Distribution of wealth


World Distribution of Wealth and Population in the Year 2000

The distribution of wealth is a comparison of the wealth of various members or groups in a society. It differs from the distribution of income in that it looks at the distribution of ownership of the assets in a society, rather than then current income of members of that society. This distinction is analogous to the difference between position and speed.

Contents

Definition of wealth

Wealth is a person's net worth, expressed as:

wealth = assets − liabilities

The word "wealth" is often confused with "income". These two terms describe different but related things. Wealth consists of those items of economic value that an individual owns, while income is an inflow of items of economic value. (See Stock and flow.) The relation between wealth, income, and expenses is:

change of wealth = income − expenses

A common mistake made by people embarking on a research project to determine the distribution of wealth is to use statistical data of income to describe the distribution of wealth. The distribution of income is substantially different from the distribution of wealth. According to the International Association for Research in Income and Wealth, "the world distribution of wealth is much more unequal than that of income."[1]

If an individual has a large income but also large expenses, their wealth could be small or even negative.

Statistical distributions

There are many ways in which the distribution of wealth can be analysed. One example is to compare the wealth of the richest ten percent with the wealth of the poorest ten percent. In many societies, the richest ten percent control more than half of the total wealth. Mathematically, a Pareto distribution has often been used to quantify the distribution of wealth, since it models an unequal distribution. More sophisticated models have also been proposed.[2] Generally, income inequality metrics can be used as wealth inequality metrics.

Redistribution of wealth and public policy

In many societies, attempts have been made, through property redistribution, taxation or regulation, to redistribute wealth and diminish extreme inequality.

Examples of this practice go back at least to the Roman republic in the third century B.C.,[3] when laws were passed limiting the amount of wealth or land that could be owned by any one family. Motivations for such limitations on wealth include the desire for equality of opportunity, a fear that great wealth leads to political corruption, to gain the political favor of a voting bloc, or fear that extreme concentration of wealth results in rebellion[4] or at least in a limited consumer base. Various forms of socialism attempt to diminish the conflicts arising from the unequal distribution of wealth.

During the Age of Reason, Francis Bacon wrote "Above all things good policy is to be used that the treasures and monies in a state be not gathered into a few hands... Money is like muck, not good except it be spread."[5]

Communism arose as a reaction to a distribution of wealth in which a few lived in luxury while the masses lived in extreme poverty. In The Communist Manifesto Marx and Engels wrote "From each according to his ability, to each according to his need."[6] While the ideas of communism have throughout history enjoyed occasional popularity, they have seldom if ever worked in practice.[7]

The combination of capitalism, technology, and social liberalism has diminished extreme poverty in the developed world today.[citation needed] But extremes of wealth and poverty continue in the Third World.[8]

Characteristics of wealthy nations and poor nations

While it is not easy to say which is the cause and which the effect, almost all of the wealthiest nations in the world today have an elected government with relatively fair and open elections, a capitalist business sector, individual freedom, relatively low corruption, and family planning. Almost all of the poorest countries have a dictator or president-for-life, a government controlled economy, corruption, and a high birth rate.[9]

Charity

In addition to government efforts to redistribute wealth, the tradition of individual charity is a voluntary means of wealth transference. There are also many voluntary charitable organizations making concerted efforts to aid those in need.

21st century

At the end of the 20th century, wealth was concentrated among the G8 and Western industrialized nations, along with several Asian and OPEC nations. An Energy Information Administration report stated that OPEC member nations were projected to earn $1.251 trillion in 2008 from their oil exports, due to the record crude prices.[10]

A study by the World Institute for Development Economics Research at United Nations University reports that the richest 1% of adults alone owned 40% of global assets in the year 2000, and that the richest 10% of adults accounted for 85% of the world total. The bottom half of the world adult population owned 1% of global wealth.[11] Moreover, another study found that the richest 2% own more than half of global household assets.[12] The distribution has been changing rapidly in the direction of greater concentration of wealth.[citation needed]

Real estate

While sizeable numbers of households own no land, few have no income. For example, 10% of land owners (all corporations) in Baltimore, Maryland own 58% of the taxable land value. The bottom 10% of those who own any land own less than 1% of the total land value.[13] This form of Gini coefficient analysis has been used to support Land value taxation.

In the United States

In the United States at the end of 2001, 10% of the population owned 71% of the wealth and the top 1% owned 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.[14]

In 2003, the 1% with the highest income paid more than 34% of the nation's federal income tax; the 10% with the highest income paid nearly 66% of the total income tax; the top 25% paid 84% of the income taxes; and the upper 50% accounted for nearly 97% of US income tax revenue.[15] The US has a progressive tax structure which taxes less for smaller incomes. But the US does not directly tax wealth (apart from the estate tax).

Data, charts, and graphs

World distribution of household wealth by region and country

Main article: World distribution of wealth

world distribution of wealth by country (PPP)

world distribution of wealth by region (PPP)

world distribution of wealth by country (exchange rates)

world distribution of wealth by region (exchange rates)

Data for the following table obtained from UNU-WIDER World Distribution of Household Wealth Report (The University of California also hosts a copy of the report)

Table

Region Percent of world population Percent of world net worth (PPP) Percent of world net worth (exchange rates) Percent of world GDP (PPP) Percent of world GDP (exchange rates)
North America 5.17 27.1 34.39 23.88 33.67
Central/South America 8.52 6.51 4.34 8.49 6.44
Europe 9.62 26.42 29.19 22.8 27.06
Africa 10.66 1.52 0.54 2.36 1.01
Middle East 9.88 5.07 3.13 5.69 4.1
Asia 52.18 29.4 25.61 31.07 24.1
Other 3.14 3.7 2.56 5.4 3.38

See also

References

  1. ^ http://www.iariw.org/abstracts/2006/daviesa.pdf
  2. ^ "Why it is hard to share the wealth"
  3. ^ Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, ISBN 0-14-044388-6
  4. ^ "... A perceived sense of inequity is a common ingredient of rebellion in societies ...", Amartya Sen, 1973
  5. ^ Francis Bacon, Of Seditions and Troubles
  6. ^ Karl Marx and Frederick Engels, The Communist Manifesto, Filiquarian, 2007, ISBN13: 978-1599869957
  7. ^ Archie Brown, The Rise and Fall of Communism, Ecco, 2009, ISBN 9780061138799
  8. ^ Jeffrey D. Sachs, The End of Poverty, Penguin, 2006, ISBN: 978-0143036586
  9. ^ The World Almanac
  10. ^ OPEC to earn $1.251 trillion from oil exports - EIA, Reuters
  11. ^ a b The World Distribution of Household Wealth. James B. Davies, Susanna Sandstrom, Anthony Shorrocks, and Edward N. Wolff. 5 December 2006.
  12. ^ The rich really do own the world 5 December 2006
  13. ^ Kromkowski, "Who owns Baltimore", CSE/HGFA, 2007.
  14. ^ Phillips, Peter (2006). Censored 2007:The Top 25 Censored Stories. Seven Stories Press. p. 207. ISBN 1583227385. 
  15. ^ http://www.ntu.org/main/page.php?PageID=6

External links

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