{"id":256,"date":"2016-09-16T17:10:24","date_gmt":"2016-09-16T17:10:24","guid":{"rendered":"http:\/\/chief-exec.com\/?p=256"},"modified":"2017-02-15T15:52:19","modified_gmt":"2017-02-15T15:52:19","slug":"born-in-unusual-times","status":"publish","type":"post","link":"https:\/\/chief-exec.com\/?p=256","title":{"rendered":"Born in unusual times"},"content":{"rendered":"

Capital in the 21st<\/sup> Century<\/em>\u00a0is a surprising international best-seller.\u00a0 A\u00a0highly detailed monograph from the renowned French economics professor,\u00a0Thomas Piketty, the 690 page book\u00a0seems an unlikely source for such global popularity.\u00a0 It is packed with data, illustrated by multiple graphs and interpreted through an interwoven narrative that provides a vision of the future that is more of a return to the past than a triumph of technical prowess.<\/p>\n

It should be recognised at the outset that controversies abound in historical economic data and its interpretation, particularly in estimations of wealth (for example, see Alvaredo et al.<\/a>). \u00a0Yet this does not undermine the power of the data. Its interpretation is impressive and the book is deserving of its celebrity status.<\/p>\n

In a series of articles for chief-exec.com we will unstitch some of the themes of Piketty\u2019s economic tapestry to help our readers understand what this could mean for the future of their business or even how they might lead their lives.<\/p>\n

We will use the original data made available on Thomas Piketty\u2019s website<\/a>\u00a0to link chief-exec.com readers to the Capital in the 21st<\/sup> Century<\/em> manuscript.<\/p>\n

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Born in Unusual Times<\/strong><\/p>\n

One\u2019s experiences through life have an inevitable influence on perceptions and how we understand the world in which we live.\u00a0 Implicit in this cognition is an assumption that this external world is normal \u2013 a standard reference.<\/p>\n

A startling observation exposed in Piketty\u2019s data is that people born in the 50 years between 1920 and 1970 were delivered into quite extraordinary times in which some fundamental economic behaviour differed from preceding centuries and millennia.<\/p>\n

\"fig-1-2-pik\"<\/p>\n

 <\/p>\n

This observation appears in Figure 1.2 in the variation of Value\/Income ratio for three European countries from 1870 to 2010.\u00a0 This graph begins with the value of all capital assets owned by a country being around seven times the annual income (approx. GDP) of that country.\u00a0 It is a trend that hardly changed for at least a century.\u00a0 Suddenly, in about 1915 there was a precipitous and unprecedented drop in this Value\/Income ratio.\u00a0 Only in about 1970 does this dip begin to reverse.<\/p>\n

\"fig-3-5-pik\"<\/p>\n

 <\/p>\n

The same pattern appears in Figure 3.5 showing the value of private and public capital – and the sum of these which is the national capital for Great Britain – over two centuries.\u00a0 This graph confirms that it was a massive destruction of value in national capital assets through the first half of the 20th<\/sup> century that was the cause of the huge economic upheaval. \u00a0The capital destruction of two world wars, together with an intervening Great Depression, caused the collapse of value of both private and public capital.<\/p>\n

\"fig-10-10-pik\"<\/p>\n

 <\/p>\n

Taxation also played a particular role in the unfolding story.\u00a0 While pre-tax rate of return on capital assets has remained relatively constant at about 4-5 per cent for millennia, Figure 10.10 shows an appreciable fall in post-tax return on capital to around 1 per cent.\u00a0 Uniquely at this time, tax on capital was used in global reconstruction following the wars of the 20th<\/sup> century, as well as to encourage a new found equality of citizens who had so recently been comrades in arms.\u00a0 It required the adoption of neo-liberal economic policy post-1980 for taxes on capital assets to begin to return to pre-conflict levels.\u00a0 The post-war reconstruction, together with the adoption of modern innovations that enhanced quality of life, led to a period of sustained high economic growth.<\/p>\n

For 50 or so years in the known history of mankind, the economic growth rate exceeded the rate of return of capital.\u00a0 Uniquely and briefly the earning power of labour superseded that of capital and one was able to perceive:-<\/p>\n