How France learned to hate capitalism

February 26, 2014, 7:14 PM UTC

FORTUNE — As government balance sheets and national debt grow each year, some are fretting that government activism is stifling global capitalism. But look closer and you see that it’s quite the opposite.

Thomas Piketty, the French economist whose work informs much of the public debate over income and wealth inequality in the developed world, will release the English translation of his groundbreaking study, Capital in the 21st Century next month.

As you can probably glean from the title, Piketty is mostly concerned with the study of capital and how its concentration has changed over time. In the economic press, we’re used to hearing a lot about income, which, on a national scale, is gross domestic product (GDP). One of the fascinating things about Piketty’s book, however, is that it supplements our understanding of the global economy with exhaustive data about the world’s stock of capital, too. 

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By looking at capital, we can get a much different picture of the health and well being of capitalism in the rich world today than we do by simply looking at GDP. Most American conservatives claim that the government is gaining more control of the U.S. economy by pointing to the growing share of government spending as a percentage of GDP. Here’s a chart from Nate Silver that shows this statistic for the U.S. over time:

In countries like Britain and France, the share of GDP made up of government spending is much higher, at 48.5% and 56.1% of GDP, respectively.

But Piketty’s capital data paints a much different picture, especially of economies like France’s. If you look at the value of total privately owned capital relative to GDP, you see a country in which the value of private capital has increased significantly over the past two generations:

The same trend is present in all wealthy countries since World War II: the value of privately owned wealth has increased relative to national income by a factor of roughly two. The definition of capitalism is an economic system in which property and the means of production are controlled by private individuals, so it’s hard to see how one could argue the wealthy world has become less capitalistic in recent years.

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Surely, there was a time when France was much more averse to private ownership of property. Here’s how Piketty explains it:

Not only in France, but in countries around the world, faith in private capitalism was greatly shaken by the economic crisis of the 1930s and the cataclysms that followed … a quarter of the working population in the United States, Germany, Britain and France found themselves out of work. The traditional doctrine of “laissez faire,” or nonintervention by the state in the economy … was durably discredited….

In France this general climate of distrust toward private capitalism was deepened by the fact that many members of the economic elite were suspected of having collaborated with the German occupiers and indecently enriched themselves during the war. It was in this highly charged post-Liberation climate that major sectors of the economy were nationalized, including in particular the banking sector, the coal mines and the automobile industry. The Renault factories were punitively seized after their owner, Louis Renault, was arrested as a collaborator in September 1944. The provisional government nationalized the firm in January 1945…. In 1950, the government of France owned 25-30 percent of the nation’s wealth, and perhaps a little more.

It was in this environment that the French economy, badly damaged by the war, embarked on nearly 30 years of rapid economic growth. Once that post-war catch-up period was over, however, the French actually embraced private ownership of property with great enthusiasm:

What is distinctive about the French trajectory is that public ownership, having thrived from 1950 to 1980, dropped to very low levels after 1980, even as private wealth — both financial and real estate — rose to levels even higher than Britain’s: nearly six years of national income in 2010, or 20 times the value of public wealth. Following a period of state capitalism after 1950, France became the promised land of the new private-ownership capitalism of the twenty-first century.

As Piketty points out, this trend in France is hardly mentioned when economic commentators compare France to the U.K. and the U.S. We remember the 1980s in the U.K. and the U.S. as a time of enthusiastic privatization and deregulation, but forget that the same thing occurred, sometimes even more intensely, across the rest of the rich world too.

So, what about that growing share of GDP coming from government spending? The fact that private wealth is growing much more quickly than overall income shows that government spending isn’t keeping up with private wealth accumulation, and that both trends should be acknowledged when discussing a nation’s economy. Furthermore, the growth of government spending after World War II is likely the result of two forces:

1) The growing concentration of private wealth, as shown by the chart above and Piketty’s book in general. As wealth and income grow more unequal within a given nation’s population, voters turn to the government to help compensate for the real feeling that they’re falling behind.

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2) Baumol’s cost disease: This is the theory that government spending will naturally grow to be a greater percentage of yearly output because government mostly provides services like education that cannot become more efficiently administered in the same way as products and services provided by the private sector can.

For instance, the U.S. produces a lot more food in 2014 for a lot less money than it did in 1914. Yet in a field like education, technology isn’t able to reduce the number of teachers needed for a fixed amount of students to learn algebra or reading (at least not yet). Governments are often heavily involved in the fields that are most resistant to automation.

The usefulness of economics is determined by the quality of data at our disposal. Piketty’s new volume offers a fresh perspective and a wealth of newly compiled data that will go a long way in helping us understand how capitalism actually works.