Piketty and the Super Rich of Bangladesh

IN the span of a few short months, Thomas Picketty's magnum opus Capital In The Twenty First Century has created a stir the equivalent of an earthquake amongst academic circles. The shockwaves have, interestingly, spilled over into civil society more drastically than ever before with his book shooting up to number one in many bestseller lists. The book was a painstakingly meticulous compilation of facts and statistics dating back as far as the French Revolution. Piketty, working with his associates analysed tax returns from several countries including the United States, France, England and Japan to underline the fundamental problems of capitalism and its famed 'invisible hand of the market,' which now seems to be perennially bent towards the rich.

The outstanding argument of his book is the fact that capitalism aggravates the wealth inequality between the classes. Piketty states that, all things being equal, the rate of return on capital (which can be broadly defined as assets, both financial and material) is always greater than the rate of growth (which can be broadly defined as wage). This means that in a perfectly neoliberal setting, anyone with inherited wealth will see the return they get on it (this includes rent, income from fixed assets, income from financial assets) to be larger than any income generated by the class working on wages without any capital in their possession. The implications of this is as follows -- due to the high return on existing capital, capital owners are in a position to purchase even more capital until the wealth accumulates strongly in a small 1% of the population. This discovery goes against the very moral of many of today's societies where an implicit understanding is 'hard work leads to success.' A more apt phrase would be 'if you have capital you are assured of success, hard work is not required.'

The problem that Piketty identifies is not one of bad governance; it is an inherent flaw in a system widely adopted by most of the world. Piketty, in a show of new-world sensibility, criticises much of Karl Marx's apocalyptical predictions against the monster of capitalism. Marx's theories on the dangers of capitalism have been proven correct to a certain extent but his fabled rise of the Proletariat never came to pass -- simply because of the fact that wealth accumulation means an accumulation of resources, power and, most significantly, education.

Piketty is much more realistic in his predictions but they are no less dangerous. Wealth disparity will continue to rise if the world continues in this vein of thought and governments will be helpless in the face of large financial institutions and their will. There is already a lot of criticism on the nature and magnitude of taxation on wealth by the top developed countries with critics of the opinion that it is not strong enough to fight inequality. On the flipside, attempts to impose heavier taxes has often been met by words such as 'class warfare,' particularly in the United States, where lobbying is legal and it often leaves the government hostage to the interest of private firms.

Now, taking Piketty's findings and extrapolating it to Bangladesh is hazardous business. And one that Picketty himself would frown upon since any substantial analysis would require studying tax return forms in the country. But patterns emerging from countries already studied suggest that it is not an irrational claim to make that the same effects of capitalism, the ideology, can take root here. And, indeed, the growing income inequality between the super-rich and the inferior classes can be quite clearly seen today. The country, not yet a full-blown capitalist state, has adopted several measures to combat inequality, including a wealth surcharge in the budget for fiscal year 2014-15, which taxes a high amount of money for people who earn upwards of Tk.20 million.

However, what Piketty, in his scholarly intent, has ignored like many of his fellow economists, is the deadly exercise of corruption that plagues much of the world, and Bangladesh. You only need to see recent reports of the exorbitant amounts of money stored in Swiss banks by Bangladeshi nationals to get that point across. The fundamental problem between corruption in Bangladesh and Picketty's findings is this -- there exists a loophole in the budget which allows money to be whitened by reinvesting in the real estate of the country. Now, if we are to move away from the ridiculous concept of providing legitimacy to illegally earned money, we are faced with the far more dangerous idea of what that money could potentially do. Investing in real estate, a form of capital that increases in wealth over the years, can not only provide an easy way out to corrupt moneymakers, but it also stands to make the owner of that capital even richer with wealth accumulation over the years.

For the Bangladeshi population, inequality is a problem that is widely rampant and yet, in relative terms, still in its infancy. We have not yet arrived at the age of neoliberal privatisation but it is not a long way away. The problem, in this case, is not taxation or the nature of progressive tax but getting people to pay it. So long as a loophole exists whereby an individual can take the easy way out by not paying taxes and reinvest and have the money grow exponentially, not many will take the road which includes compliance to the government. And even less so when the government itself is offering you a red-carpet welcome into the pantheon of the super-rich.

The writer is Editorial Assistant, The Daily Star.