Thomas Piketty, author of Capital in the 21st Century, formulates a modern assessment of Western capitalism (because there is a Chinese version), arguing that it has entered a new phase of capital accumulation that creates measurable and unrivaled incomes and social inequality. In particular, he argues that in countries where capital returns increase faster than growth rates, the relative share of capital in national income also increases. Simply put, capitalists increase their wealth faster than the income from wage labor. This imbalance is incompatible with democracy, let alone social justice, and, according to Piketty, makes capitalism ultimately unsustainable.

Economic indicators support Piketty’s main position, especially in the aftermath of Lehman Brothers’ 2008 bankruptcy. This trend worsened with Trump’s rise to power and the removal of important auditing and regulation rules, as well as a reduction in the wealth tax. As a result, the rise in stock markets around the world and especially in America has increased the value of stock portfolios in general, resulting in a huge increase in the value of shares, especially for large shareholders. Those who did not participate in this “game” had no winnings. The conclusion is clear: in recent years, we have seen a steady increase in the concentration and uneven distribution of wealth, with ominous consequences and prospects for the future if this trend continues.

Credit Suisse’s annual surveys, which it publishes under the title of the Global Wealth Report, and the World Inequality Report (published by Harvard University) confirm this reality. In the most general terms, both billionaires and multimillionaires, especially in the last decade, have increased their wealth many times over compared to employees. For example, 1% of the world’s population owns 45.8% of the wealth. In contrast, approximately 2.9 billion people worldwide, or 55% of the adult population, have less than $10,000 in assets. Even more deafening statistics: according to the Bloomberg Billionaires Index, the 500 richest people in the world have become richer by 1.8 trillion. USD only in 2020. (These figures include China, the Gulf States, and Russia.)

It is particularly interesting to emphasize that this phenomenon is not limited to one category of economy (eg, developed, developing, or underdeveloped). The Credit Suisse report concludes that growing income inequality pervades most countries, both at the national level and between rich and poor countries.

The question then arises: are capitalist economies, and especially those of the West, heading towards an irreversible, unsustainable, dead-end crisis that will lead to the collapse of the system?

If Piketty highlights one face of Janus, there is another. The successive crises of the past three years, from the pandemic to the war in Ukraine, and from the energy crisis to soaring inflationary pressures, highlight the capacity of the system to realign itself and adopt policies to deal with successive crises. Its viability will also be assessed there. The evidence is as tangible as Piketty’s findings about growing inequality. For example, let’s mention:

The pandemic initially “froze” the global economy at the level of production, circulation and trade in products. This uncoordinated labor relations and income disappeared. But the system reacted immediately, activating massive income support programs, introducing new forms of work, applying new communication technologies. The workplace was reorganized, which reduced the cost and time of service provision.

In recent years, we have seen a steady increase in the concentration and uneven distribution of wealth, which could have dire consequences for the future if this trend continues.

The war in Ukraine and the energy crisis are leading to an unprecedented restructuring of the production, distribution and marketing of energy products with a clear geopolitical focus on a global scale. The transition to green renewable energy is accelerating and dependence on fossil fuels is gradually decreasing. New energy infrastructures and distribution systems are being developed that will make Western economies more energy secure and independent. The new energy “balance sheet” will drastically reduce both energy costs and the underlying causes of inflation.

No less important is the fact that Western economies, in order to protect themselves from successive crises, took off their “cap”. The policy of quantitative easing “violated” the elementary rules of monetary orthodoxy. Governments and central banks prioritize social peace and cohesion over fiscal discipline and the threat of inflation. In particular, Western governments have been spending between 10% and 20% of their national GDP to fund subsidy programs, either due to the pandemic or the energy crisis. Are there any negative effects? It is clear that they exist, like, for example, inflation, which finally showed itself. But the system boldly declares that excesses are needed for its survival, which it is ready to go without thinking.

Finally, a reference to idiosyncratic income redistribution. All pandemic and energy crisis support packages were funded by government borrowing in the private sector, from the surplus of the “haves”. The beneficiaries will never be asked to pay off these benefits, which are simply added to the public debt by increasing it. Therefore, we have a quasi-redistribution of income in the name of the stability of the system.

These excesses do not refute Piketty’s findings, but set the stage for a more forceful approach to income inequality. There is an almost universal trend towards increased taxation of great wealth and corporate profits, with concomitant tax breaks for low- and middle-income people. Rising inflation makes it necessary and necessary to adjust wages and pensions. All in all, steps in the right direction.

So the system is changing in order to survive. This is not only a distinguishing feature, but also the most defining feature of a market economy. Beyond all theory and analysis, Western capitalism has learned the basic principle of survival: “What doesn’t kill you makes you stronger.” It only takes the will and the tools to impose significant and lasting change. This Nietzschean saying, now part of popular wisdom, gives the seal of a system that has remained dominant for more than three centuries.

* Mr. Giorgos Stoumpos was Professor of Political Economy and Executive Director of the Bank of Greece.