I begin with the fi rst mechanism, based on slower growth coupled with con-tinued high saving and the dynamic law β = s / g. In Table 5.1 I have indicated the average values of the growth rates and private savings rates in the eight richest countries during the period 1970– 2010. As noted in Chapter 2, the rate of growth of per capita national income (or the virtually identical growth rate of per capita domestic product) has been quite similar in all the devel-oped countries over the last few de cades. If comparisons are made over peri-ods of a few years, the diff erences can be signifi cant, and these oft en spur na-tional pride or jealousy. But if one takes averages over longer periods, the fact is that all the rich countries are growing at approximately the same rate.
Between 1970 and 2010, the average annual rate of growth of per capita na-tional income ranged from 1.6 to 2.0 percent in the eight most developed countries and more oft en than not remained between 1.7 and 1.9 percent.
Given the imperfections of the available statistical mea sures (especially price indices), it is by no means certain that such small diff erences are statistically signifi cant.8
In any case, these diff erences are very small compared with diff erences in the demographic growth rate. In the period 1970– 2010, population grew at less than 0.5 percent per year in Eu rope and Japan (and closer to 0 percent in the period 1990– 2010, or in Japan even at a negative rate), compared with 1.0– 1.5 percent in the United States, Canada, and Australia (see Table 5.1). Hence the overall growth rate for the period 1970– 2010 was signifi cantly higher in the United States and the other new countries than in Eu rope or Japan: around 3 percent a year in the former (or perhaps even a bit more), compared with barely 2 percent in the latter (or even just barely 1.5 percent in the most recent subperiod). Such diff erences may seem small, but over the long run they mount up, so that in fact they are quite signifi cant. Th e new point I want to stress here is that such diff erences in growth rates have enormous eff ects on
Table 5.1.
Growth rates and saving rates in rich countries, 1970– 2010
Country
Note: Saving rates and demographic growth vary a lot within rich countries; growth rates of per capita national income vary much less.
Sources: See piketty.pse.ens.fr/capital21c.
The Capital/Income Ratio over the Long Run
the long- run accumulation of capital and largely explain why the capital/in-come ratio is structurally higher in Eu rope and Japan than in the United States.
Turning now to average savings rates in the period 1970– 2010, again one fi nds large variations between countries: the private savings rate generally ranges between 10 and 12 percent of national income, but it is as low as 7 to 8 percent in the United States and Britain and as high as 14– 15 percent in Japan and Italy (see Table 5.1). Over forty years, these diff erences mount up to create signifi cant variation. Note, too, that the countries that save the most are oft en those whose population is stagnant and aging (which may justify saving for the purpose of retirement and bequest), but the relation is far from system-atic. As noted, there are many reasons why one might choose to save more or less, and it comes as no surprise that many factors (linked to, among other things, culture, perceptions of the future, and distinctive national histories) come into play, just as they do in regard to decisions concerning childbearing and immigration, which ultimately help to determine the demographic growth rate.
If one now combines variations in growth rates with variations in savings rate, it is easy to explain why diff erent countries accumulate very diff erent quantities of capital, and why the capital/income ratio has risen sharply since 1970. One particularly clear case is that of Japan: with a savings rate close to 15 percent a year and a growth rate barely above 2 percent, it is hardly surprising that Japan has over the long run accumulated a capital stock worth six to seven years of national income. Th is is an automatic consequence of the dy-namic law of accumulation, β= s / g. Similarly, it is not surprising that the United States, which saves much less than Japan and is growing faster, has a signifi cantly lower capital/income ratio.
More generally, if one compares the level of private wealth in 2010 pre-dicted by the savings fl ows observed between 1970 and 2010 (together with the initial wealth observed in 1970) with the actual observed levels of wealth in 2010, one fi nds that the two numbers are quite similar for most countries.9 Th e correspondence is not perfect, which shows that other factors also play a signifi cant role. For instance, in the British case, the fl ow of savings seems quite inadequate to explain the very steep rise in private wealth in this period.
Looking beyond the par tic u lar circumstances of this or that country, however, the results are overall quite consistent: it is possible to explain the
main features of private capital accumulation in the rich countries between 1970 and 2010 in terms of the quantity of savings between those two dates (along with the initial capital endowment) without assuming a signifi cant structural increase in the relative price of assets. In other words, movements in real estate and stock market prices always dominate in the short and even medium run but tend to balance out over the long run, where volume eff ects appear generally to be decisive.
Once again, the Japa nese case is emblematic. If one tries to understand the enormous increase in the capital/income ratio in the 1980s and the sharp drop in the early 1990s, it is clear that the dominant phenomenon was the formation of a bubble in real estate and stocks, which then collapsed. But if one seeks to understand the evolution observed over the entire period 1970–
2010, it is clear that volume eff ects outweighed price eff ects: the fact that pri-vate wealth in Japan rose from three years of national income in 1970 to six in 2010 is predicted almost perfectly by the fl ow of savings.10