Inequality has become one of the defining issues of our time. Economist Thomas Piketty—among others—has popularized the idea that capitalism inevitably concentrates wealth in the hands of a few. His solution? More taxes, more redistribution, and more government intervention.
But what if Piketty is missing a deeper problem—one that libertarians and classical liberals must urgently address? In a recent paper published in the Journal of Libertarian Studies, I argue that much of today’s inequality does not stem from the free market at all, but from something far more insidious: the rise of artificially successful entrepreneurs.
Two Types of Entrepreneurs
In any society, there are winners. But how do they win?
First, there are naturally successful entrepreneurs who innovate, take risks, and satisfy consumer needs in a competitive marketplace. They create value, and their profits are a reward for serving others. However, there are also artificially successful entrepreneurs who, by contrast, win—not through merit or creativity—but because they receive government favors—subsidies, protective regulations, tax breaks, or public contracts. Their success is politically-engineered, not market-earned.
This distinction is vital. When too many winners are artificial, people begin to lose faith in capitalism itself, moving toward what worsens the system in the first place.
From Free Markets to Rigged Games
Piketty and other critics rightly point out that inequality is rising in many countries. But they fail to see a key cause: state intervention that distorts the market and rewards cronyism over competition. During the COVID-19 pandemic, for instance, lockdown policies devastated small businesses while boosting e-commerce giants like Amazon. Was that the result of market competition or political decisions?
Take the case of Solyndra—a US solar energy firm that received over $500 million in government loans before collapsing. Or France’s Xavier Niel—who capitalized on favorable telecom regulation changes to leapfrog more established competitors. Or Elon Musk—whose companies combine innovation with massive state subsidies and public contracts. In each case, the line between entrepreneurial success and government engineering becomes blurry. And that’s a problem—not just for the economy, but for democracy.
Mobility Dies, Resentment Grows
In a true market economy, success is fluid. Consumers are the ultimate judges. They “vote” with their money, rewarding the best and punishing the worst. But when governments start picking winners, this dynamic collapses. Success becomes static. Wealth stays concentrated, not because it’s earned, but because it’s protected. Aspiring entrepreneurs shift their focus from satisfying customers to pleasing bureaucrats. This breeds cynicism and resentment. People no longer see wealth as a sign of value creation, but of manipulation. And that makes capitalism a harder system to defend.
Piketty’s Misguided Fix
Piketty’s proposal—a global wealth tax of up to 90 percent, along with massive redistribution—isn’t just impractical. It’s dangerous. Why? Because it targets the outcome (inequality) without addressing the cause (state favoritism). Worse, it strengthens the very institutions that helped create artificial success in the first place.
Taxing the rich won’t solve cronyism. It might even deepen it by pushing more entrepreneurs to seek government favor and protection from confiscatory policies. The better solution: eliminate the privileges, not the profits.
Real Solutions for a Fairer Economy
To restore the legitimacy of capitalism, we must:
- Abolish subsidies and preferential treatment for politically-connected firms;
- Repeal regulations that protect incumbents and prevent new market entry;
- Promote open competition, not government-sponsored monopolies;
- Reform taxes to reward innovation and risk-taking, not rent-seeking;
- Cut back on state intervention in finance, labor, and product markets
This isn’t about defending inequality for its own sake. It’s about ensuring that inequality reflects merit and consumer choice, not artificial manipulation.
Why This Matters
A society dominated by artificial entrepreneurs is doomed to stagnation; talent is wasted; innovation slows; citizens grow disillusioned. Eventually, calls for radical redistribution grow louder.
Capitalism can only survive—and thrive—if people believe it’s a system of opportunity, not of state favoritism. That means drawing a clear line between earned success and engineered success.
Thomas Piketty is right about one thing: every society must justify its inequalities. But the justification must be this—inequality is acceptable when it results from voluntary exchange, entrepreneurship, and consumer satisfaction. It’s not acceptable when it results from political privilege.
Conclusion
If we want to defend capitalism, we must first clean house. That means rejecting, not only socialist redistribution, but also state-created winners who corrupt the market and erode public trust. Let’s stop defending “capitalism” in the abstract—and start defending the real thing: a competitive market order where success flows from freedom, not favors.
