Scott Sumner  

What about Asia?

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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.


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COMMENTS (17 to date)
Brandon Berg writes:

How is Taiwan making up the difference? They're not actually running a 14% deficit, are they?

Scott Sumner writes:

Brandon, I suspect that 8.8% figure is wrong, perhaps someone else knows.

Roger Sweeny writes:

I am not sure exactly what you mean by "regalian functions." Googling, I find out that the word has the same root as "regal"--pertaining to a monarch. One website says it encompasses only three things: minting money, maintaining an army, and collecting taxes. Is that what you mean?

sourcreamus writes:

The Taiwan Percent of Taxes to GDP is 16.8% for 2012 according to the CIA factbook. The 8.8% figure looks to be per capita tax burden.

hanmeng writes:

Reminds me of a friend's dismissal of some statement of mine about the Chinese: "Well, Asians are different".

Scott Sumner writes:

Roger, You'd have to ask Piketty what he meant, I assumed it was the minimal functions of government, like keeping order.

Sourcreamus, That sounds much more plausible.

Hanmeng, Of course they are different, just as Swedes are different.

But there still may be useful policy lessons. After all, the Japanese are very different from Europeans, but they successfully borrowed many European ideas when developing their economy. So I think we agree.

Since Piketty wrote his book in French, and regal means something like 'treat' or 'pleasant surprise', I'd say something got lost in translation.

ThomasH writes:

Thanks to some things approaching a congestion tax and good public transport, Singapore does not feel "congested." If it were not for the democracy deficit, I'd say the quality of life there is superior to France.

mbka writes:

Scott,


This post isn't really about France.
Still it reminds me of French politician Raymond Barre's quip: "The French social model is not social, since it leads to high unemployment, and it is not a model, since no one wants to emulate it".
The vast majority of those opinions are left wing, and in my view most are wrong.[...] Instead the book often reads like a simplistic big government (France, Sweden) good, and small government (the US) bad caricature.
I salute you to have read the thing. When I read about the general gist of it I thought, well, here goes the old left again, rebranded and updated. I'd have a hard time reading it, all the supporting arguments sound so familiar, although the main thesis about wealth is a somewhat novel focus.

Brian writes:

WRT Taiwan's tax revenues as a percentage of GDP, this news article suggests that it is "less than 13 percent".

Wesker writes:

I doubt he hasn't fully thought through his ideas if he uses the phrase "wealthy countries" as if all entities perform exactly the same way. I suspect he ignores the Asian models because they may be more than he wants to deal with when he makes his arguments.

Wealth inequality can be an exciting discussion, and its one I'd like to have while including the Asian tigers, not just big and small governments

I'd also like to know what regalian means. My limited french vocabulary and google aren't helping.

Roger D writes:

The French Wikipedia article on Régalien describes the historical background of the powers of the monarch. Interestingly, it includes a section on Adam Smith and his small government views. Since the word is both descriptive and normative, I usually translate it "core sovereign (functions)".

As for Piketty's disregard for Asia, that Parisian attitude was mocked by Montesquieu three centuries ago - "Persian? How can anybody be Persian?"

[broken html in link fixed--Econlib Ed.]

Steve Sailer writes:

I pointed out in my review that Piketty almost completely ignores East Asia, most notably South Korea. A much wittier and perceptive heterodox economist that Piketty is the South Korean Ha-Joon Chang:

http://takimag.com/article/a_blind_spot_full_of_billionaires_steve_sailer/print#axzz36aLnYTmT

Roger McKinney writes:

Piketty seems to be blind to most of the field of economics, especially economic history, in spite of his degree. His trick is to try to make people think nothing exists outside of the facts in his book. Gullible people will swallow it.

Roger McKinney writes:

Yeah Asians and Swedes are different. Check out Culture Matters: How Values Shape Human Progress for some evidence of shocking differences.

Todd Kreider writes:

I got much less of a slide for France's GDP/capita with respect to the U.S. Using Penn Tables 7.1, which goes up to 2010:

1970 75%
1980 84%
1990 80%
2000 75%
2010 75%

That is a minor drop compared to the U.S. since 1990 and of course the French have more leisure time so that GDP/capita/hour is closer to parity. Use median instead of the mean and the median French has a similar standard of living with that of the U.S. with slant toward leisure.

I also see no reason to assume that the strict GDP/capita ratio will widen in coming years.

Unlearningecon writes:

% of spending may not be the best indicator of government involvement in the economy. All of these countries have state-funded education, healthcare, social insurance etcetera, which is surely what Piketty means by the 'standard' that is rarely questioned in contemporary political debate. Variations in the specifics of the policies, labour costs and so forth may explain the variation in expenditure.

Specifically on Singapore & HK: first, I'd question generalising port-based city-states like HK and Singapore to bigger countries which have less concentrated private sector activity and lower infrastructure costs (both of which decrease government spending as a % of GDP). Furthermore, in Singapore there is a heavy presence of GSEs and the government owns (iirc) a majority of the land. In HK the government essentially owns all of the land. HK's government spending is also especially lower because they don't have to pay for a military.

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.

This is a pretty simple conflation of correlation/causation, and one that Piketty deals with in more detail than you're letting on. His basic point is one that crosses ideological lines: Europe had faster growth immediately after the war because it had experienced greater destruction of capital and was playing catch up, and changes in policy (either way) do not explain the changes in growth:

In fact, neither the economic liberalization that began around 1980 nor the state interventionism that began in 1945 deserves such praise or blame. France, Germany, and Japan would very likely have caught up with Britain and the United States following their collapse of 1914–1945 regardless of what policies they had adopted (I say this with only slight exaggeration). The most one can say is that state intervention did no harm. Similarly, once these countries had attained the global technological frontier, it is hardly surprising that they ceased to grow more rapidly than Britain and the United States or that growth rates in all of these wealthy countries more or less equalized, as Figure 2.3 shows (I will come back to this). Broadly speaking, the US and British policies of economic liberalization appear to have had little effect on this simple reality, since they neither increased growth nor decreased it.


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