In part one of a two-part interview at Mada Masr’s office in Cairo, the author of the bestselling book Capital in the Twenty-First Century (Belknap Press, 2014) talks about inequality in the Middle East and impediments to conducting research in Egypt. You can read the second part of the interview here.
Mada Masr: Should we introduce you as an economist? A political economist?
Thomas Piketty: I like to view my work more as a social scientist. If I had to choose what discipline to be in, I would prefer to be a historian, but in the end we waste a lot of time discussing the boundaries between economics, history, sociology and political science, and talking about the methods.
I think my book is more a book of history than a book of economy. There has been a tradition – notably in France – of social and economic historians who were not shy of using data series, models and reconstructing wage series in France since the 18th or 19th century. Many of them are connected to the École des Hautes Études en Sciences Sociales, where I studied in Paris. I want to contribute to a renewed approach to this tradition.
MM: We know that you have some relation with Egypt and that you know some Arabic, as well. Can you tell our readers about your connection with Egypt?
TP: I was born in 1971, so I became an adult in 1989, with the fall of the Berlin Wall. That was the first founding moment for my generation. The second one was the Iraq war, where France, the US and other countries sent troops to give power back to Kuwait in 1990–1991. To me, it was a very moving time because it was the beginning of a new era in the Middle East and in the world. It is also striking because we live at a time where, after the fall of the Berlin wall, there is a big belief in the market and that governments are weak and should be weak. And then, suddenly, you see the government sending millions of troops thousands of kilometers away to return the oil to Kuwait. I’m not sure it was a good allocation of resources, but in any case it proves that, if the government wants, it has the power to do something. So it was a founding moment for me.
Apart from that, I always had cultural and historical interests in the Arab world and Islam. When I was a student, at the age of 18 or 19, I tried to learn Arabic when I was at the École Normale Supérieure, in 1989 and 1990. And then I went to Cairo in the summer 1991 for two months – so I was just twenty years old – to learn Arabic and visit the country. To be honest, it was more cultural curiosity than a real linguistic interest, as the level I reached was really very low. But that was certainly very interesting.
Then, I returned 20 years later, in 2011, at the age of 40, with my children. We wanted to see the country from inside, after the revolution. We spent an entire month there. Coming back to Egypt today is very emotional as it is a mixture of the beauty of the Nile Valley, the beauty of the mosques in Cairo and at the same time this very fast growing population of 80, 90, 100 million; a lot of poverty; and huge inequalities within Egypt and with the Gulf countries just a few kilometers away.
I put the number in my book at some point: the total education budget in Egypt is one hundred times less than the oil revenue going to the UAE.* It’s just the worst you can think of. This is a form of extreme inequality. In many ways, without the military protection of the West, it seems there would have been some redistribution in one way or another. In the case of Iraq and Kuwait it’s perfectly clear, but more generally the fact is that oil resources are so concentrated in small territories with more or less arbitrary boundaries and little population.
All of this comes from history so it’s very difficult to change now. But inequality is present in the Middle East more strongly than anywhere else in the world. And Western countries – France in particular – feel obliged to give lessons on democracy and social justice and all they do is make deals with oil kingdoms to get a little bit of the pie for their football club and to take a little bit of Egyptian money to sell guns.
It is a terrible inequality regime that is, to a large extent, supported by the Western governments and, in particular, France. So it is very emotional to come to Egypt and try to understand what’s going on.
MM: You have done some research trying to look at tax data and income inequality in Egypt. What has your experience been with that, compared to your experiences in other low and middle-income countries?
TP: The bottom line is that there is too little transparency on tax data. We should fight for more transparency. In the Middle East in general, even if we know too little about inequalities, we know enough to conclude that the Middle East as a region is the most unequal region on the planet.
Within Egypt or other Middle Eastern countries, there is no access to income tax data so it is very difficult to compare the levels of inequality with other countries. If you only use household surveys, based on self-reported information, we know you vastly underestimate the true level of inequality, and this is the data computed by the officials that is used by international organizations. There is an income tax in Egypt but there are no statistics. It’s not possible to know even the simplest information, like the number of taxpayers per income bracket.
This would also be a way to fight corruption, build more trust with the administration and put pressure on the government to improve the tax system. My experience with other countries, including lower middle income countries, is that, even in countries where the tax system isn’t working well, getting access to this data improved our knowledge of income distribution. Even if you still have a lower bound estimate of the true level of upper income, that lower bound is always a lot higher than the official results. It’s not perfect but it’s an improvement.
In the Middle East, there is no country where we could access tax data, except Lebanon, where we had limited access to data. But I would very much like to work more on this kind of data in Egypt, if we had access to it.
MM: You talked about the lack of tax data and the high inequality levels in Egypt. You wrote a paper on Egypt, trying to fix household survey data by applying the Pareto distribution. Even after you did that, Egypt still appeared to be relatively equal in terms of income. Income for the top 10 percent was around 30-36 percent of total income, which is on par with Western Europe. How do you explain that?
TP: Let me make it clear: I don’t believe in this estimate. The point we wanted to make in our paper – and maybe we weren’t clear enough – is that, even if we want to believe the relatively low figure for income inequality within Egypt, or other lower middle income countries in the Middle East, given the large inequalities between countries, if we look at the Middle East as a whole, the level of inequality is the highest in the world. Even if we underestimate inequalities within the countries, the figures will still be higher than countries like Brazil.
I think it is important when you look at inequalities not to only look at nation-states. You can’t just take Egypt or France as givens. I think the perceptions around inequalities are sometimes more global perceptions or at least regional perceptions. People on social media and the internet see other people. They also can see on the streets of Cairo and the fancy hotels of Cairo with people coming from oil countries. Their perception of inequalities is maybe more at the regional level.
If you take the Middle East as a whole, which I define as region from Egypt to Iran, including Syria, Iraq and Saudi Arabia, we have 280 million people. It’s comparable in population size to Western Europe, the US or Brazil. Then, we find the top ten percent in terms of individual income – whether they are in Egypt or other countries – get at least 60 percent of the whole income, which is more than everywhere else, including more than Brazil and more than South Africa.
South Africa was an apartheid country with 10 percent of whites and 90 percent of blacks. So when you look at the top 10 percent in South Africa, it’s a very particular situation. The fact that inequalities are higher in the Middle East than in South Africa tells you the power of the arbitrary frontier in the distribution of power resources is generating enormous levels of inequality. So even if we take the lower-bound estimate within countries, we have this strong conclusion about Middle East inequality.
Now regarding inequality within Egypt: Do I believe in this number? Frankly, no. The Pareto adjustment that we made is a minimal adjustment. If we have the tax data, we will see and maybe we’ll get to a different number. I am not saying Egypt will get to the inequality level of South Africa, but I think it will be between Europe and South Africa. We’ll see. I hope one day we can get better data.
MM: You talk about the level of inequality within Egypt and within the Middle East, but couldn’t one make an argument that as long as everyone is getting richer, even if that economic process widens the gap between the rich and the poor, then what is really the problem with inequality?
TP: Well the problem is that, in Egypt, the population is growing. You now have 90 million inhabitants and lots of young people who are not getting richer. They don’t have access to the kind of education and the kind of jobs you would like them to access. If you take total educational investment in the young population of this huge country that is Egypt, it is a couple of billion dollars a year, whereas oil countries with small populations make US$100 billion to US$200 billion per year in oil revenues. We could do much better.
Of course, if the region was one country with a population size smaller then the United States or comparable to Brazil, there would be one government to invest in education, and the opportunity for the youth of Egypt, or other countries of the region, would be much, much better. Even if you have growth, you could still do much better, but as a matter of fact you don’t really have growth.
It is complicated. The process of state formation, building state legitimacy and state capabilities does not depend only on social equality but, certainly, it depends on equality to a certain extent. It’s not as if the region is doing well and growing and everything is fine.
In China, where you have 10 percent growth per year, people don’t care too much about inequality. Although, even in China, even when you have growth of 10 percent per year, you still want inequality to be useful. I start my book with this quotation from Article 1 of the Declaration of the Rights of Man and of the Citizen of 1789, which says that social distinction must be based on common utility. In other words, you can have inequality and can have social distinction but there must be common interest. As long as they promote growth and development in China, people don’t want to return to the egalitarian Mao period. With the level of inequalities we have today in China, with the concentration of wealth in the hands of a few people, people will be more and more upset. Even with a lot of growth you need to make sure inequality is just what it should be to get growth, not more than necessary. Now, when you have no growth, like in the Middle East, you can see the problem.
This article has been edited for length and clarity.
* In Capital in the Twenty-First Century, Piketty calculates that Egypt’s government expenditure on education amounts to $5 billion per year, adjusted for purchasing power parity, based on World Bank estimates that the country spends 1-2 percent of its GDP on education. However, United Nations figures show that, since the 1970s, Egypt’s spending on education has ranged from 3.76 to 5.6 percent of GDP, while the current Constitution mandates a minimum of 4 percent.