Richest 2% on Earth Own Half of Everything

Economists and their fans spend most of their time talking about incomes and their growth. Far less often, they discuss wealth, which isn’t the same thing. Income is what one earns over a given time, whereas wealth is what one owns less debt at a given time. It is possible to be stinking wealthy without an income, and it is equally possible to have a high income and no real wealth. A recent UN study says that the wealthiest 2% of the human race owns half of everything, while the poorer half of humanity has just over 1%.

The study, released on December 5, comes from the World Institute for Development Economics Research (WIDER) of the United Nations University and is called, “The World Distribution of Household Wealth.” It finds that wealth disparities are even greater globally than income disparities. This should come as no surprise since places that underwent economic development decades or centuries ago have had higher incomes for longer than newly industrializing or pre-industrialized economies.

WIDER’s study notes, “The research finds that assets of $2,200 per adult placed a household in the top half of the world wealth distribution in the year 2000. To be among the richest 10% of adults in the world required $61,000 in assets, and more than $500,000 was needed to belong to the richest 1%, a group which — with 37 million members worldwide — is far from an exclusive club.” The entire household wealth of the human species is $125 trillion in the year 2000 (the year the study considered), equivalent to roughly three times the value of total global production (GDP) or to $20,500 per person, using simple exchange rates. Adjusting for differences in the cost-of-living across nations raises the value of wealth to $26,000 per capita when measured in terms of purchasing power parity dollars.

While the report doesn’t make an argument one way or another on policy, wealth represents insurance against an interruption in income. Those with deeper pockets are better protected. Moreover, wealth is often another term for capital, which can be put to productive use. For example, when a bank makes a business loan, it takes the savings (wealth) from account-holders and gives it to the borrower who will try to use it in an economically beneficial way. People without access to capital are less likely to be able to start businesses than those who have such access, and thus remain poor. And being poor increases one’s chances of disease and death. Access to capital equals a chance at a better life.

Improved banking systems, legal systems and property laws are relatively easy to establish, and they will boost the incomes of the poor. To increase their wealth, however, it is necessary to ensure that their debts don’t outstrip their new revenues. This has been a problem in the world economy. If a dictator borrows money and fritters it away, even if the people do make strides forward economically, they have a crushing debt burden that prevents wealth accumulation. There is a moral hazard to grants, and micro loans in Bangladesh can only do so much, but fewer strings attached to capital might make development that much easier.

© Copyright 2006 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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