The quest for capital

2015-09-15 17:29
Thomas Piketty. Picture: The Asahi Shimbun/Getty Images

Thomas Piketty. Picture: The Asahi Shimbun/Getty Images

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Tahrir Square: The city of dead capital 

Instead of going to the field to do his own sampling, Thomas Piketty, like many Western academics on a tight budget when faced with poor and nonsensical statistics outside Western nations, takes European class categories and statistical indicators, extrapolates them and uses them to draw global conclusions and a universal law, ignoring the fact that 90% of the world’s population live in developing countries and former Soviet states, whose inhabitants produce and hold their capital in the informal sector – that is to say, outside of official statistics. 

This flaw has implications that go far beyond mere accounting: it turns out that the kind of violence that erupted in places such as Tahrir Square, Egypt, in 2011 occur where, according to our field studies, capital plays a decisive if hidden role that Eurocentric analysis cannot perceive. 

At the request of Egypt’s Treasury minister, my team, along with 120 mostly Egyptian researchers, not only studied official documents but also acquired local information on the ground, going door to door to get data that allow government to test its conventional statistics for truth and completeness. 

We discovered that 47% of so-called labour’s annual income is derived from “capital” – almost 22.5 million workers in Egypt earned not only a total of $20 billion in salaries, but additionally $18 billion more through returns on their unrecorded capital. Our study found that Egyptian “workers” owned an estimated $360 billion worth of real estate, eight times more than all the foreign direct investment in Egypt since Napoleon’s invasion. It is no wonder that Piketty, looking only at official statistics, missed all those facts. 

The Arab revolutions and the wars for capital 

Piketty worries about wars in the future and suggests that they will come about in the form of a rebellion against the inequities of capital. Perhaps he hasn’t noticed that the wars over capital have already begun right under Europe’s nose in the Middle East and north Africa. Had he not missed these events, he would have seen these are not uprisings against capital, as his thesis claims, but for capital. 

The Arab Spring was triggered by the self-immolation in the former French colony of Tunisia, in December 2010, of Mohamed Bouazizi. Because official Eurocentric statistics classify all people who are not working at formally recognised firms as “unemployed”, it was not surprising that most observers quickly labelled Bouazizi an “unemployed worker”. But this classification system missed the fact that Bouazizi was not a labourer but a businessman since the age of 12, who very much wanted more capital (ras el mel in Arabic). A Eurocentric classification system blinded us to the fact that Bouazizi, in reality, was leading an Arab industrial revolution of sorts. 

It wasn’t just him. Thereafter, we discovered that 63 other entrepreneurs, within two months, all inspired by Bouazizi, attempted public suicide throughout the Middle East and north Africa, and galvanised millions of Arabs to pour into the streets, toppling four governments nearly immediately. 

Over two years, we interviewed about half of the 37 self-immolators who survived their burns. All the self-immolators were driven to suicide for being expropriated of what little capital they had. About 300 million Arabs live in the same circumstances as the entrepreneurial self-immolators. We can learn several things from them. 

First, capital is not at the root of misery and violence, but rather the lack of it is. The worst inequality is not to have capital. 

Second, for most of us outside the West, capital and labour are not natural enemies but intertwined facets of a continuum. 

Third, most important constraints to development of the poor arise from their inability to build and protect capital. 

Fourth, the willingness to stand up to power as an individual is not exclusively a Western trait. Bouazizi and each of the self-immolators are Charlie Hebdo (a French satirical weekly magazine). 

Fictitious capital and the European economic crisis 

I couldn’t agree more with Piketty when he says that a lack of transparency lies at the heart of the European crisis, which has been ongoing since 2008. Where we part ways in our thinking is at the solution he proposes: assembling a giant ledger – a “financial cadaster”– that includes all financial paper. 

That makes no sense, because the problem is that European banks and capital markets abound in what Karl Marx and Thomas Jefferson called “fictitious” capital, or paper that no longer reflects real value. Why would anyone want a cadaster of trillions of dollars and euros of obscurely bundled derivatives, based on untraceable or poorly documented assets that are swirling mindlessly around European markets? 

A cadaster that merely sums up the “value” of all these instruments, therefore, would do nothing more than report a meaningless number for fictitious capital.

Especially considering that a major reason the European economy is barely growing is that no one trusts the financial institutions that are holding this paper. 

So how can we go about creating a cadaster of reality and not fiction? How can governments get a grip on economic facts that can be tested for truth in a global market full of illusory paper? How can we locate, fix and control something as immaterial and transcendent as capital? Of all people, the French have supplied the answer with their property record-keeping systems developed before, during and after the French revolution. 

In those days, feudal record-keeping systems couldn’t keep up with the growing force of expanding markets, and recessions flew out of control as trust among the French disappeared and people took their frustrations to the streets. 

French reformers responded not by trying to cadaster a messy financial system, but by creating radically new fact-gathering systems that mirrored reality and not fiction. 

Simple and brilliant. Property records, as opposed to financial records, are written up in rule-bound and publicly accessible registries, and contain all the knowledge available that is relevant to the economic situation of people and the assets they control. No one can afford to be incorrect about the amount of capital they own because they would lose it. 

In French reformer Charles Coquelin’s words, France was able to modernise when, throughout the 19th century, the country learnt to record property and thus

“pick up the thousands of filaments that businesses are creating between themselves, and thereby socialise and recombine production in a mobile fashion”. 

Piketty has his heart in the right place, but his papers in the wrong archives. The issue in the 21st century in the West is assetless paper. Everywhere else, it is paperless assets. 

How do you deal with misery, wars and violence at a time when most of the records of the world have stopped representing crucial aspects of reality? French history, particularly the French revolution, is a good place to start. 

De Soto is a Peruvian economist and author of The Mystery of Capital

French economist Thomas Piketty will deliver the 13th annual Nelson Mandela Lecture at the University of Johannesburg on October 3

Read more on:    nelson mandela lecture  |  thomas piketty  |  economics

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