunity being efficient from the point of view of fostering growth. Kaldor, for example, argued that the rich (for whatever reason, including inheritance and luck) are those who provide the savings for investment that fuels growth. Kaldor, Nicholas, “A Model of Economic Growth,” The Economic Journal 67, no. 268 (1957), pp. 591624.

11 It is easier for those on the political right, for example, to agree on the idea of public financing of basic education and health services to promote equal opportunity, than on direct redistribution of income through taxes on the rich to make transfers to the poor.

12 A good example is World Bank, World Development Report 2006: Equity and Development (Washington, D.C.: World Bank, 2005), There is now increasing attention among economists to the possibility that under many circumstances inequality hurts growth (Andrew Berg, Jonathan D. Ostry, and Charalambos G. Tsangarides, “Redistribution, Inequality, and Growth,” IMF Staff Discussion Note, International Monetary Fund, April 2014,, including by limiting consumption demand except for the richest, as seen recently in the United States. See, for example, Michael Kumhof, Romain Rancière, and Pablo Winant, Inequality, Leverage and Crises: The Case of Endogenous Default, IMF Working Paper, November 2013,

13 In a 2001 article in this journal I wrote that inequality matters in an instrumental sense for three reasons; namely, its negative effects on: growth and poverty reduction; the healthy political processes that underpin the social contract; and the social cohesion required for effective collective decision-making. Birdsall, Nancy, “Why Inequality Matters: Some Economic Issues,Ethics & International Affairs 15, no. 2 (2001), pp. 328. Piketty's worry is about the second of those, with allusions to the third.

14 See p. 479. His approach is essentially Rawlsian. He cites Jefferson's 1776 Declaration of Independence, the 1789 French Declaration of Rights of Man and the Citizen, and Amartya Sen's capabilities approach as well as Rawls's difference principle. The state is responsible for ensuring these rights in a manner that “is in the interest of those with the fewest initial rights and opportunities” (p. 480). A sense of his moral compass and his economic instincts and political affinities is evident in allusions to lost “hope of a just social order”; to high returns to massive accumulations of capital being well beyond what would be “socially productive”; to his annoyance with the tendency of winners in today's United States to ascribe their winnings to the just rewards of a meritocracy; and to his insistence in the concluding chapter that economics as a social science has a normative and moral purpose.

15 Key to his contribution is the evidence in Part One of the book of the high capital/income ratios and their maintenance in capitalist systems. Because it is the high ratio of capital stock to average annual income that feeds the high concentration of wealth, it is individuals' capital (wealth) whose accumulation should be limited.

16 See figure 14.1., p. 499.

17 See p. 276 for use of the term “rentier.”

18 Martin Gilens and Benjamin I. Page, based on quantitative analysis of attitudes of the American public on 1,779 policy issues, conclude that economic elites have a dominant influence on U.S. government policy. See Gilens, Martin and Page, Benjamin I., “Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens,Perspectives on Politics, no. 3 (2014), pp. 564–81.

19 Acemoglu and Johnson, in their review, emphasize the role of institutions in explaining the fundamental determinants of concentration of wealth. Daron Acemoglu and James Robinson, “The Rise and Fall of General Laws of Capitalism,” Working Paper, Massachusetts Institute of Technology, August 2014,

20 For a study on the impact of privatization on equity, including the Russian case, see Birdsall, Nancy and Nellis, John, “Winners and Losers: Assessing the Distributional Impact of Privatization,World Development 31, no. 10 (2003), pp. 1617–33. For a detailed account of the Russian privatization experience, see Black, Bernard, Kraakman, Reinier, and Tarassova, Anna, “Russian Privatization and Corporate Governance: What Went Wrong?,Stanford Law Review 52, no. 6 (2000), pp. 1731–808.

21 Even today, public funding of education in most of the region remains skewed to elite public universities, to which the poor have little chance of admission on the basis of “merit” (admittedly an exaggerated version of the tendency everywhere, including in the United States and Piketty's France). Stanley L. Engerman and Kenneth L. Sokoloff, Factor Endowments, Inequality, and Paths of Development Among New World Economics, National Bureau of Economic Research Working Paper 9259, October 2002,

22 David Pallister and Peter Capella, “British Banks Set to Freeze Dictator's Millions,” Guardian, July 7, 2000,

23 For a discussion on the link between political favors and private sector campaign funding in India, see Devesh Kapur and Milan Vaishnav, “Quid Pro Quo: Builders, Politicians, and Election Finance in India,” Center for Global Development Working Paper 276, updated March 29, 2013, On wealth accumulation by China's political elite, see David Barboza, “Billions in Hidden Riches for Family of Chinese Leader,” New York Times, October 25, 2012,, as well as Jamil Anderlini, “China's Rich Lawmakers Power Ahead,” Financial Times, March 4, 2014.

24 In his latest book, Francis Fukuyama raises the question whether the political order in the United States is now deteriorating. See Sheri Berman, “Francis Fukuyama's ‘Political Order and Political Decay,’” New York Times, September 11, 2014,

25 See Birdsall, Nancy, Lustig, Nora, and Meyer, Christian Johannes, The Strugglers: The New Poor in Latin America?, SSRN Scholarly Paper (Rochester, N.Y.: Social Science Research Network, August 8, 2013), We, estimate median consumption at about $3 in the developing world; household survey data for most countries are on consumption (net of consumption taxes) and of direct transfers; about $5 is a very rough estimate of disposable income per day. On the burden of taxes net of transfers for low-income people in developing countries, see Nora Lustig, Carola Pessino, and John Scott, “The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru, and Uruguay: An Overview,” CEQ Working Paper 13, Center for Inter-American Policy and research, April 2013,,Bol,Bra,Mex,Per,Ury%20April%202013.pdf.

26 That is why recent reports of the World Bank, the African Development Bank, and the Asian Development Bank have focused on the question of how big the middle class is in their borrowing countries. For estimates of the size of the middle class in some developing countries, using per person daily income of $10 a day, see Nancy Birdsall, “The Rich and the Rest, Not the Poor and the Rest,” Center for Global Development Working Paper 207, March 26, 2010,

27 Using $10 per person, per day standard. See preceding endnote.

28 Alesina, Alberto, Cozzi, Guido, and Mantovan, Noemi, in “The Evolution of Ideology, Fairness and Redistribution,Economic Journal 122, no. 565 (2012), pp. 1244–61, make the point that the tax rates are endogenous to views about inequality and justice in a society, and in turn determine the evolution of inequality and wealth.

29 See “Plugging Leaks, Poking Holes,” Economist, December 8, 2012,

30 In her review of Fukuyama, Francis, Political Order and Political Decay: From the Industrial Revolution to the Globalization of Democracy (New York: Farrar, Straus and Giroux, 2014), Sheri Berman refers to growing public distrust of the state in the United States, leading to the state being very starved of resources. See Berman, “Francis Fukuyama's Political Order and Political Decay.”

31 The World Bank has for decades regularly conducted country expenditure reviews; the IMF provides technical assistance to countries primarily on tax administration. Recent research at the IMF has addressed the incidence of taxes and the implications for inequality. See Berg, Ostry, and Tsangarides, “Redistribution, Inequality, and Growth.”

32 This is not to say that household survey data are not more useful for many purposes, and especially for measuring poverty or that tax data are ideal. Piketty's tax data for advanced economies is weak on incomes for the bottom 20 percent of the population (who may not file tax returns) and refers to market not disposable income (after transfers for example), and is for individuals not households. My thanks to Branko Milanovic for reminding me that household survey and tax data are both needed for the full picture.

33 In purchasing power terms (2005). See Subramanian, Arvind, Eclipse: Living in the Shadow of China's Economic Dominance (Washington, D.C.: Institute of International Economics, 2011), table 4.3, p. 87; This is consistent with other reports, including PricewaterhouseCoopers' “World in 2050: The BRICs and Beyond: Prospects, Challenges, and Opportunities” (2013).

34 Milanovic, “The Return of ‘Patrimonial Capitalism,” raises this question.

35 The developing world's proportion of global product increased from 30 percent in 1990 to about 50 percent today (measured in 2005 purchasing power parity terms) and barring unforeseen disruptions could grow to 67 percent by 2030 as per capita income in China, India, Brazil and other large emerging markets converges with per capita income in the United States and other advanced economies. Subramanian, Eclipse; International Monetary Fund, “World Economic Outlook Database,” September 2011,

36 World Bank, World Development Indicators 2014 (World Bank, 2014),

37 Nancy Birdsall, “Global Markets,Global Citizens, and Global Governance in the Twenty-first Century,” in Allen, Franklin et al. , Towards a Better Global Economy: Policy Implications for Citizens Worldwide in the 21st Century (New York: Oxford University Press, 2014) pp. 427–86.

38 Kenny, Charles, Getting Better: Why Global Development Is Succeeding—And How We Can Improve the World Even More (New York: Basic Books, 2011).

39 Branko Milanovic, Global Income Inequality by the Numbers: In History and Now, World Bank Policy Research Working Paper 6259, November 2012, p. 19,

40 Deaton, Angus, The Great Escape: Health, Wealth, and the Origins of Inequality (Princeton, N.J.: Princeton University Press, 2013). On an approach to foreign aid that maximizes accountability of recipient governments to their own citizens, see Birdsall, Nancy et al. , Cash on Delivery: A New Approach to Foreign Aid (Washington, D.C.: CGD Books, 2010).

41 Owen Barder and Petra Krylova, “The Commitment to Development Index: 2013 Edition,” Center For Global Development, September 2013,

42 Nancy Birdsall, Christian Meyer, and Alexis Sowa, “Global Markets, Global Citizens, and Global Governance in the 21st Century,” Center for Global Development Working Paper 329, June 24, 2013,

* For thoughtful comments on an initial draft, I am grateful to Alan Gelb, Carol Graham, Nora Lustig, Lawrence MacDonald, Branko Milanovic, and Arvind Subramanian. I also thank Anna Diofasi and Allison Grossman for their excellent research help.

Thomas Piketty's Capital and the Developing World

  • Nancy Birdsall


Full text views

Total number of HTML views: 0
Total number of PDF views: 0 *
Loading metrics...

Abstract views

Total abstract views: 0 *
Loading metrics...

* Views captured on Cambridge Core between <date>. This data will be updated every 24 hours.

Usage data cannot currently be displayed