A French author and economist, Thomas Piketty, has released (in fact translated in English) his book “Capital in the Twenty-First Century“.

Aziz Morsly

This book has attracted the attention of all the media in the US as it demonstrates, using a quantitative approach, the disparity between the extra-rich and the rest of the society (in Europe and in the US). The main thesis in this well written work is that capital captures an ever greater share of the revenues at the expense of employees. And if nothing is done, this unequal distribution of wealth will continue to grow at the expense of growth, doomed to weakness. It sounds really Marxist right? But the numbers speak for themselves: in 2012, 1% of the richest Americans concentrated 22.5% of national income. Unobserved level in seventy years.

Piketty has thus become the new champion of the American left wing and has gained some strong support such as Paul Krugman who depicts his book as “the best economic book of the year” and Martin Wolf who considers this book as “extraordinary important”. The researches made by Piketty (and his colleagues in Oxford) are impressive, he managed to collect empirical data back to the last century using some methodology (namely the tax books from governments) that few economists thought about before, as the trend was more to focus on the disparity between middle class and people under the poverty level, than to focus exclusively on the famous 1% across time.

Even though there are some flaws in the book, that make it somehow inconsistent technically speaking (specifically the assumption that the rate of return of capital is higher than the growth of the economy seems to contradict the two other fundamental laws of capitalism – see Georges Cooper Blog), it still gives some great hints to understand where our economy is and where it goes.

“passive capital such as real estate is destructive for our future, as it only serves the purpose of being transmitted to the next generation. While the investment in technologies, companies and sustainable businesses are value added factors for the next generation as it will shape their world and give them jobs.”

In my opinion, outside of the usual left-right debate, and leaving aside the proposition of taxing heavily the capital, there are two fundamental things to learn from this book:

Capital is paying much more than income. As an entrepreneur I cannot be happier to hear this. This confirms the general trend we can all see: more and more people are trying to launch their own company. They might not be aware of it, but most of the entrepreneurs seem to believe that ‘it pays more to be your own boss‘.

We are recreating a patrimonial capitalism, and in my opinion this is wrong. Our future will be dominated by inherited wealth, which pushes us to question ourselves on the purpose of accumulating capital. On that specific point, I strongly believe that passive capital such as real estate is destructive for our future, as it only serves the purpose of being transmitted to the next generation. While the investment in technologies, companies and sustainable businesses are value added factors for the next generation as it will shape their world and give them jobs.

This book will be controversial for a long period as it genuinely reminds us that we haven’t built a more egalitarian world, and that we are reaching levels seen during the Gilded Age. But it is also an eye opener for MBA students still hesitating between a professional career and an entrepreneur life. Now that you know that capital pays more, what strategic choice seems to be more appropriate?