Economy, Business And Markets

Piketty’s Remedies “Won’t Work in Iran”

Piketty’s Remedies “Won’t Work in Iran”Piketty’s Remedies “Won’t Work in Iran”

Since releasing a joint paper with his colleague Emmanuel Saez back in 2001, French economist Thomas Piketty has been painting the picture of the modern economic climate and how it’s all leading to more inequality, especially with his 2013 book “Capital in the 21st Century”.

“His research has been called “Nobel Prize-worthy,” and it was met by a rapturous reception among laureates like Robert Solow, Joseph Stiglitz and Paul Krugman,” the New York Times wrote.

Piketty proposes a global system of progressive wealth taxes to help reduce inequality and avoid the vast majority of wealth coming under the control of a tiny minority.

However, his work has had critics, most recent of whom, is Iranian economist and journalist, Saeed Laylaz, who believes Piketty’s solutions and research to be focused on the Anglo-Saxon world and cannot be generalized to the whole world.

In an interview with Tejarat Farda magazine, Laylaz said: “What Thomas Piketty has said is not new, neither outlining the problem, nor the provided solution.”

  No Novelty

Laylaz believes Picketty’s solutions are not new and that they are similar to the ones practiced by US President Barack Obama before the “Capital in the 21st Century” was published. European countries have also taken similar steps, he added.

“Piketty’s plans are now being practiced by French President Francois Hollande’s government and have led to increasing capital flight from the European country.”

Meanwhile, the lingering question remains: What is the optimal level of taxation? As too little taxation will leave a large part of the society impoverished and can lead to civil unrest, too much taxation however, will dissuade investors and entrepreneurs from innovation and wealth creation.

“This equilibrium point is unique to every nation and differs from era to era,” said the economist.

There is an underlying point in Piketty’s book, which is that capitalism is constantly finding its faults.

Laylaz said the situation with capitalism is reminiscent of the saying about democracy which is widely attributed to former British Prime Minister Winston Churchill: “Democracy is the worst form of government, except for all the others.”

British political economist David Ricardo was the first to point out capitalism’s flaws. Thinkers like Thomas Robert Malthus, Karl Marx and John Maynard Keynes have also said capitalism does not work by itself. Each offered their own solutions.

“What Piketty proposes under redistribution of wealth is the worst of dictatorships, and will lead to more inequality,” Laylaz added.

  Not Iran’s Cup of Tea

In his opinion, Piketty’s doctrine is concerned with societies in a post-industrial state, and does not apply to a country like Iran which still prioritizes wealth creation over its distribution.

“Of course this is not to last forever. Between 2010 and 2014, inequality in Iran reached alarming levels and the government needs to address the issue immediately before it faces the repercussions.”

Iran has a different human capital makeup than that of the West, said Laylaz, adding that national taxation depends on the circumstances of each nation. As an example, the government reduced tax base to 25% from 65%, transforming Iran from a tax nightmare to a heaven overnight.  Tax revenues were not affected as the drop led to increased economic activity or as economists say wealth creation. “The same move will not have those effects today, say if we cut tax rate down to 12%.”

Furthermore, Laylaz called Piketty’s proposed taxation of oil “imperialistic” and questioned his judgment on saying that Middle Eastern nations are not worthy of this wealth.

“Moreover, Piketty proposes a global tax. Agreeing to it means accepting the supremacy of the United States, which is something we do not recognize.”

  Dissimilar Circumstances

Countries have varying degrees of political, social and economic stability and proposing a global 90% tax on all of them would mean considering countries equal in circumstances.

“If we level the same taxes on Afghanistan, Iran and the US, capital will fly from Afghanistan to Iran and then to the US. With such proposals, developing nations will be destroyed and will turn to fish ponds for the West.”

In the end, Laylaz touched on German economist Friedrich List’s argument on economic doctrine. List believed that protectionist policies were needed and developing nations should look to strengthen their position in the international arena before adopting policies put forth by rich nations.

“I saw clearly that free competition between two nations, which are highly civilized, can only be mutually beneficial in case both of them are in a nearly equal position of industrial development. And any nation which owing to misfortunes is behind others in industry, commerce, and navigation... must first of all strengthen her own individual powers, in order to enter into free competition with more advanced nations,” List wrote.