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The May Protests in Berlin: Piketty and New Approaches to Inequality

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

More than twice the number expected showed up this year to the 1 May left-wing demonstrations in Kreuzberg (close to 20 000), and almost 50 000 to the accompanying festival. It was also one of the most peaceful marches on record (despite some police brutality caught on Youtube), a shift indicating that the demonstration is not simply that of a radical fringe, but attracting the mainstream.

I joined the demonstration this year, and found myself cheering to the anti-fascist slogans, and feeling alienated by the minority authoritarian and ideological elements. My brand of pragmatic social democracy (not of the castrated SPD variety, mind you) is not very popular with some factions of the left, nor in turn do I have much truck with the German Communist Party, parading banners: ‘Hands off the Ukraine’. What does that mean exactly? Are they speaking in favour of the atavistic-capitalist Russian oligarchy?  You’ve got to be kidding me. I take a picture next to a group of protesters garbed entirely in black, with hoods, masks and goggles. ‘Stop filming!’ shouts one of them at me, in the severest of tones. Meanwhile, the speakers blare a jolly jazz version of the Internationale. Nearby, grannies wave red banners and veiled women wave from the passing tower blocks.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

Yet, I am impressed that all these different factions can unite, despite their differences, on a single day. In times of increasing inequality, and massive changes in the City of Berlin, more and more people feel that more comprehensive steps must be taken to redistribute capital. In this light, a new book by Paris economist, Thomas Piketty,  Capital in the Twenty-First Century (Harvard, 2014), could not be better timed. A study of inequality, it has created a little revolution among economists, and invigorated democratic solutions to correct the excesses of accumulation by a very small percentage of the population. What makes this book even more important is that it is being treated very seriously within the policy and academic community.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

In this post, I’d like to talk a little about Piketty’s much-talked about book and to ask what it means for Berlin. I might add that the global business press is incredibly afraid of Piketty’s oeuvre, throwing words like ‘trendy’ and ‘French’ at it, or resorting to anti-intellectualism, or the very arguments the book comprehensively refutes. Forbes writes, ‘It’s a lovely example of the seriousness with which French intellectuals view themselves. They, the golden ones, will lead humanity into those sunny uplands of centralised power and socialism’. The Wall Street Journal writes, ‘laced throughout the book is an almost medieval hostility to the notion that financial capital earns a return’. But the Economist can’t help but acknowledge ‘it is the closest thing to a pop-culture sensation heavyweight economics will ever provide’. In my view, any book that is causing this much stink and worry among the right-wing pundits is worth reading.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

Refer to ‘Capital’ and until recently people probably thought you were talking about Marx. Piketty’s Capital has chosen its title purposefully, and debunks a number of myths about capitalism and given new life to older solutions.

Think that our current system will reward you for hard work? Think again, says Piketty. He writes, ‘When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century,  and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based’ (Piketty, introduction). Let me turn now to a review from a Nobel Prize economist to help explain in some finer detail.

Paul Krugman, writing in the New York Review of Books, lauds: ‘Piketty has written a truly superb book… a tour de force of economic modeling… a book that will change both the way we think about society and the way we do economics’. Piketty puts a stake into the heart of trickle-down economics, and overturns any remaining faith that hard work is adequately rewarded by our current economic system. The conclusion is that we are returning to a ‘gilded age’ of robber-baron income inequalities, to ‘patrimonial capitalism’.

"Super sexy Communism" 1 May 2014 Kreuzberg

“Super sexy Communism” 1 May 2014 Kreuzberg

While previous studies have focused on income, Piketty focuses on capital: ‘income from capital, not earnings, predominates at the top of the income distribution’ as it was in the late 19th century.  Piketty observes that this massive capital accumulation occurs among a very small percentage of the population, the 1% whose share of such capital surged since the 1980s. We are seeing ‘the drift towards Oligarchy”, where the top 1% control more than 20% of income, in the United States for example.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

Indeed, this capital continues to prove a strong rate of return for the few despite low growth rates (in fact, corporate profits have soared since the financial crisis began). In the words of Krugman, ‘when the rate of return on capital greatly exceeds the rate of economic growth, “the past tends to devour the future”: society inexorably tends towards dominance by inherited wealth’. Writes Krugman, ‘Once again it’s generally more valuable to have the right parents (or to marry into having the right in-laws) than to have the right job’ (that is, unless you are a hedge fund manager). Family dynasties, not hard workers, increasingly rule the scene. This is the reason Piketty uses examples from Balzac and Jane Austen, and their characters’ obsession with marrying well.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

You might say, ‘no kidding’, but Pikkety has finally put all this into a ‘unified field theory of inequality, one that integrates economic growth, the distribution of income between capital and labour, and the distribution of wealth and income among individuals into a single frame’, all ‘with unmatched historical depth’. His data comparisons go back at least a century and, in the case of France, are based on tax records going back to the 18th century (previous studies relied on less indicative surveys). He indicates a definite U-shaped pattern of inequality: from the robber barons of the ‘Belle’ Époque, to a dip when capital was shared (in the middle of the twentieth-century, the moment of the welfare state, a period that historian Tony Judt and others have called humanity’s greatest accomplishment), and back up again with a return to inequality today. The solution to reduce inequality becomes, then, a matter for public policy, and the cure, within reach, says Piketty, is taxation: up to 15% on Capital and up to 80% on the highest earners—back to levels familiar in some countries (such as the US in the 50’s) before the Reagan-Thatcher revolution.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

Just over 10% of all income in Germany belongs to the top 1%, and this number has remained rather stable since the Second World War––this means that, while too much wealth still remains in too few hands here, the pattern of rising inequality is much more attenuated in Germany than in Britain or the USA. (I would like to know to what extent those living in East Germany, coming out of Communism, have been prevented from accumulating comparative levels of  ‘patrimonial capital’ to entitle their children). Regardless, the playing field, while not level, is decidedly more level, esp. since the cost of living and rents here, while threatened, remain low relative to other European capitals. On top of this, I rarely run into the kind of blinkered neo-liberal economic ideology in Berlin that I hear blustered in plummy tones at dinner parties especially in London, and at times in New York. Then again, I live in Kreuzberg, and sometimes wonder what the point of the 1 May demonstration here is if it passes through a neighbourhood that already votes left.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

But there is a point.  The point is that the status quo here in Berlin is clearly threatened, and also that we can do better than the status quo. Gentrification and rising rents are a big issue, as muscled capital investment moves into the housing market. And it’s also that so many Berliners are low earners and particularly vulnerable to rising inequality. While 1650 EUR/month brutto is average in Berlin, almost half make below 1500 EUR/month, and about 20% below 900/month. Meanwhile, 350-400 000 people are on different kinds of social assistance. 12% are officially unemployed (twice the level across Germany) and many of those most vulnerable live in the areas experiencing the most investment (such as Neukölln and Kreuzberg). They are the ones who have the most to lose with the return of the gilded age.

1 May 2014 Kreuzberg

1 May 2014 Kreuzberg

More and more people feel that something is very wrong, and there’s time to change things–this is how I explain the greater numbers this 1 May despite the clouds and cold. The slogans against ‘capitalism’ and ‘anti-fascism’ are useful to unify a crowd, but more attention needs to be paid to corrective methods already found within a democratic system, such as taxation. Reduce inequality, using the solutions proposed by Piketty, and you will fight fascism: a threat that draws historically from the angry, economically marginalised, victims of inequality. It’s also an opportunity to fight against capitalism’s abuses, and to restore the achievements of a civilized society, one that protects the weak. It’s not popular to protest in favour of taxation as a means for wealth distribution, but if one is looking for solutions within our broken system, the time has come.

In the meantime, keep marching.

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1 May 2014 Kreuzberg



One Comment

  1. nero wrote:

    Nice write up, but beware, as many do in Berlin, of capital anthropomorphism where “capital” is assumed to be a conscious entity with an agenda.

    To take the simple example from gentrification: the root cause of such phenomena, everywhere they occur, is that more people want to live in gentrifying areas than there are flats and houses in that location.

    In Berlin’s case, it’s just because more people want to live in places with trees, a nice housing stocks, and well hung young historians sitting at street cafés radiating quiet intellectualism, than there are such places. In effect rent prices are set by you, and your fellow members of the intellectocratic one percent, because you are socially recognised arbiters of taste. Paradoxically, events like the May thing contribute to that: to some extent rent are high because the area is full of cool people protesting against high rents in such a cool way.

    That creates an imbalance, which under all systems will generate inequality as some of the people who want to live there will inevitably be disappointed. Under the current rule set, savers looking for bargains (aka “capital”) are the mediators that help arbitrage the imbalance. Hardly any of them care individually about what the system-level outcome is, they’re just looking for bargains wherever they happen to be.

    We could have a different rule set, e.g. the Berlin Senate could nationalise the entire Kreuzberg/Neukölln housing stock, but there would still be 3 applicants for any 2 flats. They could pick another criteria than money, e.g. give flats in priority to the people with the best groomed moustaches or a particular shoe size, or to those who are good at trading favours with the selecting officials, but in all cases there would be losers, for as long as there is a demand/supply imbalance.