What about Asia?
By Scott Sumner
Thomas Piketty’s book is focused on wealth inequality, but he offers opinions on a wide variety of topics. The vast majority of those opinions are left wing, and in my view most are wrong. Here’s one example (p. 481):
Modern redistribution, as exemplified by the social states instructed by the wealthy countries in the 20th century, is based on a set of fundamental social rights: to education, health, and retirement. . . . No major movement or important political force seriously envisions a return to a world in which only 10 or 20 percent of national income would go to taxes and government would be pared down to its regalian functions.
In context, it’s not quite clear whether he is talking about “Europe” or “wealthy countries”, both of which are mentioned earlier in the paragraph. If Europe then he is arguably correct, but the clear implication is that this claim applies to all wealthy countries. One notable aspect of Piketty’s analysis is that he completely ignores the so-called “4 tigers,” which have been some of the most successful developed economies in recent years. Here is some data on taxes and government spending as a share of GDP:
Country ** Taxes ** Government
France *** 44.2% **** 56.1%
Hong Kong 14.2% **** 18.5%
Singapore * 13.8% **** 17.1%
Taiwan **** 8.8% **** 22.6%
South Korea 25.9% **** 30.2%
Three of those four tigers seem to have pared down to “regalian” levels (although they do still somehow manage to have universal health care.) Three of these countries are also considerably richer than France—by an odd coincidence the same three.
Two of the 4 have average life expectancies that are higher than France, while two are slightly lower. All four have higher scores on international education rankings (which I regard as misleading.)
I am NOT trying to argue that the quality of life in the 4 tigers is higher than in France. Indeed I believe the opposite is true. These countries labor under two disadvantages; they are newly rich, and extremely densely populated (especially when accounting for mountainous terrain.) These factors reduce housing quality and lead to congestion. They would have suffered from essentially the same problems with the French economic model.
It’s also worth noting that for several decades France’s per capita GDP has been falling further and further behind that of the US. It’s down to 67.4% of US levels, PPP, in 2013. More importantly, it’s likely to fall still further in the next few years. Piketty repeatedly claims that all the major developed countries have roughly equal per capita incomes. I suppose that’s true if you think that African-American incomes are roughly equal, on average, to the incomes of all Americans.
Meanwhile, as France falls further behind the US, the 4 tiger economies keep growing faster than the US. This cannot have anything to do with supply-side factors, because Piketty tells us that supply-side policies don’t work. We are told that Thatcher’s reforms did not help Britain grow faster, even though before 1980 Britain was growing slower than France and Germany, and then in the 25 years after 1980 it grew faster.
Of course there is much more to life that PPP GDP, and I’ve noticed that France has an enviable standard of living. This post isn’t really about France. Rather it’s about the fact that Piketty doesn’t seem to even consider alternative economic models. The impression you get reading the book is not that he’s thought about the Taiwanese or Korean or Singaporean models and rejected them, but rather that he’s never seriously considered them. Instead the book often reads like a simplistic big government (France, Sweden) good, and small government (the US) bad caricature. There are other models that deserve serious consideration. Even regalian models.
BTW, Wikipedia gives a G/GDP ratio of 41.6% for the US vs. 41.9% in Canada. Other sources will give you different figures.
The quotation at the top mentioned “twentieth century” economic models. Perhaps the 4 tiger economies tell us something about the 21st century model.
PS. Yes, I understand that Singapore and Taiwan are nothing like the US, but neither are France and Sweden, two countries that Piketty discusses quite a bit.
PPS. I won’t be able to respond to as many comments over the next 2 weeks.