Socialist-leaning economist Thomas Piketty has created a stir with his new title, “Capital in the 21st Century“. His primary message with the book is that concentration of capital has recreated the ‘rentier’ class, because the rate of return on capital accumulation and rent-seeking has begun to exceed the rate of growth of the host economies. For finance industry professionals, it has some important take-aways.
What this means to financial services professional is that there’s a direct incentive to change one’s career from being a 60 to 70 hour per week professional to gaining the capital assets needed to join the ‘rentier-class.’ Getting through that barrier has historically proven tricky; Piketty tends to discount the American belief in entrepreneurship. His message to the would-be financier is that hard work alone isn’t enough. More prosaically, it’s not worth working 12-hour days for £150k a year, unless you have a sound investment plan for that income.
Piketty’s other assertion is that the days of $10 million dollar bank employees may be numbered. The marginal productivity gain betwee a $10 million dollar salary and a $1m is, in his words, “illusionary.” Trends in banking seem to bear this assertion out; in an economy that has ostensibly recovered from 2008, major investment banks have dropped their pay-per-head to their lowest levels in five years, even though profits in the sector have risen intensely. While this is nothing new to people who work in the mainstream economy, this is the first time a rise in profitability hasn’t translated into higher salaries in finance in decades. Piketty’s dire predictions and Socialist assertions align with conventional financial advice that’s been making the rounds: Work to generate a surplus, invest that surplus, and use it carefully – it is capital that is king, rather than hard work.