World Beat

This year why not support the better of progressive think tanks:

Deeply Unequal World

Sam Pizzigati | December 20, 2006

Editor: Emily Schwartz Greco, IPS

Foreign Policy In Focus
www.fpif.org

Some people, at year's end, like to spread holiday cheer. The world might do better, suggests a landmark new report from the United Nations University in Helsinki, to start spreading wealth.

The new study--the first ever to tally, for the entire world, all the major elements of household wealth, everything from financial assets and debts to land, homes, and other tangible property--finds some $125.3 trillion worth of wealth about in the world, as of the year 2000.

If that wealth were divided in perfectly equal shares among all the world’s 3.7 billion adults, every adult on Earth would hold a net worth of just under $34,000 in U.S. dollars, according to The World Distribution of Household Wealth report.

In real life, says this new report, released by the United Nations University’s World Institute for Development Economics Research, half the world’s adults hold under one-tenth that modest sum, less than $2,161. The vast bulk of the world’s wealth, the study observes, sits “highly concentrated” in the pockets of a relative few.

How concentrated? The richest 5 percent of the world’s adults--minimum net worth, $150,145--hold 70.6 percent of the world’s wealth. The richest 1 percent--minimum wealth, $514,512--hold 39.9 percent of the world's wealth all by themselves, 13,000 times more than the entire bottom 10 percent.

The scholars behind the new UN University study base their calculations on a growing body of wealth data that nearly all the world’s developed nations--as well as developing giants like India and China--are now collecting. This research has helped heap onto the statistical table “an impressive amount of information on wealth holdings,” enough to finally “estimate the world distribution of household wealth.”

The study’s four co-authors--Canadian economist James Davies, Finnish researcher Susanna Sandstrom, New York University economist Edward Wolff, and British economist Anthony Shorrocks--accumulated data for the new UN University study from countries that represent 56 percent of the world’s population. They then analyzed these numbers for trends and patterns that allowed to impute wealth distributions for the rest of the world.

The researchers sliced and diced this collection of statistics by all sorts of yardsticks. They looked at the world’s wealth by households, by adults, and by all persons. They used both currency exchange rates and purchasing power equivalents to compare the wealth that sits in different nations. These different calculations resulted in somewhat different numbers. But all the numbers painted the same basic picture, a global portrait of a deeply unequal world. Their new study expresses this inequality in terms both highly technical and readily understandable.

The report, for instance, translates the global distribution of wealth into a common statistical measure called a Gini coefficient, where “0” represents a situation where wealth is divided in total equality and “1” the opposite, a situation where one person owns everything. The higher the fraction in between, the more severe the inequality.

The UN University study computes the year 2000 global wealth Gini at 0.892, a level higher than the inequality rate within any individual country. What does this abstract number mean in actual people terms? If you reduced the world’s population to 10 people, the study points out, this 0.892 Gini would correspond to a situation where the richest of the 10 people held $1,000 in wealth and the remaining nine a single $1 each.

But this stark global inequality, the study’s authors take pains to note, does not translate into stark inequality within every nation. Inequality within nations, “even for countries at a similar stage of development,” varies enormously across the world.
Japan v. U.S.

Two similarly “wealthy” nations--the United States and Japan--provide what may be the most dramatic contrast. At first glance, the two seem equally “rich.” Americans average, in purchasing power equivalence, a net worth of $143,727. The Japanese average: $124,858. The two countries, together, account for almost two-thirds of the richest 1 percent of adults on the globe, with 37.4 percent of these affluent souls living in the United States and another 26.8 percent in Japan.

But a closer look reveals striking differences. Japan’s wealth spreads throughout Japanese society. The 90 percent of Japanese at the bottom of their nation’s wealth distribution own 60.7 percent of their nation’s wealth. In the United States, by contrast, the distribution of wealth runs strikingly top-heavy. The bottom 90 percent of Americans own just 30.2 percent of U.S. household wealth, less than half the share the bottom 90 percent hold in Japan.

Measured globally, the contrast between the United States and Japan appears just as striking. Over a quarter of American adults, 28 percent, hold net worths that place them down in the bottom 90 percent of the world’s wealth-holders. Only 6.8 percent of adults in Japan live among the world’s poorest 90 percent.
Super-Rich Not Counted

How accurately do all these global numbers reflect the actual distribution of the world’s household wealth? If anything, notes the UN University study authors, their report understates just how unequal the world’s wealth distribution has become. Their base survey data, they explain, “do not reflect the holdings of the super-rich.”

Their primary official data source for the United States, for instance, “explicitly omits the ‘Forbes 400’ wealthiest U.S. families.” Elsewhere in the world, the authors add, nations only rarely capture the holdings of the super-rich in their official data.

How much of a difference would adding the super-rich into the mix make? In 2000, Forbes magazine reports, the world’s 492 billionaires held a combined $2.16 trillion in wealth, a sum that amounts to 1.7 percent of the $125.3 trillion in world household wealth identified in the UN University study, or more than the wealth of the world’s poorest 1.5 billion people.

So does all this matter? Should the world’s peoples worry about how concentrated the ownership of the world’s wealth has become?

Until recently, mainstream global economic analysts downplayed, even dismissed, inequality as a problem. These analysts put their faith in economic growth. If economies were growing, they believed, wealth--and social well-being--would eventually percolate all throughout society and eventually improve everyone’s standard of living.

But two blockbuster reports last fall, one from the United Nations and the other from the World Bank, directly challenged this mainstream indifference to inequality.

A year ago last September, the UN Human Development 2005 Report predicted a “human development disaster” if the world’s nations continue to ignore how they distribute, within their own borders, the wealth their economies create.

“Redistributing 1.6 percent of the income of the richest 10 percent of the global population,” the report noted, “would provide the $300 billion needed to lift the 1 billion people living on less than a dollar a day out of extreme poverty, at least temporarily.”

And that shift would soon evolve into a permanent state of affairs, the report added, because “improved distributional equity” would both increase “the size of the economic pie” and enable the poor “to capture a bigger slice of that pie.”

Just weeks later, a team of economists and social scientists from the World Bank pounded home the same message. The World Bank’s top analysts acknowledged for the first-time ever, as a BBC news analysis noted at the time, “that redistribution--as well as economic growth--is needed to end world poverty.”

Nations can’t offer equity of opportunity, stressed Francisco Ferreira, a co-author of the World Bank Equity and Development report, without first achieving a healthy measure of equity in distribution. That's because, Ferreira explained, “societies with extreme inequality in wealth generate also extreme inequality in power.”
Governing for the Elite

Governments that reflect these extreme inequalities in power, the World Bank economist added, tend to govern not in the public interest, but in the interest of wealthy elites.

Other economic and social analysts, meanwhile, have been pointing out that deep economic inequality can have as socially destructive an impact on rich nations as on poor. Affluent and poor people alike in relatively equal “rich” nations, for instance, live longer than affluent and poor people in “rich” nations that tolerate greater inequality.

Japan, the nation with the world’s most equal distribution of income and wealth, currently sports the world’s longest life expectancy, at 82.2 years, reports the recently released 2006 UN Human Development Report. The developed world’s most unequal nation, the United States, now ranks No. 30 on the global life expectancy list, at 77.5 years, despite spending considerably more on health care than any other nation in the world. In 1970, a much more equal United States was in twelfth place on that list.

The authors of the UN University wealth study end their report with a plea for better data. More countries, the authors note, need to be regularly collecting statistics on just who owns what. Without that data, they contend, tracking progress toward a more equal world will be essentially “impossible.”

But more data may not what the global struggle against inequality needs most. Data, thanks to this sweeping new study, now abound. The global political will to act on these data, that’s another story.

Sam Pizzigati, an associate fellow at the Institute for Policy Studies Program on Inequality and the Common Good, edits Too Much, an online weekly on excess and equity. He is a contributor to Foreign Policy In Focus.