Do you own more than $61,000 worth of net assets? If you are reading this in Europe or the US chances are that you do. It puts you in a position of privilege, that of being in the top 10 percent of the world’s richest people. If you are also a homeowner and live in a modern capital city like London, Tokyo or Riyadh, it is likely you are part of the global elite: The 37 million people who own more that $500,000’s worth of net capital or more dramatically the 1 percent who own 40 percent of global wealth.
The United Nations University’s World Institute for Development Research has just published the first ever study of global household assets. Using complex statistical techniques, the researchers used the data from the 38 countries for whom full statistics are available and extrapolated estimates for the rest of the world. This means that for the first time, we can see a global map of wealth and wealth distribution.
There are no surprises. It is very much a case of the usual suspects. The world’s rich are concentrated in North America, Europe, Australia and Japan. The world’s poor are concentrated in Africa, the Indian Subcontinent and the lower-income Asian countries such as Indonesia. The pattern is similar to that of income distribution except that the differences between rich and poor are even more pronounced. Average wealth per capita in the US was $144,000 in 2000. In Japan it was $181,000. Compare that to India: $1100 or Indonesia: $1400. It’s mind-boggling.
My economics is sufficiently right of center to consider that an unequal distribution of wealth is not in itself an evil that needs to be redressed. Wealth is not a fixed pie; one man’s wealth is not another man’s poverty. However, it takes wealth to create wealth. Those of us who are wealthy have by our very wealth access to resources that will help us become wealthier. And that is unfair.
As a human being I also find it unacceptable that in a world where 37 million people own more than $500,000 each, there are also 800 million people living below the poverty line.
But what can those 37 million do that they don’t already do? Recent history has shown that giving handouts is not the answer. Emergency aid is fire fighting, it does not materially change the circumstances of the poor. It does not create wealth.
And creating wealth is key. In some ways wealth is more important than income, particularly in developing countries. For one thing, capital is security; it provides a safety net for the proverbial rainy day. Capital is also the cornerstone of investment; the poorer you are the harder it is to lift yourself out of poverty.
As countries develop, so too do their financial services shifting the emphasis from wealth to income. The privileges of wealth include access to credit and insurance.
I’m not very fond of bankers but I have to admit that one of the reasons I am relatively wealthy is that I have access to financial services. If I want to buy a home, I can apply for a mortgage. If I want to start a business, I can apply for a loan. I can use my wealth to create more wealth.
My wealth also gives me access to insurance. I am a great fan of insurance; it allows me to sleep better at night. Though it cannot protect from all eventualities, it goes a long way toward providing a safety net. If I have an accident, if my house burns down, if I contract a debilitating disease, I am unlikely to find myself destitute. I do not have to worry about my livelihood disappearing overnight, whereas this is a constant anxiety for people living below or near the poverty line. And they are at the mercy of more than a rainy day; they live unsheltered lives where draughts, famines, earthquakes, hurricanes and disease can strike at any moment. If anyone needs insurance, they do.
Clearly developing innovative ways to give the world’s poor access to the financial services we take for granted is crucially important. We need more people like Muhammad Yunus who along with Grameen Bank, the bank he created, won this year’s Nobel Peace Prize. Yunus is a pioneer of micro-credit, a simple idea that has enabled millions of people to get out of poverty. Micro-finance has developed rapidly, particularly in South East Asia, and micro-insurance is now following suit. Slowly insurance companies are beginning to see the potential of the micro-insurance market and developing schemes in partnership with nongovernmental agencies in the field.
This study used data from the year 2000. It found that more than half of the world’s richest people — those in the 1 percent percentile — live in either the US or Japan. It also found that half of the world’s population own less than 1 percent of the world’s wealth. What will be interesting to see is how these figures change in the next few years. How will China and India’s economic growth redraw the wealth map? Most likely it will mean that more high net worth individuals will be living in China and India but the overall disparity between rich and poor will remain unchanged. This study estimated the GINI coefficient for world wealth to be 89 percent — shockingly close to perfect inequality. This means that in any group of ten people, one gets $1000 and the other nine only get $1 each. An unequal distribution of wealth may be natural but surely the current global distribution is more than unequal; it is obscene.
