Who are the world's wealthy?

Both the BBC News and The Economist point to a new World Institute for Development Economics Research study on The World Distribution of Household Wealth. The report was written by James Davies (University of Western Ontario), Anthony Shorrocks and Susanna Sandstrom (WIDER), and Edward Wolff (New York University).

The study finds that wealth is shared much less equitably than income: the richest 2% of adults in the world own more than half of global household wealth. The definition of wealth used is broad: the value of physical and financial assets less debts, not just money. Here is an excerpt from the paper's (PDF) conclusions:

This paper has provided a first estimate of the world distribution of household wealth. We have seen that the distribution is highly concentrated - in fact much more concentrated than the world distribution of income, or the distribution of wealth within all but a few of the world’s countries.

While a typical share of the top 10 per cent of wealth-holders within a country would be about 50 per cent, and the median Gini around 0.7, we have estimated that for the world as a whole the share of the top 10 per cent was 85 per cent in the year 2000 and the Gini equalled 0.892 using official exchange rates, Milanovic (2005) estimates that the world income Gini was 0.795 in 1998.

While wealth (and income) concentration is somewhat less when the estimates are done on a PPP basis, we have argued that the large share of wealth that is owned by people who can readily travel and invest globally means that converting at official exchange rates is preferable for many purposes when one is studying the distribution of wealth, rather than income distribution or poverty.

According to the study, almost all of the world’s richest individuals live in North America, Europe, and rich Asia-Pacific countries. Each of these groups account for about one-third of the world’s wealthiest 10%. The Economist is not wrong to have called its piece Winner takes (almost) all.

Comments

[G.Visakh Varma]

Which are the specific rich Asia-Pacific countries where some of the world's richest live?

[Arthur Eckart]

There seems to be a greater preoccupation about who has wealth than what creates wealth. The study states that although North America has only 6% of the world population, it accounts for 34% of household wealth. North America also accounts for roughly 34% of world GDP. So, it's not a surprising result. Factors that create wealth, or generate income, for individuals would be more constructive.

[Lafayette]

AE: "Factors that create wealth, or generate income, for individuals would be more constructive."

I suggest that it is NOT the means that count but the ends.

It is not the fact that the American economy generates wealth, which is obvious, but the manner in which that wealth is distributed.

Twenty-percent of the population that obtains eighty-percent of the wealth, explain that as morally and economically fair, please.

Have fun. (Marx may be dead and long-gone but socio-economic unfairness is alive and well.)

PS: Consider the EU context where 40% of the population obtains 60% of the wealth, which is ostensibly more fair. How does the EU do that? From taxation and redistribution by the state.

[Arthur Eckart]

Lafayette, E.U. GDP is slightly higher than U.S. GDP. However, the E.U. has 170 million more people. Also, GDP only reflects the production side of the economy. The U.S. also consumes $800 billion a year more than it produces and consumer surplus (from declining prices, which benefit lower income Americans more than higher income Americans, and greater competition, e.g. through cheaper imports) show U.S. living standards have risen at a faster rate. The means (or mechanisms) are important to achieve to best results. Studies whether the E.U. or U.S. system promotes greater immoral or negative choices would be constructive also.

[Lafayette]

AE: "The means (or mechanisms) are important to achieve to best results. Studies whether the E.U. or U.S. system promotes greater immoral or negative choices would be constructive also."

I couldn't agree more. The "means (or mechanisms) are important". Especially their ownership.

But, you are assuming that because America can import cheaply and replace expensive American labor that Americans are better off. I suspect a great many unemployed Americans would disagree with you.

And, I wouldn't disagree. It is a bitter pill to swallow, but globalization has no morality. The Chinese have an intrinsic right to work at slave-wages, especially if the alternative is starvation.

Still, I insist, in terms of "fairness", the economic pie must be distributed equitably. Your picture of America being better off because Americans obtain more purchasing-power from imports has nothing to do with the distribution of wealth in America.

The dislocation of jobs to China creates circumstance within which certain American companies (Wal-Mart comes to mind) can profit handsomely in terms of distribution. This has created the gigantic fortune of the Walton Family.

And, you are telling me that the gigantic fortune of ONE family is the price an economy must pay for millions of Americans to benefit from cheaper imports?

Sorry, I'm not buying that argument. If that were the case, then America has a "natural" destination towards the type of society where plutocrats control the means of production/distribution and the raison d'être of the plebeians is to "shop till they drop"?

That scenario is perverse and harkens back to Roman times. Unfortunately, it is a pretty good metaphor for modern society in many countries today.

[Arthur Eckart]

Lafayette, I suspect, the free market system creates more capital and redistributes capital more efficiently than a regulated government system. However, I agree, some regulation is needed to maintain civilization. One mechanism of redistributing wealth is through borrowing, which also promotes individual responsibility, and therefore morality. Many individuals and firms became successful from loans or investments. Your definition of fairness seems to be making the global "economic pie" equal regardless of moral implications through government intervention.

[Charles Butler]

My two Canadian and Spanish cents worth here.

There is a fundamental difference in the mindsets of western Europeans and Americans that cause these economic comparisons to be a little difficult to make. What fundamentally distinguishes one culture from the other is an utterly different view of what is desireable in the future. The result on this side of the Atlantic is eurosocialism and in the United States, their form of capitalism. A case in point is the demise of the trade unions in the U.S. that began with Reagan's attack of the flight controllers. During the 1980's, Americans in a wholesale fashion rejected the safe future offered by these organizations in favour of the possibility (near certainty, most believed I imagine) of an even more luminous horizon promised by the utopians of the baby boom. Think about the gamble that implies. It boggles the mind.

Lafayette and I had an exchange in this section that touched on the sopping up of talented people by the French and Spanish civil services as well as the French students' preferring the mere minimal prospect of secure employment to the certainty of being able to find the insecure sort. But that is the difference. Here, the people that would be doing extremely well in the American environment opt for the economic security and social status that government (or semi-government) employment offers. And the rest are content-ish with their health care and the promise of a pension. Americans outright reject government initatives like universal health care (despite the $12,000 yearly bill for private that a family of four pays) and give more than a little consideration to the possibility of a privatized social security. Here, people only buy into security. There, they chase the rainbow and they measure their progress in that regard with purchasing power. Hence, the willingness to borrow money from China with which to buy Chinese goods.

The result of this has been a higher concentration of wealth in the U.S., but also more wealth in general. A bigger pie less well divided up. My own take is that this generation of American's attitude will change quite radically in the next decade when the boomers who bought into the infinite potential of the future come hard up against the limited present of retirement.

For the moment the bottom line is we can't know which is preferable because each is the only possible solution available in their respective contexts.

Regards.

[Arthur Eckart]

Also, I may add, is slowing capital creation really an improvement. There's an abundance of labor, while capital is relatively scarce. Here's an excerpt of India's economy (it seems, income inequality in India is high; yet the U.S. is ranked worse): "If this nation of more than a billion people appears increasingly modern, a country of software developers and outsourcing firms, the reality is different for most people. More than two-thirds of Indians still live in villages such as Baniyani, and most depend on agriculture. The country seems to thrive on contradictions: India produces well over 300,000 engineers a year, but 700 million Indians lack access to toilets; top Indian universities are among the world's most competitive, but nearly 40 percent of adults are illiterate; India now has Ferrari dealerships, but only six percent of rural homes have telephones."

[Lafayette]

AE: "Lafayette, I suspect, the free market system creates more capital and redistributes capital more efficiently than a regulated government system."

Efficiency be damned.

What people want is fairness.

[angry economist]

um to redistribute wealth you have to create it first. USA is good at creating wealth, they are not so good at redistributing that to others in the world - but really why should they?

USA cannot ignore global forces or the China economy. Hiding behind protectionism will lead to the unravelling of the US competitive advantage in years to come.

Lafayette - Fairness may lead to inefficiency, which may reduce total wealth. So to have fairness might sacrifice total wealth. You are redistributing wealth before you have successfully created it.

In my view - we've been successful if we have created wealth, and everyone has benefitted - the poor are less poor. If the rich get richer, then I can accept that a bit more if some people are lifted out of poverty.

Governments are poor at allocating capital. They have no good track record at this Lafayette.

[Arthur Eckart]

The U.S. redistributes wealth internationally to raise U.S. living standards. U.S. policies of open markets, free trade, and unrestricted capital flows have increased the global economic pie, which provided greater opportunities domestically and for our trading partners. Also, I stated above, the U.S. also redistributes wealth domestically through borrowing rather than government intervention. So, wealth is created and redistributed efficiently, which also promotes morality.

[jon livesey]

"Efficiency be damned. What people want is fairness."

That's priceless. Not only do you give us the basic fallacy of socialism, but you give it to us in the shrill "I know what people want" tones of authoritarian socialism.

[Lafayette]

AE: "Not only do you give us the basic fallacy of socialism, but you give it to us in the shrill "I know what people want" tones of authoritarian socialism"

Oh, dear me, so sorry to have affronted your sensibilities.

If you think "fairness" is equated to Socialism, then you are deeply mistaken. I have a keen appreciation of economic fairness, that’s true, so I presume everyone does. And, by this is not meant hand outs, but the fair opportunity to succeed based upon ones abilities. But, neither do I believe that life is lottery where an infinitely small percentage of the population wins big and all the others simply play the game.

Maybe some, like you, don't care to consider economic fairness as a first precept of society, in which case they prefer to genuflect at the altar of Ayn Rand or some such other silliness. To each their own gods.

The mistake you are making is to believe that because huge riches can be amassed in a "democracy", by a minority percentage of the population, that such is also "equitable".

This is a colossal error on your part. (Neither Marx nor Bill Gates – the truth is somewhere in between.)

[Lafayette]

Furthermore, the inherent difference in abilities amongst individuals means that some are meant to succeed far more than others. This cannot be denied.

It is the exaggeration in this "success", in terms of the wealth accumulated by a select few that is aberrant. Particularly, if, at the other end of the scale, people are left in the misery of poverty and ignorance. Democracy without fairness is only half the solution. (Has Iraq taught us nothing?)

What in heaven’s name can an individual do with billions of dollars or Euros or any currency? Except bequeath it. Unearned income is the kiss of death, so sweetly mortal.

[Arthur Eckart]

Lafayette, the problem with your "fairness" theory is wealth often represents value in society. So, if the accumulation of wealth is constrained, then there will be less future value in society. In your example of Bill Gates, if he was restricted from accumulating wealth, then Microsoft may have been a much smaller firm. The over 3,000 Microsoft employees may not have become millionaires, the Nasdaq bubble boom may have never taken place, there would have been far less capital available for new firms, etc. You stated what can individuals possibly do with billions of dollars. In the case of Bill Gates, he still owns about 1 billion shares of Microsoft. A lot of people have benefited directly and indirectly from a firm that didn't exist 30 years ago. A great deal of value was created from almost nothing. Does the world need more or fewer Microsofts, Googles, Apples, Intels, Dells, Amgens, etc.?

[Lafayette]

AE: "... the problem with your "fairness" theory is wealth often represents value in society."

Of course it’s a value. And a precious one at that.

Which is why it should not be concentrated in a select few? Neither should be distributed to those who don’t work for it.

I maintain: The truth is somewhere in between. If Iraq has shown us anything, it is how plutocrats at the levers of power can manipulate the Military-Industrial Complex to the own personal gain, for simple enrichment, in the guise of bringing democracy to the world (that probably wouldn’t know what to do with it anyway).

“So, if the accumulation of wealth is constrained, then there will be less future value in society.”

Less to go around yes, but not constrained in absolute terms.

When you look at the great fortunes, their genesis is so ordinary. A Bill Gates who has a hi-tech monopoly and exploits it. A Warren Buffet who is good at manipulating financial instruments. A George Soros who took advantage of insider information to trick the Bank of England. Or lastly and mostly, simply inherited … that is, a “birthright”.

These are examples of “genius” rewarded? BS. It is simply obtuse determination and a bit of luck. Or, just waiting around till a parent dies.

There is no doubt that work should render its just rewards. But, a far, far more important criterion is that those rewards are rendered in an economic context where we are all parity-players. I know of no man, alone on an island, who got “rich” all by himself, do you?

Accumulating wealth depends upon others who build the context (the marketplace) within which riches are generated and distributed. Without that context there is no wealth generation. (Which is why mankind discovered the principle of the division of labor and the exchange of thier produce.)

Riches of this nature then come from the public domain and are therefore subject to the public will. And, I am almost sure the public will – when properly informed – would prefer “fairness” above exaggerated “just rewards”.

Nobody, but nobody, needs to accumulate billions and billions of dollars for themselves alone. They simply desire to do so for the prestige (and power over others) that it brings - both pernicious human traits.

And immoral.

[Lafayette]

Angry: "Fairness may lead to inefficiency, which may reduce total wealth."

Oh, really? If 80% of American wealth created goes to only 20% of the population, don't you think that HIGHLY inefficient?

How do they spend it? They don't, they reinvest it. That's GREAT!, I can hear you think. But, is it?

The money track is circular; it always comes back to the same people. True, its availability for investment does enhance global commerce.

But, that would be the same if it were taxed and simply redistributed on infrastructural projects internally - or across the world, for that matter - that benefit a larger population.

The need is great for a structural renewal of America. Higher taxes will allow clinics that give basic health care to the poor - in a nation where around 15% of the working population is without medical insurance. Higher taxes can allow university education at state schools to expand touching a large segment of the population that needs badly skill upgrading to compete in a globalized economy. Higher taxes can be used to embark America on a program of replacing high-pollution vehicles and energy generation. (I could go on, but I think you get the idea.)

All such programs will diminish total wealth? I doubt it.

PS: Why is it that people like you accept readily that investing is only acceptable if it brings a financial return on investment. Why is it that investing in humans, without any monetary R-O-I, is not? I call that an aberrant fixation. And immoral.

[Arthur Eckart]

Lafayette, you underestimate the amount and extent of good created by capitalism. Creating wealth doesn't make the poor worse off. Wealth helps the poor in many ways, e.g. raising living standards, better access to capital, more job opportunities, etc. However, shifting wealth from rich to poor through government intervention creates less wealth or destroys future wealth, which has been the case in communist and socialist countries. Also, you can compare the U.S. to the E.U. Moreover, without entreprenuers, to create wealth, countries will likely be poor.

[Lafayette]

AE: Wealth helps the poor in many ways, e.g. raising living standards, better access to capital, more job opportunities, etc.

Easier said than done. Your "hi-tech" role model with easy access to capital resources in Silicon Valley is NOT the norm.

You are missing the point, which is fairness, or equitability. Even in a functional Marxist state (which never existed and never will) wealth generation will create jobs. Jobs at pittance salaries, but jobs nonetheless.

Only taxation / redistribution can help the lower income levels, because it gets them beyond the precariousness of low-paying precarious work. That argument has been well embedded in the human psyche in Europe for all its post-war history. Taxation and redistribution helps the middle-class as well by lowering the cost of a college education and making communities more decent places in which to live by enhancing dilapidated downtowns or making secondary education more effective and more fulfilling (by expanding the experiential knowledge of students).

In America, the reign of this current plutocracy in Washington has finally made some, but not all, Americans understand how wealth and power make for an inflammable cocktail. Plutocrats are convinced of the "trickle-down" effect. It has no basis in fact, however, and studies have shown this.

Just because the American economy generates a hundred or so millionaires a year does NOT prove that the distribution of income is either fair or equitable. Not at all. It simply means that the mechanism of generating income can be manipulated such that the rewards are concentrated in a select group of "managers".

And, I put to you again the question: What is fair and equitable? Is the fact that 20% of the population garnering 80% of the wealth "fair and equitable"? The imbalance is palpable.

Somethin' is rotten. And, it is America's fixation with wealth accumulation ... part of a national "success psyche". It is Thorstein Veblen's worst nightmare of conspicuous consumption gone awry. Including the nonsense that surrounds the rich and their richness for no valid reason whatsoever, except that they are role-models for a nation of over-achievers. "A lot is good, so even more must be great!" One loses an inherent sense of proportion.

It is not only an American distortion, but has become increasingly European, Russian and Chinese. That is, it is all too human.

And, finally, it is the one “image of America” that is doing the US the most harm in a world that does not accept it at all. (Yes, that is a personal opinion.)

[Arthur Eckart]

Lafayette, fortunately, the U.S. didn't followed your large country case policies and became a superpower rather than an economy similar to India where two-thirds of the population live in severe poverty. If you look at U.S. household data of goods (including a homeownership rate above two-thirds), Americans in general are not that bad-off. You can thank American entreprenuers later.

[Lafayette]

AE: "You can thank American entreprenuers later."

That'll be the day.

American entreprenurial activity has handsomely rewarded those who practiced it. Those who founded companies like HP and MS and DEC and and even the less hi-tech such as Wal-Mart are to be applauded.

But, they are not magicians. Entrepreneurs take risks and some are rewarded. We're discussing the dimension of that reward relative to the people who constitute the market place that permitted that their wealth be created. (And, don't compare America with India. That's laughable.)

I, too, would prefer to be a hammer than a nail. But, life dictates that most of us should be nails. That doesn't mean that we don't deserve a just reward for our labors.

You harp on the aggregates and I argue the social morality of the system. The twain shall never meet.

[Arthur Eckart]

Lafayette, I compare the U.S. and India, because your "social morality" will create an economy similar to India, where there's little wealth creation relative to the population. You don't have to worry about Indian capitalists "hammering" 700 million dirt poor "nails."

[Liam O'Connell]

US net migration rate: 3.18/1000
EU net migration rate: 1.51/1000

However unfairly wealth is distributed in the US, living here can't be all that bad. Our democracy is 230 years young and still it's a land of opportunity! I agree with one of the earlier posts, Americans are much more optimistic about the future than Europeans. Maybe all 300 million of us are living a mass delusion, but I doubt it.

[Lafayette]

LO: "However unfairly wealth is distributed in the US, living here can't be all that bad."

Of course it isn't. That is NOT the point. The point is the "fair distribution" of income in an economy where we are all participants, but the rules are rigged such that super-rich fortunes are made.

I submit that this is NOT the "American Dream" and, were it to ever be so, then a café latte is going to cost all those millionaires $5000 a go.

If one wants to discuss "fair distribution", then let's do so. But, justifying wealth accumulation with excuses that "everyone has a chance", or "nobody is bad off" are lame arguments.

Unless you are unaware of it, the concentration of economic power in one class has proven to be disastrous, throughout history, for a nation. This last administration has only proven the point, where plutocrats got their hands on the levers of power and what happened, happened.

Besides, I take America as an example because it is the most flagrant. But, the UK could serve equally as an example. Or, even Sweden with its punishing taxes.

You don't have to be intelligent to become a billionaire. Just lucky. Play the game if you like, but your chances of becoming one are about the same as playing the lottery. So, why not simply buy a lottery ticket and enjoy life whilst waiting for the "happy event"?

But, the argument about super-rich "entrepreneurs" being a necessity to further the economic well-being of a country ... well, such is simply nonsense that has entered into the "conventional wisdom". It's time to eradicate it.

[Lafayette]

CB: "But that is the difference. Here, the people that would be doing extremely well in the American environment opt for the economic security and social status that government (or semi-government) employment offers. And the rest are content-ish with their health care and the promise of a pension."

Couldn't agree more. Your example is the counterpoint to "unbridled entrepreneurial capitalism".

I despair at the willingness of kids today in accepting mediocrity simply because it brings a false sense of economic surety.

This is a consequence of the fact that the generations brought up in the economic cocoon of post-war protectionism (that lasted from the 1950s to the 1990s) have been "groomed" to think that the good life is a given. After all, nearly half a decade of constant growth, easy income and good job opportunities made people victims of their own hubris.

Parents came to believe that life without precariousness was, yes indeed, possible if only we elect the right politicians who promise us that outcome. That is what they taught their children. It was fools' gold.

The mindset has become hallucinatory and the young, misguided French demonstrating in the streets against a measure that would actually enhance their ability to get jobs demonstrated to what extent hallucinations are deeply embedded in that youth. There are also examples of this in Germany. But, strangely enough, not in Britain.

As you say, in the US, the emphasis is on personal richness - perhaps in emulation of the celebrities who have become role models. In Europe, there is a that as well. I can see today's youth in France foaming at the mouth at the sight of their peers who make it to a day, a week a half-year of fame on television and are forgot a year later, only to be replaced by another crop. They are being manipulated for media purposes, but that's life.

Isn't it? Or, is it? The elections in France are going to be interesting. The "old guard", those that ran the pap-machine for the past half a century are definitively discarded. On the left, they've voted in primaries for a woman to represent them. On the right, they will likely elect a dynamic young man, a bit too much in a hurry, who thinks he can change France with just words.

The fact of the matter is that you cannot change France, or any democratic country, without changing mindsets. The French must chose between people who provide a viable, logical vision of what the country can do to meet the challenges ahead.

I am not convinced that they have the communal courage to chose the most difficult path, which is the only one that will lead them out of the mess that the exaggerated ideals of a "social France" have inculcated for the past half century. (Retirement at 55, 35-hour work week, health-care for all and sundry, unemployment benefits that allow people to refuse to work, seven weeks of vacation out of 52, students leaving university - finally - in thier late twenties, etc., etc., etc.) The cash-cow economy of yesteryear is no longer around in Europe to afford that sort of social hubris.

[Lafayette]

AE: "You don't have to worry about Indian capitalists "hammering" 700 million dirt poor "nails."

Balderdash. You can do better than this. Try harder.

[Juan de la O]

What's wrong here?

All this talk of wealth with no consideration given to how it is created, by who, and who appropriates it; as though this 'wealth' can magically appear from the necessary but perfectly unproductive circulation process; as though circulating claims to profit are profit and as though their accumulation is creative.

Folks, 'free market' vs (centrally) 'planned' are two sides of the same side; whether capitalist social relations are overlayed by one or the other does not prevent them from being what they are.

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