Wolfgang Streeck

Piketty, the Global Tax on Capital, and the Fiscal Crisis of the State

To appear in Labor History, 2015

There has hardly been a book recently whose strengths and weaknesses have been as extensively discussed as Thomas Piketty’s „Capital in the Twenty-First Century“ (2014).[1] I have little to add to the Marxist critique that Piketty’s concept of capital is somehow underdeveloped, or to Piketty’s quite reasonable response to it. Nor will I repeat that Piketty may be underestimating the role of trade unions and collective bargaining in the era of the Great Compression between the First World War and the mid-1970s, when unions and the institutions that sustained them began to be rolled back. Instead I begin by reminding readers of some of the book’s unquestionable merits: the fact that it focusses on the commonalities rather than the differences between the countries of advanced capitalism; its emphasis on the basically unearned nature of great wealth; the attention it rightly pays to the impact of the two world wars (with, among other things, the great upswing in trade union organization and trade union rights in the two „postwar settlements“); its rejection of the „convergence thesis“, according to which capitalism will on its own even out social and economic inequality through, among other things, competition (in fact, Piketty impressively proves the presence in capitalism of what Robert K. Merton has once called the „Matthew effect;“[2] Merton 1968); and the observation that large wealth can expect to draw a better rate of return than small savings, due to its access to more sophisticated financial advice.

Of course, a good deal of the comment and criticism on Piketty’s book was focused on his proposal to use taxation as a means to rectify inequality, in particular through a „global tax on capital“ assessed by means of a worldwide registry of (all!) financial assets, a wealth tax combined with steep inheritance taxes and a progressive income tax, to be collectively instituted by all countries including tax havens like Luxembourg and Switzerland. Suspicions that Piketty may be beholden to a sort of etatistic utopianism, or utopian etatism, have frequently been expressed, and indeed he anticipates part of this when conceding that while his tax regime may be socially necessary and technically feasible, it is for the time being no more than “a useful utopia” (p. 515) . Perhaps it is true that Piketty has somewhat naive (French?) expectations in the governing capacity of the state and the primacy of politics, making him susceptible to excessive political voluntarism. But it is also possible that this is just studied naïveté, deliberately adopted as a rhetorical device to illustrate the tension between the common sense-nature of his proposal and the unlikeliness of it being realized.

Piketty’s argument places much hope on recent moves of countries like the United States against the Swiss banking secret, and on announcements of the G9 and the European Commission of, for once, decisive action against tax flight and tax evasion. I do not remember the book discussing the possibility that this may in the end be no more than a cover behind which to raise consumption taxes, income taxes on the middle class, and social security contributions, making tax systems even more regressive than they already are. Piketty seems to assume that what he considers the interest of states in reasonably balanced public finances (more on this below) will not only lead them to cooperate in good faith internationally but will also prevail over the interest of the rich in preventing tax reforms at their expense (as Ronald Dore put it at a recent conference, „Turkeys don’t vote for Christmas, and it is the fattest turkeys who hold decision-making power in our democracies“). There are many well-oiled mechanisms, perfected over a long period, by which the “One Percent” in liberal democracies manage to protect their wealth from meaningful taxation, not the least of which is turning the middle classes into allies in their struggle against the tax state.

As far as the European Union is concerned, shortly after Piketty’s book had come out, the Brussels camarilla engineered what came close to a coup d’état – in the absence of an état – by twisting and turning the outcome of the 2014 „European election“ into a plebiscite for their ancient fellow-European, Jean-Claude Juncker, being promoted to the Presidency of the European Commission. This was the same Juncker who as Prime Minister of Luxembourg had for decades served as chief architect of a complex structure of tax privileges and opportunities for tax evasion for multinational corporations registering in his Grand Duchy mini-state. (Juncker had also been the front man of the European bank rescue effort after 2008, as head of the so-called „Euro Group“.) As Commission president, he is now charged with devising a common policy to end tax flight and close tax havens; in the meantime his buddies on all sides of the aisle prevented a parliamentary investigation into his activities as privy tax councilor to the very rich. Juncker, incidentally, was very much present when Greece joined the Euro and on the day of its accession cut the top rate of its corporate income tax from 40 to 20 percent. At the time this was called „healthy tax competition“ by Brussels functionaries; now, after the election of the left-wing SYRIZA government in Greece, the same people demand that Greece tax its ship-owners (Onassis, Niarchos, others) who, due to a clause inserted in the Greek constitution in 1967 under the dictatorship of the colonels, pay no taxes whatsoever (Streeck 2014, 76). Nobody, of course, took note of this when Greece was admitted to the Euro; nor was it an issue in the so-called Memoranda the country had to sign under the „rescue“ terms imposed on it by the EU, the ECB and the IMF after 2010.

I know it is a bit boring to invoke the drab reality of the present to cast doubt on a colorful utopian project to save the world in the future. But it must be allowed to question whether the skilled practitioners of today’s globalizing capitalism are serious when they call for global cooperation in pursuit of higher taxes on the rich. A global register, a cadaster of individual wealth covering not just France and Germany but also, say, Ukraine and the United States? Even if they were eventually to join: would all countries measure wealth in the same way? I only need to imagine the debate on a “new world order” à la Piketty in the United States House of Representatives – accompanied by the chorus, hostile or temptingly sweet depending on the circumstances, of thousands of lobbyists, each of them better paid than the best-paid House member – to suspect that Piketty’s studied optimism may perhaps be a little overdone.

Not that Piketty didn’t discuss alternative ways to fight tax flight and the inequality it helps sustain. I like that he mentions protectionism and capital controls as potential remedies as long as a unified global tax regime was wanting. Economists do not much care for protectionism, and this holds for Piketty too, although he concedes that there are conditions when it might serve. More intrigued he is by capital controls, and what he has to say on them, on pp. 534 ff., is important, especially since he refrains from categorically ruling them out. One reads with great interest in particular what Piketty has to say on capital controls in China, and wonders if something similar could not, with a few modifications, be instituted also in Western democracies. Piketty is right when he presents the matter in terms of differently defined property rights – the question being why it should be allowed for private individuals to consider a society’s capital their own even in the sense of being entitled to move it out of the very society that has accumulated it. Obviously, this raises big questions of the legitimacy of capitalism per se and how far it can extend in a democracy, and while Piketty is not the only one to address them, he should certainly be credited for having done so.

The main subject of Piketty’s book, of course, is inequality, and public finance it deals with only with respect to the extent that it contributes to it or may, to the contrary, be deployed to redress it. One issue that this raises is whether there is in our societies, in particular the leading capitalist democracies, enough popular pressure from below to make governments and political leaders look for ways, including international cooperation, to use public finances to limit and indeed bring down inequality. That the answer is positive is not at all a foregone conclusion. Tolerance for inequality seems to be growing, which seems to be related above all to immigration supplying national labor markets with essentially unlimited numbers of workers willing to work for wages far below any national minimum wage. Moreover, educational expansion comes with a meritocratic ideology that explains and justifies inequality as a result of differences in talent and effort. Also, as economic growth slows down, inheritance is even more highly valued, in particular among the middle classes, and defended as insurance against economic uncertainty and loss of social status. One could also mention consumerism, which holds out a myriad of differentiated rewards for „hard work“, as well as global winner-take-all markets in sports and entertainment that produce ever new nouveaux riches with huge masses of fans that identify with them and their lifestyle. On the other hand, it is true that there is also a growing group of people at the bottom of our societies that are excluded from meritocratic competition and consumerism: a surplus population suffering, not from being exploited by capitalism, but from not being exploited by it. Unless they have recourse to some sort of religious fundamentalism, however, they seem to be effectively excluded from making themselves heard politically.

While governments may be able to live with inequality, there may be a different reason they may feel forced to pursue a global wealth tax: as a way of consolidating public finances. The second-to-last chapter of Piketty’s book deals with “The Question of the Public Debt”, and while comparatively little attention has been paid to it, it contains many memorable insights, also on the special case of Europe and its monetary union. Very importantly, unlike other commentators on the Left, Piketty does not belittle public debt as a problem, as he rightly sees it as a matter “of the distribution of wealth, between public and private actors in particular” (p. 540). Indeed he states that “debt often becomes a backhanded form of redistribution of wealth from the poor to the rich, from people with modest savings to those with the means to lend to the government (who as a general rule ought to be paying taxes rather than lending)” (p. 566). Debt reduction is therefore not at all anathema to him, also because he understands the burden that interest payments impose on democratic government (p. 544). Moreover, inflation, the preferred instrument for the purpose, he deems a “relatively crude and imprecise tool” (547), and he generally warns against the adverse distributional consequences of debt reduction by monetary policy, of the sort currently employed by the European Central Bank (p. 550).

The question, of course, is whether states and governments in contemporary capitalist democracies would be inclined to deal with what has meanwhile developed into a global crisis of public finance by way of a Picketian tax regime, difficult as it clearly would be to set up. How likely is it that governments will undertake to consolidate the “debt state” that has emerged since the 1980s by recourse to the classical tools of the „tax state” (Schumpeter)?[3] Piketty is well-aware that public debt has more or less continuously increased in the past three decades in a non-Keynesian manner, as a result of tax revenue growing less than public expenditure, and finally stagnating or even declining (see Piketty’s Figure 13.1., on p. 475). On the revenue side, this reflected increasing tax resistance among the middle classes after the end of inflation, as well as rapidly expanding opportunities for international mobility of private wealth and the wealth of large corporations. For a while the widening gap between public revenues and public expenditure was closed by credit provided by a more and more deregulated international financial industry. As early as the 1990s, however, the continuing accumulation of public debt raised concerns among both lenders and governments, the former fearing for their loans being properly serviced and repaid, the latter worrying about a rising share of interest payments in public spending and the possibility of having to pay ever higher risk premiums to the financial industry.

The 1990s, then, saw a first wave of consolidation efforts throughout the OECD world, coordinated by the United States through, among other channels, the International Monetary Fund. (The way European Monetary Unions was laid out reflected the spirit of the time, with its deficit limit of 3 percent and a debt limit of 60 percent of GDP for member states.) What is important to note is that basically everywhere, consolidation was attempted, not by raising taxes (apart from occasional increases in social security contributions or consumption taxes) but by cutting expenditures – perhaps but not necessarily or exclusively in recognition of the futility of trying to tax the rich more. In any case, that first wave of consolidation was ultimately unsuccessful as it coincided with another push toward financial deregulation, this time vastly extending the access of private households to credit – not least, one suspects, in political as well as macroeconomic compensation for the cuts in public spending that were made at the time (Streeck 2014). The complex, worldwide debt pyramid that resulted collapsed in 2008 and had to be taken over by the states, which in addition had to protect their national economies through renewed deficit spending. In this way the fiscal consolidation achieved in the 1990s was entirely annihilated. With public debt reaching new unprecedented heights, consolidation pressures returned with a vengeance.

Current attempts to overcome what has meanwhile turned into a manifest fiscal crisis on a global scale[4] rely, even more than before, on expenditure cuts. Austerity is to demonstrate to financial markets a firm determination and lasting capacity of states to live up to their obligations to their creditors, come what may. To lenders it is of supreme importance that states can credibly claim their willingness and ability to put the demands of financial markets ahead of those of their citizens – of their pensioners for the pensions they were promised, their young generation for a high-quality education, their national industries for a state-if-the-art physical infrastructure in good repair, and so on. Could the same confidence on the part of financial markets be produced also by a Pikettian tax regime? Even assuming that such a regime could in fact be instituted, and in the near future, one has reasons to suspect that cutting back on state expenditures, and with it on the role of the state in the political economy, may long have become an objective in itself, for the pursuit of which government deficits provide welcome legitimacy.[5] What speaks for this is that not infrequently, as soon as government deficits have been eliminated by spending cuts, they are immediately restored by tax cuts, necessitating another round of spending cuts. Interestingly this can be observed in countries as different as Sweden and the United States – a practice that in the U.S. is known as „starving the beast“. Balancing budgets and lowering debt levels by collecting higher taxes from the rich would, of course, be counterproductive if the real objective was a neoliberal retrenchment of the state. It goes without saying that imposing a neoliberal fiscal policy on a democratic country requires a major political effort: a deep reorganization of political-economic institutions and practices that is as hard to reverse as it is to bring about. The first do describe what he called an „austerity regime“ was the American political scientist Paul Pierson (1998; 2001), who had the opportunity to observe it emerge under the Clinton presidency. Recent accounts (for example by Haffert and Mehrtens 2013) have extended the analysis to European countries after 2008, where perceived or real electoral opposition to higher taxes coincide with, apparently, declining egalitarian preferences among the electorate, also because of a disproportionate decline of voter turnout at the lower end of the income distribution.

Fiscal consolidation – budget balancing and debt reduction – as a neoliberal state restructuring project has two powerful constituencies. One is private enterprise in a stagnant, low-to-no-growth capitalist economy desperate for profitable investment opportunities. Privatization of public sector activities, from transportation to education, promises to open up new possibilities for capital accumulation in a world where they have become rare. The other is the financial industry and its more important clients, those that sit on piles of cash for which they can find no use in the „real economy“ since there is not enough effective demand there. What to do with money whose very existence is the reverse side of the lack of mass purchasing power that stands in the way of the same money being profitably invested – money that has accumulated as a result of political egalitarianism having had to surrender to, in Dore’s words, the fattest of the turkeys securing tax relief for themselves. Public debt, as Piketty is to be credited with pointing out, represents an attractive way of storing the surplus capital resulting from the declining taxability of the rich; instead of having it confiscated by the state, the rich can lend it to it. As they manage to escape taxation, the money they withhold from the state generates, in a strange parody of Say’s Law, its own demand, in the form of a need on the part of the state for borrowing. Note that even an interest rate on their capital of close to zero is preferable to owners compared to having it taken from them, also because they can pass it on to their next generation, as long as states can reassure them that if it comes to the crunch governments will be in a position to take from their pensioners whatever they may need to do right by their creditors.

To conclude, the neoliberal consolidation regime is as well-established as it is not just because it is technically difficult to tax wealth in an international economy. The contemporary consolidation state is embedded in a political-economic regime – a complex conglomerate of interests, power structures, and institutions – that took time to build and would take at least as much time to abolish. Indeed I believe that there is even more behind its resilience than just institutional and political inertia. The fiscal regime of global austerity may be a response to, in Piketty’s terminology, another „contradiction of capitalism“ that may be represented, à la Piketty, by another inequality, p > g, which stands for what used to be called „Wagner’s Law“ in the theory of public finance. As is well-known, that „law“, more appropriately perhaps referred to as a conjecture, suggests that the growth rate of the state share in a modern industrial economy, here denoted as p, exceeds the growth rate of the economy, g, resulting in a more or less continuously growing public share in the private capitalist economy.

„Wagner’s Law“ has been around since the end of the nineteenth century, even though it was never well-formulated and the theory behind it remained vague at best. Wagner himself, a conservative Prussian Kathedersozialist, believed that the secular growth of government under capitalism was driven by the society’s attainment of ever higher levels of „civilization“, whatever this was to mean.[6] That this idea continued to attract attention had clearly to do with the fact that long-term developments  in most advanced capitalist countries seemed to bear it out, as public expenditures for physical infrastructures, education, social insurance and, not to be forgotten, warfare did in fact increase faster than national output. Particularly intriguing might have been that if one wanted, one could read Wagner’s intuition as a non-Marxist version of the Marxian expectation of production under capitalism becoming with time increasingly social in nature, thereby getting in conflict with capitalist relations of production based on private ownership. The implication, obviously, was that the disproportionate growth of the state, or the public economy, would gradually marginalize and indeed crowd out private capital, up to a point where the capitalist organization of economy and society would become untenable.

That public provision would in a modern industrial economy have to increase faster than the private business it is to serve – by mobilizing legitimacy for it, producing ever more sophisticated collective goods in its support, and repairing the damages it inflicts on society and nature – and that this might ultimately bring about a change in the social organization away from capitalism is a theme that was intensively discussed in the first half of the twentieth century, and not just by the socialists. It was none less than Joseph Schumpeter who, as early as 1918, suggested that the „tax state“ might at some point no longer be able to extract from a private economy the increasing supply of resources it would need to perform its ever more extensive functions in an advanced economy. As the state would face growing resistance in a capitalist society of possessive individualists against being made to contribute to the common pool (while continuing to draw on it), a new relationship between the public and the private would have to be established that would no longer be capitalist but, in whatever way, more or less socialist (Schumpeter 1991 [1918]). Schumpeter did not anticipate this to happen immediately. In the 1970s, however, his “fiscal sociology” strongly reverberated with the experience at the end of the postwar growth period when the notion of an impending „fiscal crisis of the state“ (O’Connor 1970) became current, and by no means only on the Left (Bell 1976). The rapid increase in the state share in capitalist economies that began in the 1970s could be and indeed was considered as a process of de-commodification which, if it was not stopped, was moving toward a threshold where it might suffocate private business, for good or for bad, depending on where one stood. At this threshold, a decision would be due for either a change in the economic system (for example in the direction of Swedish-style socialism, with a state share of far beyond 50 percent at the time, with no end in sight), or a reversal of the process and a re-establishment of the primacy of the private over the public economy. Seen this way, the debt state was an attempt to postpone the moment of truth, by filling the gap between the costs of public provision for private profit and the limited revenues that a capitalist economy was prepared to supply to government. Of course, this could not last forever, and it ended when financial markets imperatively demanded fiscal consolidation.

Neoliberalism, and in particular the rise of the consolidation state that is part and parcel of its victory (Streeck 2015), would then have to be seen as an attempt to arrest the Wagnerian trend and indeed reverse it: cut the state share back to a minimum and make sure, by deep economic, political and institutional reform, that it remains there. By suspending the “capitalist contradiction” denoted by p > g, neoliberalism prevents the crowding out of capitalism and preserves the dynamism of capitalist accumulation. Under neoliberalism the state has fallen into the hands of its enemies – of governments, like those of Thatcher and Reagan, who consider the state a problem rather than a solution and undertake to save capitalism from rather than by the state. Piketty’s true-blue – or true-red? – proposal to restore sound public finances by means of higher taxes, especially on the rich, would clearly not suspend p > g but would allow it more time to work itself out. In the name of a return to sound public finance, it would undermine the hegemony of private capitalism over the public domain, and with it over democratic society, which would be squarely in opposition to the neoliberal project. This, I submit, may be the real reason why it is unlikely ever to be adopted.


Bell, Daniel, 1976: „The Public Household: On ‚Fiscal Sociology‘ and the Liberal Society.“ Ch. 6 (pp. 220-282) in: D. Bell, The Cultural Contradictions of Capitalism. New York: Basic Books.

Haffert, Lukas and Philip Mehrtens, 2013: From Austerity to Expansion? Consolidation, Budget Surpluses, and the Decline of Fiscal Capacity. MPIfG Discussion Paper 13/16. Max Planck Institute for the Study of Societies, Cologne.

Institute, McKinsey Global, 2015: Debt and (Not Much) Deleveraging. London, San Francisco, Shanghai: McKinsey & Company.

Merton, Robert K., 1968: The Matthew Effect in Science. Science. Vol. 159 No. 3810, 56-63.

O’Connor, James, 1970: The Fiscal Crisis of the State: Part I. Socialist Revolution. Vol. 1, No. 1, 13-54.

Pierson, Paul, 1998: The Deficit and the Politics of Domestic Reform. In: Weir, Margaret, ed., The Social Divide: Political Parties and the Future of Activist Government. Washington, D.C., New York: Brookings Institution Press and Russell Sage Foundation, 126-178.

Pierson, Paul, 2001: From Expansion to Austerity: The New Politics of Taxing and Spending. In: Levin, Martin A. et al., eds., Seeking the Center: Politics and Policymaking at the New Century. Washington D.C.: Georgetown University Press, 54-80.

Piketty, Thomas, 2014: Capital in the Twenty-First Century. Cambridge, Mass.: Harvard University Press.

Schumpeter, Joseph A., 1991 [1918]: The Crisis of the Tax State. In: Swedberg, Richard, ed., The Economics and Sociology of Capitalism. Princeton: Princeton University Press, 99-141.

Streeck, Wolfgang, 2014: Buying Time: The Delayed Crisis of Democratic Capitalism. London and New York: Verso Books.

Streeck, Wolfgang, 2015: The Rise of the European Consolidation State. MPIfG Discussion Paper 15/1. Max Planck Institute for the Study of Societies, Cologne.

Wagner, Adolph, 1892: Grundlegung der politischen Oekonomie. Dritte Auflage. Leipzig: C. F. Wintersche Verlagshandlung.

Wagner, Adolph, 1911: Staat in nationalökonomischer Hinsicht. In: Elster, Ludwig  et al., eds., Handwörterbuch der Staatswissenschaften. Jena: Fischer, 727-739.


[1] Contribution to a symposium in Labor History.

[2] After Matthew 25, 29: “For whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.”

[3] On the terms, “debt state“, “tax state“, and later, “consolidation state”, see Streeck (2014; 2015).

[4] A crisis that extends even to China. See McKinsey Global Institute (2015).

[5] On the following see Haffert and Mehrtens (2013).

[6] “Furthermore, the history of progressive nations – comparisons both across time and between countries and economies at different stages of development – allows us to derive a tendency or so-called ‘law’ of the development of state activities for civilized countries: the law of the increasing scale of ‘public’ or state activities among advancing civilized nations” (Wagner 1892, 883f.; see also 892-908) . For a slightly different version: Wagner (1911).