Piketty's book argues that inequality results from political decisions, not market forces. Investment in public education is key to reducing inequality. The interviewee discusses how Piketty's conclusions apply to Ecuador and Latin America. Specifically, historically wealth was transferred out of Latin America through colonialism, hindering development. Modernizing education systems and redistributing wealth through progressive taxation can help build more equitable societies in Ecuador.

1. 1
“Ecuador will not be modernized if the rent seeking behavior is not eliminated”
Thomas Piketty has gone around the world with his book “The capital in the XXI century”. The
diagnosis that he makes about capitalism is controversial and surprising. A senior government
official discusses in this interview how this publication can be interpreted in the context of the
Citizen Revolution.
By Orlando Perez, director
What are the main conclusions obtained from Piketty’s book, about "The capital in the XXI
century"?
From my point of view, there are three conclusions: The first is that the inequalities of wealth
and income are the result of political decisions; they are not natural laws under a false
economic determinism. This conclusion ruins the utopian look of the right, which defends the
invisible hand of the market, which leads to inequality reduction. In Economics, often this is
referred to the Kuznets Curve "law". In fact, Piketty shows that this law is not met reviewing
the path of economic inequality throughout the twentieth century in some countries of the
capitalist center (like France, England and the USA), and showing that only during the period
1930-1975 there was a reduction to inequality due to the intervention of the States which
promoted the growth.
The second lesson is related to the historical evidence that emerges from his research: if we
analyze on long term basis, the world is experiencing higher levels of income inequality than a
century ago. Also, there we evidence high concentration of wealth accumulated mainly in the
richest 10% of the population (and hyper-concentrated in the richest 1%), and an upward
trend is evident. According to Piketty this concentration threatens democracy and strengthens
the establishment of lucrative societies where the weight of inheritance becomes more
important than labor and merit. But despite this concentration, this research also concludes
that the greatest innovation of the twentieth century is the rise of a patrimonial middle class.
The third lesson is that such inequalities can only be reversed endogenously with a "very
visible hand": whether through progressive taxes to private capital, but mostly through
investment in public education and the dissemination of knowledge.
Why Piketty speaks of "inequality" and not of "poverty"?
There is an important difference between the two terms; I'll explain it with an example. In
2007 I published an article, with Dr. Minteguiaga, in which it was shown why equity does not
produce equality; why policies focused to the poor were never going to produce social
convergence [1]. The major ideological victory of the right in contrast to the left has been the
installation in the social imaginary that for overcoming poverty it is necessary to do pro-poor
policies. As long as we believe that pro-poor policies are those that allow overcoming poverty,
we will never leave poverty. We must address the structural causes of poverty, and in this case
is inequality produced by exclusive systems of education, health, and the high concentration of
ownership that exists in our countries, as well as prejudices of race, gender, age, etc. Income
distribution produces a fragile equality, reason why it is necessary to distribute skills and
knowledge.

2. 2
Two years ago I published an article entitled "Good bye pobretología, welcome ricatología" [2]
where instead of calculating the incidence of poverty, I calculated the incidence of wealth; it
means analyze what percentage of the wealth of the richest population could be redistributed
to bring all the poor out of poverty. The results were revealing: in 2006, approximately 1.6% of
the wealth of the richest Ecuadorian could overcome poverty across the country. The book of
Piketty clearly examines the structural factors of inequality. This does not mean that poverty is
not important, but the structural basis of it is opulence. In fact, we could say that is a book that
studies the concentration of the 1% of the income and wealth of the rich countries. While the
poor have been studied into a "nano" scale, it is time now to look at the other side of
distribution, in order to understand the vicious structural circle of poverty reproduction.
According to Piketty, why is given the growth of inequality?
The main Piketty’s argument is based on what he calls the "force of fundamental divergence",
which is linked to the fact of a world characterized by a faster growth of the rate of return on
capital (r = profits increase, dividends, income and other capital utilities) that the rate of
economic growth (g = increase of income and population): r> g. The increase of inequality and
wealth concentration, are consequence of low growth and a high rate of return on capital.
In low growth societies, wealth from the past acquires a disproportionate importance, and
thus there is an increase in the capital return rate and that leads to hyper-patrimonial societies
to be based on heritance.
What is the cause of the disproportionate increase on the rate of return on capital?
Among other reasons, the globalization process which has increased the bargaining power of
capital over labor, with the decline in negotiation of labor organizations (unions, etc.). This
negotiation power of capital has allowed increasing the capital share in national income. At the
same time, there has emerged a new social stratum of hyper-executives who determine their
own salaries, without any ethical restriction.
Moreover, through the historical evidence, Piketty also rejects the Marxist prophecy which
says that in the long term the rate of return on capital decrease systematically, leading
inexorably to the death of capitalism. Marx argues that as capital accumulates in the form of
means of production, the mass of extracted surplus labor is reduced, and the rate of return on
capital is also reduced. This would result in the inability of the economic system to reabsorb
goods produced by falling wages and, eventually, the crisis of the reproduction of capitalism. In
this sense, we can say that the capitalist system is inherently unbalanced and naturally leads to
its own destruction.
But Piketty shows that, throughout the history (200 years), this is not true. Growth has an
autonomous increase due to population growth and productivity can be increased ad infinitum
if we consider, among other circumstances, that knowledge has no limits; it means that
inventiveness of man is unlimited and can boost growth.
In this sense, a fundamental contradiction occurs in modern societies: as a result of the
political desire for promoting the systematic increase in the rate of return of capital, over the
economic growth; there are generated extreme inequalities that undermine the values of
democracy.
In this context, two historical conclusions are worthy of mention: the moments of inequality
reduction have not been following intrinsic processes of market development (the invisible

3. 3
hand) but to specific policies and external shocks such as war. Moreover, Piketty shows that on
economic terms, nor the French Revolution neither the Industrial Revolution brought radical
changes in the structure of inequality and property; I mean there were not "revolutionary" as
you think.
Piketty talks about modernizing the social State, not dismantle it, what does this proposal
imply?
Piketty leave us some important messages. It is necessary to build a modern social State;
which implies building a fiscal State to ensure enough resources to finance public services and
equal income for all, especially in the field of education, health and pensions. The social State
is which ensures a modern redistribution based on logic of rights and the principle of equality
which allows access to fundamental goods.
This fiscal State is not against economic efficiency...
On the contrary, Piketty shows that in Europe the richest and most productive countries are
those with the highest taxes (50% and 60% of national income in Sweden and Denmark), and
the poorest and least developed countries are those with lower taxes (just over 30% of
national income in Bulgaria and Romania). Moreover, the modern State is bound to create
institutions for democratic deliberation on matters of public interest.
This modern Social State must have the capacity to respond to social changes that arise in
societies such as the necessary reforms in the social security system against the increase in life
expectancy or the growth of youth unemployment that occurs globally.
And in the field of higher education, that is your expertise area?
Piketty argues that a central challenge for the social State in the XXI century is to achieve true
equality of opportunity. The institutional design of access to higher education makes the
difference between building "meritocratic societies" or "hereditary oligarchy". But be careful
with those institutions who invent merit to justify their exclusionary actions. I was struck by
the explicit complaint lodged Piketty about the lack of transparency in the selection
procedures of Harvard. Piketty points out that the parents average income of Harvard students
is around of USD 450,000, which is approximately the average income of 2% of households in
the richest Americans, which seems hardly compatible with a selection based only on merit.
At the other extreme, Piketty gives the example of Europe, where tuition fees are low or zero.
It is no surprise that in early 2013, Bavaria and Lower Saxony decided to eliminate the
university tuition, which was $ 500 per semester, and they applied, as in Germany, policies of
absolutely free tuition. It is important to mention that according to the Shanghai Ranking of
the top 500 universities, 300 are European and 200 from the United States. Clearly, the
welfare state and the guarantee of rights are much more entrenched in Europe than in the
United States, where the access to social services is mostly done by the market. The question
to ask is what kind of society we want to build? In this context, talking about educational
change is talking about social transformation.
Taking into account the historical and geographical comparability, it could be noted that the
changes in the field of higher education we have made in Ecuador aim to build more
egalitarian societies; that promote economic productivity. The high public financing, which
currently reaches 2.12% of GDP (above average 1% of European GDP and 0.8% Latin American
GDP), the recovery of free higher education, the financial aid for poor people, the meritocratic
access; through a transparent test depending on the universities’ academic offerings,

4. 4
systematic process of evaluation and accreditation of universities, and the absolute respect for
the responsible autonomy of the higher education institutions are the formula that produces
not only more cohesive societies but economies with high levels of productivity. In this aspect
we agree with Piketty.
Piketty shows in his book that the tradeoff that orthodox economics assumed existed between
growth and inequality is false, we have shown to the world that it is possible to produce radical
changes in higher education systems, which combine quality with equality and quality with
democratization. It is not coincidence that since 2006 the college tuition of the 20% poorest
was eightfold and in the case of indigenous people it was tripled.
In addition, we have to mention the increase in enrollment: according to population and
housing censuses of 1982-1990, the net rate in higher education decreased 0.5%; and from
1990 to 2000 it increased 6.4%. In the last decade (2000 to 2010) that enrollment increased
12.4%.
Structurally we can say that Ecuadorian society is becoming more egalitarian (and therefore
more cohesive), more democratic and more productive. Of course there are other forces that
still point to the social and economic divergence, which mainly have to do with economic
forces pushing a strategy of primary-export development and, especially, many companies
prefer to import industrialize goods rather than locally produce those goods.
When we are discussing the social transformation to quality of the public education and
democratization of knowledge, we are proposing to go from a plutocracy society towards a
real democracy. We are proposing to move from a dependent society towards an autonomous
society. We are proposing to move from a hereditary and rent seeking oligarchy towards a
meritocratic society; which prioritizes job and not the capital.
You said that one of the most important issues in Piketty’s proposal, in order to reverse
inequality, is the role of education; could you please go deeper in this concept?
Indeed, the Government’s proposal is to base social transformation in: education, science,
technology and innovation. Piketty shows throughout his book that the most effective way to
increase salaries and to decrease the concentration of wealth is strongly invest in higher
education and in a quality vocational training.
In other words, the most effective mechanism for reducing inequality is investment in
education and dissemination of knowledge and skills. It is also clear that global economic
growth is based on increasing the productivity of labor. Certainly, investment in education is
the public policy which causes a greater impact in a country's growth, increases labor
productivity and reduces economic inequality.
Moreover, in a hopeful look, although the biophysical limits could slow growth, Piketty argues
that the inventiveness and rationality of human beings can create new mechanisms to produce
renewable energy and enable environmental sustainability. For this reason, the intangible
growth of knowledge can continue still at least a couple of additional centuries. There is no
reason to think that technological progress and inventiveness will stop in humanity.
What lessons can be drawn from Piketty’s book for Latin America’s situation?
Something important that Piketty mentions is related to accumulation of wealth history in
Europe and the US. There is much debate about the reasons why there was a lag between the

5. 5
US and Latin America. Piketty shows overwhelming historical evidence in these two
arguments:
The first refers to, that while Europe colonized part of Africa, Asia and Latin America; United
States focused on its own territory. The European colonizers had assets abroad, the workers in
these countries worked for the consumption of the colonizer; this situation continued even
after the independence process. There was a transfer of wealth, where Europe had guaranteed
a certain level of consumption and accumulation without working. This situation did not
happen in the United States. Moreover, Piketty shows that for a century, the United States had
salve to around the 20% of its population. This allowed the primitive accumulation of capital
through the most brutal labor exploitation. This wealth was at home. On the contrary, in our
region, the wealth was transferred to Europe.
These facts are a strong evidence of the divergence between the US and our region. We
cannot establish ourselves in truly sovereign countries if we don’t "possess" ourselves and if
we continue preserving exclusive societies that base their accumulation in forms of labor
exploitation, and prejudices of race, gender, religion, etc.
The other point that, in my criteria, is related to the dispute that is actually in the region is the
political choice of having meritocratic societies or rent seeking societies.
Latin America is the most unequal region in the world because of discriminatory educational
and health systems, lucrative economic systems and due to the racism. These aspects provoke
societies based on merits and not on democracy, with a logic in which wealth is not a right; on
the contrary it is inherited. This has created a plutocracy where families with lineage and
economic power have bargaining power in the process for national wealth distribution.
In the field of higher education, it is not a coincidence that countries which have privatized
university systems (such as Brazil, Chile) are the most unequal countries; while countries that
kept their public university systems (Uruguay, Cuba, Venezuela) are the least unequal
(attention, I'm not even saying anything about quality). The educational offer (enrollment) of
the first group of countries is mainly private. The opposite happens in the second group of
countries with public, free and massive systems.
In Ecuador, we have un-commodificated higher education and thus we have recovered the
public's sense of higher education in around 70% of universities. In the other 30% we still face
the challenge of democratizing access. Particular universities still are areas of social class
reproduction: 70% of students in the total enrollment in private universities come from
families that belong to the richest 20%. This has remained fairly constant over the past eight
years.
In my book: "Equally poor and unequally rich" (Quito, 2008) I showed that the sources of
income where there are more monetary resources concentrated are: financial capital, physical
capital and profits of capitalists / employers. It is no coincidence that 70-80% of savings is
concentrated in the richest 20%. I think that we will not produce more cohesive and inclusive
societies and we will not be able to modernize our society, while we don’t break the rentier
and inherited culture of our societies.
Could you tell us what happened in Ecuador in the period of government of the Citizen
Revolution in the relationship between capital / labor?
When our government started, as Secretary of Planning and Development I asked for statistics
related to the primary income distribution, which has not been considered at that time. Now it

6. 6
is being systematically developed in the Central Bank. This is not an accident. Hiding the capital
/ labor statistics means hide the reality of who has control in a society.
The Ecuadorian Central Bank statistics show that the workers participation in income between
2007 and 2013, has grown by 4.6% and the share of capital fell 9.4%. A simplistic look could
say that the growth of the share of income from labor is very low after eight years. However, if
we put the data in comparative perspective we realize that it is not like this. In the last century
in Europe, where the labor share is around 70%, if we take the lowest level of labor
participation and at the other end is the highest level, we can realize that the maximum
growth that occurred in the last 100 years has been 10%. From this perspective the
achievements of the Citizen Revolution are significant.
Something that is important to mention and Piketty omitted in its analysis, is what is called
"mixed income". Is mixed because it cannot differentiate the portion of that income that
corresponds to the work remuneration and what is the portion corresponding to assets
remuneration, which are involved in the production process. In Ecuador and the region there is
a large group of citizens who are both capitalists and workers at once; usually they are self-
employed, people working in the social economy, family business, etc. Their proportion is not
less. They represent about 38% of the economically active population, and their salary has
increased by 49% between 2006 and 2013. This group of people has been increasing its
participation in the primary distribution of income by 4.8%.
To summarize, we could say that from the fall in the capitalist participation 9.6% between
2006-2013 half is due to the increased participation of employees and the other half is due the
self- employed workers. State involvement has remained constant over the period analyzed.
However, the author’s specific proposal is taxing inheritance, make progressive taxation and
implement a global tax on wealth as a possible antidote to the growing concentration of
wealth and power, it is essential to formulate policies on property systems. I argue that it is
not only necessary redistribute wealth after this is generated; it is necessary to distribute at
the same time of the production process. This is only feasible if another system of
organization, production management, and obviously of property, is constructed.
Mixed systems can break the logic of capitalism and the asymmetrical relationship of power
between capitalist and worker. The cooperative, the associative, the social and solidarity
economy, the republican entrepreneurship (in which the worker is the capital owner) are
forms of organization seeking to break the capital domination logic. This is something missing
in Piketty researching. As long as this economy is not generating poverty;, these different
forms of management and productive organization not only contribute to find a less unequal
economy, their also democratize productive relations by breaking the power asymmetries.
From my point of view, it is essential to understand that the structural component for
changing the productive matrix is diversifying management, organization and ownership for
breaking the capital/labor relationship. We need more "Ramadas" more "Clementines" [3].
Unfortunately, I feel that there is a vision that leads to inaction, because these production
models are always inefficient. There are thousands of worldwide experiences that prove the
opposite. The author notes that the German model has been successful by taking into account
stakeholder models and no one could say that Germany is an inefficient economy model; at
least we could say that it is efficient -since capitalist parameters – as the British market model.
We have to sponsor productive systems that redistribute growing, but at the same time the
must grow distributing. This is a challenge we have in the process of change in the productive
matrix and which is established into our Constitution.

7. 7
Education produces freedom, it democratizes property and capital, it allows to break the
dependency/power relationship, and to achieve greater individual autonomy; it produces
greater democracy and greater freedom at a time.
What is the relationship of the theory you mentioned with the Government proposal of
building an "innovation ecosystem"?
Our innovation proposal seeks to encourage a new wealth by creating new added value linked
to the knowledge of human beings. At the same time, if we establish a system in which wealth
of entrepreneurship comes from the innovator and not just from the financier (as it happen in
the intellectual property systems) we are breaking with the usual form of alienation that
occurs between capital and work. This does not only allows to generate wealth and
employment positions, it also strikes at the heart of social injustice and prioritize work over
capital.
According to cognitive capitalism, the researcher, the innovator, is a wage-earner, and the
capitalist is the financier. That is why we proposed the new "Organic Code of Knowledge", in
order to get researcher / innovator will be co-owner of the enterprise. We have to change the
hierarchy of society values: the idea is more important than capital. There is greater social
value in the "Bank of Ideas" (a repository of creative projects) than any current commercial
bank [4]. That is why financial system regulation or the public bank of development should
play a key role in breaking the shortage funding supply for social innovation technology.
Retrieve the public sense of knowledge, democratizing access to science and technology is a
key element; it is necessary not only to increase productivity also, we must reduce the
concentration of income and wealth. In this point I agree with Piketty.
Could you point your criticisms to Piketty’s book?
I agree with Paul Krugman’s comment, who is Nobel laureate in economics, he says that
perhaps we are facing the most important book of the last decade. The investigation of two
centuries and interdisciplinary approach not only looks dogmatic points of view, it attacks to
the economic science. In fact I think it's the best economics textbook I've read in recent years,
precisely because it includes economic history.
The easy criticism that I believe, it would be done from some left sectors is that the book does
not raise an alternative to capitalism. The book is a reading of a neoclassical framework and
from capitalism itself. I do not agree with this point of view, we cannot ask a research
something that it does not attempt.
I will mention five comments to this investigation:
The first has to do with the lack of analysis about China. Undoubtedly the decisions that China
makes will affect the capital development in the coming decades. Piketty points out the
importance of the role played by population growth in overall economic growth. The decision
taken by Chinese Government to allow more than one child to couples who come from
families of one child, for sure, it will affect demographics and global growth. It is not a
justification to say that there is not information available. Remember the excellent book Adam
Smith in Beijing where Giovanni Arrighi makes an extraordinary analysis of productive and
economic relationships in the twenty-first century capitalism and the role China will play in
this. I think that the reflection misses about China in Piketty’s book is a big flaw that could even
distort the foresight that it takes place in the book. In this context, it suffers from a very
Western and Eurocentric gaze of capital.

8. 8
Secondly, it is a book that talks only about Macroeconomics, and not about the social
relationships of production. This leads to a David Harvey’s critique, which I share; he says that
Piketty make the mistake of treating capital as a physical stock and not as system of productive
and power relations.
It also draws attention that when it analyzes the composition of income and wealth in terms of
percentiles or deciles (divide the population of the poorest to the richest in 100 or 10 equal
parts sorted ascending) it omits the analysis of socio-economic classes. This fact does not allow
analyzing wealth in terms of the economically active population and the capital - labor
relationship. While it says that wealth is concentrated in the 1% richest, we might ask: what
percentage of that 1% is capitalism and what percentage is worker? When it grows the
accumulation of wealth of capitalists but the number of capitalists is the same, that society is
less unequal than a society with a smaller capitalist population (greater concentration of
wealth). In the Piketty’s analysis it would have been important to analyze the evolution of the
economically active population in the relationship between the numbers of workers versus the
number of capitalists. While it analyze historically the capital / labor relationship in dollars;,
there is no analysis between population of capitalists against working population, neither the
vice versa.
Fourthly, it is necessary to discuss in the capital of XXI century (perhaps not in the twentieth
and nineteenth century) the unit of analysis for contemplating the concentration of wealth. If
Facebook has produced the same wealth as the GDP of Peru, not necessarily the unit of
analysis to measure the concentration of wealth should be countries. It is debatable topic but
trans-nationals are acquiring much more importance than many nation-states in the XXI
century.
Finally, we may note that while Piketty makes a substantial contribution to the political
economy and to the GDP construction statistics and he mentions paradoxes of orthodox
economics as the fact that if a country privatized education and health it increases GDP (or
there is no recorded any remuneration over public capital); Piketty is not analyzing a
fundamental issue that each economist in the XXI century should point: accounting of
environmental assets (even from the same capitalist look). Sure there are no data to count it in
the period analyzed by Piketty. However, not to mention this issue is a theoretical-conceptual
absence from my view.
I am not referring here to his approach to put a tax on CO2 emissions but I am talking about
incorporating the natural heritage into the analysis of capital. To what extent the accumulation
of wealth and its concentration is based on the dilapidation of the existing natural wealth in
the world? An analysis of capital in the XXI century cannot ignore the analysis of natural
heritage and its relation with the modes of production and accumulation of wealth within an
economy (national or global).
While Piketty’s methodological input is interdisciplinary and it breaks the traditional
monolithic ways of doing research, its conceptual framework is orthodox and neoclassical. The
theme of environmental assets acquired global significance in the analysis of the international
division of labor. How much would change the global distribution of wealth if it gives value to
environmental heritage of each country? What would happen in the distribution of wealth
worldwide if it would be considered the payment of ecological debt?
In this framework, we should thrust for more investment and using renewable energy. It is
necessary to encourage the reduction of hydrocarbon consumption. About the COP21 which
will take place in Paris this year (Conference on Climate Change), the best strategy to put
biophysical limits to capital is giving way to the Ecuadorian proposal for compensation over

9. 9
Net Avoided Emissions (ENES). That policy allows walking to more environmentally sustainable
world. I believe it would be a structural change in the distribution of global wealth in favor of
the South.
Environmental issues must be worked alongside the recovery of public sense of right
knowledge. It is no coincidence that globally, the common good "knowledge" is privatized
through management of hyper-patented intellectual property in TRIPS, in FTAs and BITs; and
that the environmental heritage is still referred as a global public/common good of open
access. We should not only specify the new regional financial architecture but also the new
cognitive architecture of the South. It should dispute the WTO rules concerning the hyper-
patent property rights. This will be possible only in the framework of UNASUR – CELAC
integration. We have to walk in treating knowledge as a public and common good of humanity.
It is not only needed democratization of knowledge within the countries but also between
countries.
Problematize ecological issues when analyzing the capital of XXI century it is also considered a
glance from the global South. I feel that the 667 pages of the book we are discussing have a
center-periphery perspective (viewed from the center towards the "margins" of the world). It
clearly shows that the analytical absences of the Academy also put in evidence power
relations.
1 "¿Queremos vivir juntos? Entre la equidad y la igualdad”, published in Ecuador Debate No. 70., 2007
Available in http://repositorio.flacsoandes.edu.ec/bitstream/10469/3891/1/RFLACSO-ED70-06-
Minteguiaga.pdf
2 Published in Serrano, Alfredo coord. (2012), !A (re) distribuir! Ecuador para todos. Available in:
http://www.planificacion.gob.ec/wp-content/uploads/downloads/2012/08/%C2%A1A-Redistribuir-
Ecuador-para-Todos.pdf.
3 In reference to Ramada Hotel and Hacienda La Clementina: the hotel was seized by the Ecuadorian
State to the Isaias brothers in the case of bank holiday. In 2012 its administration was transferred to a
company formed by its employees. Moreover, the banana plantation was seized to Alvaro Noboa for tax
evasion, and in 2013 it was acquired by a cooperative of its workers, with a loan from the CFN.
4 For more information on the Bank of Ideas visit: http://senescyt.boostlatam.com/
Tags: The capital in the XXI century, Piketty