Wealth inequality

I have written before about the fact that, both in advanced and so-called ’emerging economies’, wealth is significantly more unequally distributed than income.  Moreover, the pro-capitalist World Economic Forum has reported that: This problem has improved little in recent years, with wealth inequality rising in 49 economies.”

The usual index used for measuring inequality in an economy is the gini index. A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of one (or 100%) expresses maximal inequality among values (e.g., for a large number of people where only one person has all the income or consumption and all others have none, the Gini coefficient will be nearly one).

For the US, the current gini index for income is 37.8 (pretty high by international levels), but the gini index for wealth distribution is 85.9! Or take supposedly egalitarian Scandinavia. The gini index for income in Norway is just 24.9 but the wealth gini is 80.5!  It’s the same story in the other Nordic countries.  The Nordic countries may have lower than the global average inequality of income but they have higher than average inequality of wealth.

Another way of measuring inequality is to consider the share of wealth or income that the top 10% or top 1% etc have. And we can break personal wealth down into two main categories: property wealth and financial wealth. A larger section of the population has property wealth, although this is very unequally distributed. But financial wealth (stocks and shares, bonds, pension funds, cash etc) is the province of a tiny number of people and so is even more unequally distributed. The latest figure for the US for financial wealth inequality is truly staggering on this measure. The richest 1% of US households now own 53% of all equities and mutual funds held by American households. The richest 10% own 87%! Half of America’s households have little of no financial assets at all – indeed they ar in debt. And that inequality has been rising in the last 30 years.

And as the WEF says, after the huge rise in the prices of property and financial assets over the last 20 years, fuelled by cheap credit and reduced taxation, this concentration of personal wealth has increased sharply – something that Thomas Piketty in his book, Capital in the 21st century, highlighted several years ago.

The latest data for Italy, one of the top G7 economies, confirms this increased inequality of wealth. In a new study of Italian inheritance tax records, researchers found that the wealth share of the top 1% (half a million individuals) increased from 16% in 1995 to 22% in 2016, and the share accruing to the top 0.01% (the richest 5,000 adults) almost tripled from 1.8% to 5%.  In contrast, the poorest 50% saw an 80% drop in their average net wealth over the same period. The data also revealed the growing role of inheritance and life-time gifts as a share of national income, as well as their increasing concentration at the top. The huge wealth of a few individuals is getting larger because it can be passed onto relatives with little or no taxation.

But the concentration of personal wealth in the advanced capitalist economies is nothing compared to what is happening in the poorer nations of the world. A new study compared the inequality of wealth in South Africa against similar ’emerging economies’ and also historically since the end of apartheid. Extreme wealth inequalities in South Africa have got worse, not better, since the end of the apartheid regime. Today, the top 10% own about 85% of total wealth and the top 0.1% own close to one-third. South Africa continues to hold the dubious honour of having the worst wealth inequality among the major economies of the world. The South African top 1% share has fluctuated between 50% and 55% since 1993, while it has remained below 45% in Russia and the US and below 30% in China, France, and the UK. 

Top 1% wealth shares

But as I have argued before, real wealth concentration is about the ownership of productive capital, the means of production and finance. It’s big capital (finance and business) that controls the investment, employment and financial decisions of the world.  A dominant core of 147 firms through interlocking stakes in others together control 40% of the wealth in the global network according to the Swiss Institute of Technology. A total of 737 companies control 80% of it all.

This is the inequality that matters for the functioning of capitalism – the concentrated power of capital. And because inequality of wealth stems from the concentration of the means of production and finance in the hands of a few; and because that ownership structure remains untouched, any increased taxes on wealth will fall short of irreversibly changing the distribution of wealth and income in modern societies.

27 thoughts on “Wealth inequality

  1. Hm. I have a question about the Nordic countries.

    If the wealth Gini is so high in these countries, but that doesn’t change the fact that they have very high standards of living and very low poverty, doesn’t that mean that wealth inequality isn’t necessarily a good predictor of social outcomes, and that income inequality is superior in that regard?

    I’m not saying that Nordic countries are capitalism’s response to socialism. Even if we disregard the fact that they’re mixed economies with a strong regulatory role of the state, I am aware that their model isn’t reproducible everywhere, and that they’re very small countries that can occupy a niche in the capitalist system where services and high-tech industry are enough to support living standards, just like Switzerland and some other highly successful countries. I’m just saying that pointing to wealth inequality in the Nordics may not be the best attack on capitalism’s outcomes there is.

    1. The US military is the oil the even allows europe to function in the first place. Look at history. They’ve been in constant warfare for hundreds, even thousands of years. They’ve only been peaceful since we left troops there after WW2. Europeans would never cooperate with each other without US taxpayers spending billions to iron out their internal conflicts

      1. The US has been at war with some country or another for about 230 out of its 244 years of existence.

    2. DGE,

      Yes, it must be difficult for socialists to confront these inconvenient truths.

      And Keynesianism did somewhat dampen the socialist party.

      And let’s not mention the fact that just about every socialist country that arose in the 20th century adopted capitalist “reforms”.

      And we daren’t mention the brutal and appalling human rights record of past and current socialist regimes across the board.

      And of course Koestler’s grammatical fiction was a lie.

      Capitalism is responsible for its share of dastardly behaviour on many fronts, but socialism isn’t any better.

      1. Forgive me, but you’ve misunderstood.

        If I didn’t believe any equivalence between capitalism and socialism were false, I wouldn’t be trying to understand the economic foundations of socialism better. I frankly don’t want you or anyone to misconstrue what I said as a vindication of capitalism.

        I was merely saying that wealth inequality may not be a good metric, and I’m not even sure of that, I hoped Dr Roberts would elaborate. I clearly said the Nordic countries don’t prove anything about the success of capitalism, anymore than Cuba or the Soviet Union about the success or failure of socialism. There are plenty of failed capitalist states and other basket cases to engage in casuistry. (Including arguably mine.) If you believe capitalism can be corrected or improved based on past mistakes, suit yourself. I believe the same about socialism.

        In the course of the couple of years I’ve been reading this blog, I’m ever more convinced that Marxian theory explains the shortcomings of capitalism better than mainstream economics. Empyrical demonstrations abound, and the mechanisms are convincing. And for untested possibilities of socialism, I’ve been reading and listening to Prof Paul Cockshott while awaiting for Robin Hahnel’s new book on planning. I’m trying to keep an open mind, too: I wandered here from MMT, and I’m curious as to whether Dr Roberts can offer a refutation of the Austrians as he said he might in a reply to a comment to a recent post in this blog.

        I had to google Arthur Koestler because I had never heard of him. And given the wiki, I cannot say I’m the better off by knowing.

      2. DGE,
        You’re forgiven but your explanation clearly elaborates on what you didn’t say in your original post, not what you did say.

        No, I don’t believe capitalism can be improved or corrected based on past mistakes, but I do think capitalism must be abolished based on human needs.

        Separating Marx’s critique of capitalism from his advancement of socialism as the replacement for capitalism is to miss the point, and completely, of Marx’s economic argument.

      3. Anti-Capital, I was replying to Henry Rech.

        I don’t try to separate the critique of capitalism from the advancement of socialism, nor do I believe that’s a sound approach. I was specifically making a statement about wealth inequality as a metric to effectively criticise capitalism. And it was more a request for clarification.

        Heck, I wouldn’t have mentioned that I’m highly appreciative of Cockshott’s proposals for planning and direct democracy if I didn’t think capitalism belongs in the dustbin of history.

      4. DGE,

        “If you believe capitalism can be corrected or improved based on past mistakes, suit yourself. I believe the same about socialism.”

        I can’t see it until there is a profound shift in human nature. Socialism, in reality, inevitably fosters the worst aspects of capitalism and totalitarianism (the history of 20th century socialism demonstrates this).

        I see capitalism as socialism without the overt totalitarianism, but in need of deep and extensive reform.

        Koestler wrote “Darkness At Noon”. One of the theme’s in his novel was the grammatical fiction, “I”. The individual has no value. The totalitarian State at every move suppresses and denies individual life. (I was of course being sarcastic in my comment above.)

      5. In case it wasn’t clear, I don’t really want to engage in discussing this here. My impression can be summarised in this: all experiments in socialism are seen as not only flawed, but a demonstration that socialism cannot work; whereas every country in the receiving end of the worst aspects of capitalism (or people in the receiving end even in developed countries) are dismissed as something that can be corrected, and never as indication that something is wrong about the system.

        And I’m sorry, but I have to say there’s nothing more ahistorical than this talk of human nature this, human nature that. That’s a non-descriptor. Talk of human greed, self-interest, atavic impulses as the determiners of social life are not born out by history. “Human nature” has changed a lot, and we have organised ourselves differently, upheld different values, had different taboos, formed different families, earned our lives differently, in different places, at different times. You’re echoing Fukuyama’s end of history nonsense, and frankly, I don’t think there’s any common ground for us to get anywhere. Your talk of totalitarianism is Arendt all over again: instead of relations of production, class relations, we have behavioural descriptions that conveniently result in putting fascism and communism into the same basket.

        It’s not the Marxian method, and there’s no point in talking about that in a Marxian blog. People who come here aren’t stupid. I arrived here not because of some sort of Damascene conversion, but because of everything I’ve read about how the world works, the best empyrical, systematic, encompassing version was the story told by the Marxist method. I.e., that relations of production and transaction determine how a society organises itself. If you don’t believe that, and think that innate human traits determine that capitalism is the only reasonable way to exist in civilised society, then… you’re only here out of curiosity, not because you take any of this seriously.

        So let’s let the matter rest. Accept that we don’t see eye to eye, and show me the kindness to acknowledge I know your arguments, I know the mainstream view, and it’s not because of some sort of doctrinaire tunnel vision that I’m wasting my time educating myself about socialism.

    3. DGE,

      “…..you’re only here out of curiosity, not because you take any of this seriously.”

      Yes that’s true, to a point. I am interested in learning about Marxist theory but applying it, no.

      History clearly shows that the application of Marxist theory by various interpreters of it was an aberration and disastrous.

      “…instead of relations of production, class relations, we have behavioural descriptions that conveniently result in putting fascism and communism into the same basket.”

      Yes again, except I would replace communism with socialism.

      If production and class relations was such a powerful predictor of the path of societal development why did 20th century socialism fail and fail abjectly?

      It failed because human beings were running the show.

    4. I think it’s just become fashionable among the post-2008 First World leftist/progressive circles to self-censor themselves and use the term “inequality” as a synonymous of “capitalism”.

      But yes, even the Nordic countries are showing clear signs of degeneration since the at least 1990s. You can argue if that’s due to inequality per se or not, but not the thing in itself.

      1. vk, while I haven’t followed the situation in the Nordics closely, I don’t doubt it.

        In the long run, one of the problems of capitalism is that even when it is tightly “leashed” as in the Nordics with their mixed economies and strong state sector, the wealthy fight tooth and nail, day in and day out, in a concerted way, to erode checks in expanding their wealth. And because pounding away at the strongest rock will eventually cause it to crack, it would be no surprise if they succeed in the Nordics… or in China, for that matter, which is why I’m still waiting for Dr Roberts’ promised series on China. Give it enough time, and capitalism slithers through any cracks.

        In a sense, what happened due to Covid-19 in Sweden illustrates what you say. A Swedish friend of mine responded affirmatively to my question whether it was true that the reason so many people died in nursing homes for the elderly was that they were the one sector of the welfare system that had been privatised. Thus we got to personnel cuts and savings that resulted in staff working in multiple centres and carrying the virus from one to other, among other problems that caused Sweden to rival Brazil in death rates, in contrast with the rest of the Nordics. So yes, inequality is a consequence of capitalism, and unequal outcomes are beginning to pop up even in showcases of capitalism’s “success”.

        Which is why I’m so keen on trying to understand whether socialism can learn from the past and recreate itself as a system that actively prevents the appearance of a privileged class that will work to undermine it. I believe it has a better shot than anarchism, and which is why I’ve been dabbling in direct democracy ideas.

  2. Of course inequality will continue increasing as long as the trends of raising minimum wage and increasing the proportion of population on government benefits continue increasing also. All democrat policies are designed to increase inequality. That’s what they want. In capitalist society, money is power, they manipulate the money to increase their own institutional power. The slavery and segregation promoting democrat party is and always has been a scam.

  3. Forgot to add proportion of government spending in the economy. People don’t understand it’s all in the numbers. All of this social justice stuff is absolute nonsense. Regulations are what cause inequality.

  4. In the USA, each year we import over a million uneducated and non skilled people. We do not have a merit based immigration system. We are importing severe inequity. Knowingly. It will take generations for these people to catch up. This is not sustainable

    1. Henry, socialism and capitalism aren’t abstract ideological constructs. They are historically evolved social orders. Socialism is humanity’s response to capitalism’s inhumanity. The worst sociaiist response to capitalism’s endless wars of accumulation and ecological disasters (like the present pandemic) is better than capitalism’s necessarily profit driven, hypocritical response.

      1. mandm,

        “They are historically evolved social orders.”

        Socialism “evolved” out of the barrel of a gun. Capitalism did naturally evolve (not that that justifies anything about capitalism).

        “Socialism is humanity’s response to capitalism’s inhumanity.”

        Fair enough but to argue your next point is flying in the face of historical fact. A totally unbelievable argument. Socialism has created oceans of blood and misery for countless millions. I won’t bother cataloguing the history (and current abominations) because your point is such patent nonsense.

    2. Merit-based? How Trumpian of you. What a way to reduce inequality, by “importing” only the already privileged, wealthy, “worthy” of a society generates privilege and wealth while immiserating millions.

  5. Inequality is immoral and it diminishes the lives of all those exploited. But there is another side to this which needs to be exposed. It increases the fragility of capitalism itself, not only politically through anger and resentment but also economically. I will address the second point only . Since 2016 the world economy has become increasingly dependent on capital gains particularly from the share and bond markets which are now priced at close to 200 trillion dollars. Of this the USA commands 40%. Much of the increased wealth of the top 1% are a function of the growth of this fictitious capital. This is highly problematic because since 2014 the rate of profit itself has been falling globally. The result is economies driven primarily by capital gains rather than productive investment. This unhealthy state of affair made possible by low interest rates is not a permanent fix, instead central banks are buying time at the cost of piling up debt, and as the saying goes, all good things come to an end, or is it bad things, in this case. One can only wonder open mouthed at the crash to come.

  6. I would prefer to live in a classless democracy where the collective product of labour and natural resources were under common ownership. The bottom 90% would not only be wealthier, they’d all enjoy greater sense of well being as the norms of daily life would be materially based on equal political power between all men and women.

    Hey, but I get it. Most of you don’t want to live in such a society. That’s why you do nothing to establish production of wealth for use, with distribution based on need, while we all do our best not to soil our nest and live in harmony with the ecosphere as opposed to treating it like a commodity for sale, just as we now accept the wage system, a system which turns us into wage-slaves who have to sell our skills to employers for their market price in order “to make a living”.

  7. Pareto distribution the natural law that will always be true whether in a capitalist or marxist system

    1. This is false. Nature (and the universe) is Pareto rule only because it is an uneven system. But the inequality is correctable and so is the Pareto rule. Human society with socialism and in a few more decades, will take the last historical step, from primitive communism, to eliminate Pareto and economic inequality. Esto es ciencia y no la simplista , obtusa y obsoleta regla de Pareto.

      1. There is also no TODAY Pareto Distribution in the following economic systems: a) .- Cooperative Societies (Mondragón, etc. .. Companies are the territory, area and social economic subject No. 2, the smallest subject and previous in time to the countries b) There is no D. Pareto in most families. It is the territory, scope and economic subject No. 1. The settlement of the Pareto rule in countries, which are the territory, scope and subject No. 3, is only a question of size and time. It is exactly a question of 12,000 years from the last Paleolithic villages in which primitive communism prevailed, and for 1 million years. Communism was imposed because of the small size of its villages. Small size of the territory that gives rise to a similar knowledge and productivity in most of its individuals, and common knowledge that prevents inequality. The first globalizations from those communist villages to territories and subjects with different productivities are the only initial cause of inequality.

    2. I have seen apologists capitalism/wealth inequality use this argument ie: that Pareto distributions (the “80-20” rule) can be found in numerous natural phenomena, therefore economic inequality is somehow “natural.” This is an unsound inference: in the first place, wealth in capitalist countries is far more concentrated than 20% controlling 80% of the wealth, in the second place the argument uses cherry-picking: natural phenomena that don’t fit this “law” are ignored. Most importantly, human society is, unlike the natural phenomena that Pareto fans use, not a blind/random mechanism because human beings can think and plan. The causes/conditions that result in wealth inequality ( particularly the anarchy of the market) can be eradicated through planning without violating any natural laws.

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