It has long been known that spurts of rapid economic growth can increase inequality: China and India are the latest examples. But might slow growth and rising inequality - the two most salient characteristics of developed economies nowadays - also be connected?
That is the intriguing hypothesis of a recent study by French economist Thomas Piketty, of the Paris School of Economics. Piketty has done some of the most important work on inequality in recent years.
Taking advantage of the French bureaucracy's precision, Piketty was able to reconstruct the French national accounts over nearly two centuries. The economy from 1820 until World War I - a kind of second ancien regime - had two striking features: slow growth (about 1 percent a year) and an outsize share of inherited wealth, which accounted for about 20-25 percent of GDP.
The link between low growth and the importance of inheritance, Piketty argues, was not coincidental: With inherited wealth yielding 2-3 percent a year and new investment only 1 percent, social mobility was extremely limited and stratification was encouraged.
That began to change with World War I, when growth picked up - a trend that accelerated sharply after World War II. With annual economic growth running as high as 5 percent during the post-1945 boom, inherited wealth shrank to only 5 percent of France's GDP, ushering in a period of relative mobility and equality. Ominously, however, during the past two decades of slow growth, the share of inherited wealth has rebounded to about 12 percent of France's economy. This pattern should be a cause for concern, because annual GDP growth in the eurozone during the past decade has averaged about 1 percent. Similarly, average annual growth in the United States has slowed from around 4 percent between 1870 and 1973 to roughly 2 percent since then.
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