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Should money matter less?

Sandel:

Good. So, we've identified and already begun to discuss three aspects of equality: One is economic, a second is political, and a third is about social relations - about dignity, status, and respect. I'd like to come back to that third one shortly because it is in some ways the most challenging and maybe also the most intriguing. But I would like to go first to your proposals to deal with these three dimensions of inequality. The proposals begin with more progressive taxation, a fuller development of the welfare state, and inheritance taxes that can guarantee inheritance for all.

I'm sympathetic to all of these proposals. Some might say they amount to the kind of social democratic project that we already have, only a more robust version of it, aiming to realize it more fully. But then, reading your work, I notice a couple of potentially more radical proposals that might amount to a redefinition of the social democratic project beyond these more familiar proposals. One of them has to do with the transnational aspect, which is very interesting. But before we get to that, you write about a gradual decommodification of the economy and social life. And I'd like to ask you a question about decommodification in relation to redistribution, because the standard social democratic project is mainly about redistribution of income and wealth and therefore of political voice.

May I put to you another thought experiment, this one about redistribution and decommodification? Imagine two ways of dealing with the inequalities we've been discussing. One would be to try to redistribute income and wealth to give everyone more comparable purchasing power, but to leave the economy as commodified as it currently is. That's solution number one. Solution number two: to leave the distribution of income and wealth as it currently is, but to decommodify the economy and social life so that money matters less. So, for example, assume that the fundamental human goods could be decommodified - access to education, to healthcare, to housing, to political voice and influence and participation. Suppose we could decommodify social life to such an extent that the only real advantage of being wealthy would be the ability to buy things like yachts and caviar and cosmetic surgery or other luxuries. If we could choose one of those two projects, radical redistribution while leaving commodification in place, or leaving the current distribution in place, but with a decommodification of social life, which would you go for?

Piketty:

First, on the way to answering the question, let me say that social democracy was once a radical project. So, when the Swedish Social Democrats come to power first in the 1930s and then after World War II, and when the Labour Party comes to power in 1945, they bring to power, including as ministers, people who left school at age 11 or 12 or 13. They bring people who were coal workers. They arrive in countries which had an aristocratic tradition - not only Britain, but also Sweden. Until World War I, Sweden was a country where only the top 20% of the male population could vote, and within this top 20% you had between 1 and 100 votes, depending on your wealth. And in municipal elections there was no ceiling, so that you had several dozen municipalities where only one individual had more than 50% of the vote and was a perfectly legal dictator. This was Sweden until World War I. This is where we come from and I think it's important to realize that we've come a long way. This also shows that nothing is frozen, that the level of equality or inequality is not determined by permanent cultural or civilizational attributes, and that things can change through political mobilization.

I'll just pursue this example, because this will also bring me to decommodification: When the Social Democrats through the labor union movement took power in Sweden in the 1930s and 1940s, what they were able to prove, in effect, was that the state in itself is not pro-inequality or pro-equality. It depends on who controls the state and what you do with it. They were able to put the state capacity of Sweden to the service of a completely different project, where, instead of distributing voting rights depending on people's income and wealth, you make people pay a high progressive tax as a function of their income and wealth. And then you fund a system, including an education system, outside monetary logic and the profit logic.

This is what decommodification is all about and has been about historically. You take entire economic sectors out of the power of the profit motive. And the good news is not only that it worked, but that today these are very large economic sectors. Education plus health make almost 25% of the economy, much bigger than all manufacturing sectors together in developed countries. And they operate largely outside the profit logic, outside the shareholder-ownership model. And it works very well. In a country like the US where the health sector operates much more under the profit logic, you spend almost 20% of GDP on health alone, but with terrible outcomes as compared to European countries where systems are under the public logic. So, this decommodification worked historically. It was intimately related to redistribution and to the compression of the income and salary scale, and it happened through social democratic mobilization and trade union mobilization that were quite radical at the time.

Remember Hayek when he was writing about the "road to serfdom." He told his British and Swedish friends voting for Labour or the Social Democrats: "You are going to end up like the Soviet Union. You are going to end up with a dictatorship." Coming from someone who then supported Pinochet in the 1970s, being so afraid of the Swedish Social Democrats and the British Labour Party can seem funny today. But at the time these political movements were viewed as if the barbarians were going to take control of the state. In the end, they did quite well.

Now the problem is that social democracy, starting in the 1980s, and especially from 1990 or 2000 onward, after the fall of the Soviet Union, started to consider itself - or at least some of the leaders of social democratic parties did - as a sort of finished or frozen product. And this is a mistake, because the kind of transformation I imagine for the twenty-first century is of the same order of magnitude as the one which happened over the past 100 years. In my work I talk about participatory socialism and democratic socialism, a system which is quite different from the economic system we have today. But I would say it's not more different from the kind of social democratic society we have today than today's social democratic society is different from the capitalism of 100 years ago. The change would be of similar magnitude.

So, to the issue of decommodification, and I'm going to try to answer your question directly. Which one is most important? Is it the monetary compression of inequality or decommodification? If decommodification goes sufficiently far, it is clear that monetary inequality becomes almost irrelevant. So let's assume the economy is 99% decommodified. This will mean that 99% of goods and services, like education and health, are freely accessible. You only have 1% left commodified, and the monetary income corresponds to 1% of national income because, of course, national income should include - and does include to some extent in our accounting - public services that are available for free. So, if the monetary component of income is only 1% of national income, whether you have an income gap of 1 to 5 or 1 to 10 or 1 to 20 in this 1%, income is not very relevant. There will be actually no room for your expensive cosmetic surgery in this 1% because there will be very little purchasing power left. Now again, that being said, we should do the two at the same time because this is what has been done historically, and because the commodified share will be much larger than 1% for a long time ahead.

Let me stress this - that is, the historical rise of the social state. Some people prefer to say "welfare state." I prefer the notion of "social state" because it includes education, other public services, public infrastructure, and not just social security, strictly speaking. The rise of the social state historically has been made possible through the rise of labor unions, social security funds, social contributions to pay for these funds, but also through the rise of very progressive taxation and an enormous compression of the salary gap, the income gap, the wealth gap. We all know the basic story, but sometimes people forget how many countries saw the rise of the social state - not only Sweden, Germany, France, Britain, but also the US, which during many decades of the twentieth century had a top income tax rate up to 80%, 90%. From 1930 to 1980, the top income tax rate was 82% on average. Apparently, this did not destroy US capitalism. And, if anything, this was the time where the productivity of the US economy in terms of national income per labor hours was the highest in the world, with the largest gap with respect to other countries.

Why was this so? Because there was more widespread education in the US at the time, which was also visible to some extent in the twentieth century. In the middle of the twentieth century, the educational gap between the US and other countries was enormous. In the 1950s, 90% of...