Distribution of wealth


World Distribution of Wealth and Population in the Year 2000

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 a manner 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. Wealth needs to be differentiated from income because wealth is accumulated, while income is offset by expenses, which are an outflow of items of economic value. 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 (I.A.R.I.W.), "It is found that 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 (debt). For example, Thomas Jefferson had a large income all his life, and yet died $100,000 in debt. His contempory, John Adams had a small but steady income but lived thriftily and died with $100,000 in assets.[2]

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.[3] All indicators belonging to income inequality metrics also 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 capital and diminish extreme inequalities of wealth.

Examples of this practice go back at least to the Roman republic in the third century B.C.,[4] 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[5] 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."[6]

Communism is based on the idea that the state should enforce equal wealth for all citizens. The common slogan is, "From each according to his ability, to each according to his need." Critics of state-managed economies, notably Milton Friedman, point out that this slogan turns ability into a liability and need into an asset. The former Soviet Union and The People's Republic of China as examples of countries where, despite aggressive economic regulation, wealth continues to be distributed unevenly.

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 have an elected government with relatively fair and open elections, a mixed economy with a capitalist business sector combined with socialist benefits for the poor and working classes, individual freedom, relatively low corruption, equal rights for women, and a low birth rate. Almost all of the poorest countries have a dictator or president-for-life, a government controlled economy, a value system in which the tribe is more important than the individual, relatively high corruption, unequal rights for women, and a high birth rate.[7]

Charity

In addition to government efforts to redistribute wealth, the tradition of individual charity (such as tithing) is a voluntary means of wealth transference. There are also many voluntary charitable organizations making concerted efforts to aid those in need.[citations needed]

21st century

At the end of the 20th century, wealth was and still is concentrated among the G8 and Western industrialized nations, along with several Asian nations. The OPEC countries are also wealthy. An Energy Information Administration report stated that OPEC member nations were projected to earn a net amount of $1.251 trillion in 2008 from their oil exports, due to the record crude prices.[8]

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 barely 1% of global wealth. Extensive statistics, many indicating the growing world disparity, are included in the available report, press releases, Excel tables and Powerpoint slides.[9] Moreover, another study found that the richest 2% own more than half of global household assets.[10] Despite this, the distribution has been changing quite rapidly in the direction of greater concentration of wealth.[11]

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. [12]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% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.[13]

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

References

  1. ^ http://www.iariw.org/abstracts/2006/daviesa.pdf
  2. ^ David McCullough, John Adams, Simon & Schuster, 2001, ISBN 9780684813639, p. 648
  3. ^ "Why it is hard to share the wealth"
  4. ^ Livy, Rome and Italy: Books VI-X of the History of Rome from its Foundation, Penguin Classics, ISBN 0-14-044388-6
  5. ^ "... A perceived sense of inequity is a common ingredient of rebellion in societies ...", Amartya Sen, 1973
  6. ^ Francis Bacon, On Atheism
  7. ^ The World Almanac
  8. ^ OPEC to earn $1.251 trillion from oil exports - EIA, Reuters
  9. ^ a b The World Distribution of Household Wealth. James B. Davies, Susanna Sandstrom, Anthony Shorrocks, and Edward N. Wolff. 5 December 2006.
  10. ^ The rich really do own the world 5 December 2006
  11. ^ "Wealth Inequality Charts"
  12. ^ Kromkowski, "Who owns Baltimore", CSE/HGFA, 2007.
  13. ^ Phillips, Peter (2006). Censored 2007:The Top 25 Censored Stories. Seven Stories Press. p. 207. ISBN 1583227385. 

See also

External links

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