Piketty’s Patrimonial Capitalism and the Racial Wealth Gap

Although I’ve been following the broad discussion of Piketty’s Capital in the 21st Century quite closely, I haven’t really decided where I stand on the book yet. I’m reading it with an interdisciplinary group of social science graduate students, and thus far the economists have had a lot of interesting reactions on technical grounds, while the rest of us are excited about the project but a bit disappointed that Piketty spends a lot more time praising other social sciences than actually engaging with our work.[1] I’m not sure we’ve yet come to any consensus on what it all means.

While pondering the book, and the ongoing discussion it has generated, I had a random thought that I don’t think I’ve seen elsewhere and so I thought I’d try it out on you nice folks here. One of Piketty’s central arguments is that we are seeing the return of the “patrimonial capitalism” that dominated for most of the last 200 years. Patrimonial capitalism here means that the economic elite mostly attain their fortunes through inheritance rather than entrepreneurship or innovation. When the returns to capital (r) exceed the real growth rate (g), the rich get richer faster than they tend to spend their money, and faster than new fortunes can be created. These inherited fortunes produce a class of rentiers who dominate politics with all sorts of (mostly implied, but very plausible) negative consequences.

The US looks, at first glance, like a bit of an outlier because the incomes of very high earners (the top 1%, .1%, .01%…) contain a relatively high share of labor income, and not just returns to capital. These incomes are traceable largely to the explosion of executive pay and the ridiculous incomes of top finance employees at hedge funds, investment banks, and the like. This income counts as labor income, although there are good reasons to believe that politics plays as much of a role as, say, marginal productivity in determining the wages of executives and the compensation of hedge fund guys.[2] But, even so, Piketty argues that the US is seeing the same trend towards inheritors having the largest fortunes. As many have pointed out, of the 10 richest Americans, four are Wal-Mart heirs, and two are the Koch brothers, all of whom inherited their money. And when the current crop of top finance employees and CEOs die, their children will join the Kochs and Waltons as next generation’s economic elites.

What interest me about this story, at least for the purpose of this post, is what it means for the dynamics of racial inequality. As far as I can tell, no one has picked up on this angle, perhaps because I’m missing something that complicates the analysis or perhaps because it’s too obvious to be worth highlighting. In general, Piketty and his admirers tend to blur traditional distinctions and focus on the biggest economic cleavages, e.g. “We are the 99%”. And there’s real value to that. But let’s stop for a moment and ask what happens if the US turns into society increasingly dominated by inherited wealth. Families who managed to make their fortunes in the relatively equal era of the 1940s-1970s, or in the increasingly unequal era of the last 30 years, will get to lock in those gains. Families who end this period with little wealth will have few opportunities to make new fortunes (a consequence of the low growth rate, implying little turnover, little economic disruption, etc.).[3]

So which families have the wealth? Well, white families. Not all white families of course, but the racial wealth gap is one of the staggering facts of contemporary inequality. Worse even than racial income gaps, racial wealth gaps have grown tremendously in the past few decades. Here’s a summary of recent research on the topic[4]:

A recent Urban Institute report finds that the racial wealth gap — measured as the difference in wealth accumulated by white Americans and black and Latino Americans — is the largest it has ever been since the Federal Reserve started tracking it. In 1983, for every dollar held by the average black or Latino family, the average white family had five. In the aftermath of the financial meltdown and the Great Recession that figure today has increased to six dollars. The figures for the median post-recession family — a measure less skewed by America’s handful of superrich — are even further apart: in 2010, for every dollar held by the median black or Latino family, the median white family had eight.

This coverage emphasizes the gaps for typical families. My guess is that the gaps at the right tail are even more extreme. Similarly, we know that CEOs of large companies are disproportionately white, with just six of the Fortune 500 companies having a Black CEO, and just eight are Latino – and none of those minority CEOs are among the highest paid.[5] I’m not finding good numbers on employment in investment banking, hedge funds, and the like by race, but those occupations also skew heavily white (if you know of a good source for racial wealth gaps at the very top, or for employment in haute finance by race, please post a link in the comments!).

Put together Piketty’s story on the return of inherited wealth with the current massive racial wealth gaps in the US, and the white dominance of “supermanager” positions that are currently producing new fortunes to be inherited, and we get a recipe for continued economic dominance by (a small group of) white families. Black and latino families didn’t have time to catch up in the era when inequality was decreasing (the mid-20th century), nor in the era when new fortunes could be made (the past few decades), and thus in Piketty’s grim, dystopic future, not only will elites dominate the economic and political sphere, but those elites will be almost entirely white.[6]

I suppose it’s not especially surprising that the future will continue to be dominated by rich white people, but it still seems worth talking about as one of the many consequences of the return of patrimonial capitalism.

[1] Michele Lamont gets a nice shout-out, though!

[2] At a minimum, politics explains why such pay is now taxed so little compared to 30 or 40 years ago. And reducing taxes on high earners increases their wealth in the following years, and thus increases the amount of labor income that turns into wealth and inherited fortunes. See also the elimination of the estate tax.

[3] This is, I think, one of the most questionable predictions. Even if we see low measured growth rates, it’s hard to imagine there being the same kind of stagnation associated with next 50 years that was associated with the pre-19th century economy, or even the relatively slow pace of change of the 1800s. That said, the wealthy may find plenty of ways to weather the storms of economic change in a world of massive disruptions but little overall growth, while labor, as usual, is left to bear risks on its own.

[4] Note, I’ve not studied wealth statistics or wealth gaps nearly as much as income. I’d love suggestions for the best contemporary research on wealth data, apart of course from Piketty and co-author’s work (which cannot see racial disparities due to the limitations of the sources, I believe).

[5] These CEOs are almost all men as well, but that matters a bit less for the analysis of inheritance (though not for other important questions around inequality).

[6] Not to mention the 17th and 18th centuries, but that’s before the modern era of economic growth and etc. where Piketty’s analysis gets interesting.



  1. Carsten B

     /  April 18, 2014

    In terms of wealth, you are probably right. But in the USA, the shifting demographics will mean that the people in (political) power will be largely supported by non-whites and depend on non-whites. That is going to create interesting tensions, and I wonder if you have any thoughts on that..
    Furthermore, about any top 10 list on richest people/families. It seems like that those who have not inherited their wealth, are also more likely to give big chunks of it away (Gates, Buffett), meaning that such people don’t maintain their top 10 positions.

  2. Zach Griffen

     /  April 18, 2014

    Dan, John R. Hall actually presented a paper about (Weber’s concept of) patrimonialism and modern capitalism at UCLA last month. I believe this is his next book project- you might want to get in touch with him about it.

  3. Entrepreneurial capitalism benefited certain cultures more than others. Other than through cronyist relations government largess will not increase individual wealth meaningfully. Furthermore, excessive wealth tax and estate taxes- contrary to intent- encourage conspicuous consumption rather than wealth building. Mobility is important, but so is the culture of the wealthy. It is not so much the amount of wealth and disparity, but how the wealth is utilized. It is better to allow unequal wealth creation that increases our capital stock than to discourage it altogether which seems to be Piketty’s objective more than redistribution. Wealth is more productive in private hands, but it is better to have it either public or private hands than to discourage its creation altogether.

  4. Jim Livingstone’s historical analysis in Against Thrift shows that private capital has not had a significant impact on economic growth for the better part of a century. And as we see from the frustrated political flailings of the Koch brothers and Sheldon Adelson, even virtually unlimited infusions of money into targeted political action has very little linear impact on outcomes. So I wonder how much it makes sense to talk about these folks as if they are ‘dominant’ or even particularly significant in any way, which then comes back to Carsten’s point about political and economic demographics. If big fortunes aren’t where the action is, I don’t see why we would need to worry too much about their paleo-racial composition?

    Sorry, I may have had a better point than that when I started writing, but the three students who came in to talk about their papers since then pretty much blew it out of my head.

  5. Christina R. Billeci

     /  May 14, 2014

    Since I am neither a grad student, nor an economist, I am plodding thru the book. So far this is what I think he is saying: Slow growth with increased capital accumulation over labor contributes to inequality only if there isn’t reinvestment back into the economy, which is then shared and distributed into a fairer capital/labor split. Corporations are accumulating capital outside of the United States, and even then, profits are very high.
    With the demographic growth rate of Western countries so low— .0 to.1, there is no demand, very little growth, and increased disparities. I also see a very poor white sub-culture where I live, very low expectations, and an unending cycle of poverty, rather than the suggestion that it is a racial split with the “whites” on top. No. It is the very rich and then everyone else. Or put in another way–the division is the technocrats on top and those who serve them on the bottom.

    • Thanks for your comment! My point, which might have been a bit poorly worded, was that the superrich/ 1% / patrimonial elite are going to be almost entirely white, not that poverty is going to be exclusively black. Poverty will presumably still disproportionately concentrated in minority communities, but there will be plenty of poor white people (just as there are now). What there won’t be is a lot of black (or latino) billionaires.

      • Christina R. Billeci

         /  May 15, 2014

        I found his discussion on slavery and how much wealth it brought to the South (far greater than what wealth there was in the North) very pertinent. He said, in general, that the system of slavery in the South (which lasted longer than any other Country) led to continued racial discrimination and the “welfare state”. The concept that certain people are seen as “property” now applies to low income communities, immigrants, and minorities who work for low wages ,often for the top 1%,who could pay them more. This insidious racism and class structure is part of the future distribution of wealth –60% to the top 10%, 35% to the Middle Class (which is much bigger), and 5% to the lower class which own 0% capital. Even when the United States becomes a minority majority state (as California is today), unless social mobility increases, wages increase, and “wealth” increases in the middle and lower classes, there will not be a change in the economic power structure. How we change that distribution is the biggest issue of our time.

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