The rich really do own the world

A major study of wealth distribution reveals the richest 2 per cent own more than half of global household assets

ESTANISLAO OZIEWICZ From Tuesday's Globe and Mail

For those who aren't wealthy, it seems blindingly obvious that the rich own the world. Now, in a first-ever exhaustive study of global wealth, it's clear just how inequitably the riches are spread around.

The richest 2 per cent of adults own more than half of global household wealth, and almost all of the well-heeled live in North America, Europe and richest Asia-Pacific countries.

While previous global surveys have studied income, this is the first wide-ranging analysis of the international distribution of wealth, defined as the value of physical and financial assets minus liabilities.

"We find there's a lot of inequality, which is what we expected and is not that surprising," said University of Western Ontario economist James Davies, who was a co-author of the study, conducted by the Helsinki-based World Institute for Development Economics Research of the United Nations. "But it turns out, the world distribution of wealth [assets minus debts] is more unequal than the world distribution of income."

The United States is the richest country, with a mean wealth in the year 2000 of $144,000 (U.S.) per person. Canada has a mean wealth of $89,000 per person.

"Wealth in this sense represents the ownership of capital," the study says. "While only one part of personal resources, capital is widely believed to have a disproportionate impact on household well-being and economic success, and more broadly on economic development and growth."

The study estimates that the richest 1 per cent of adults alone owned 40 per cent of global assets in 2000, and that the richest 10 per cent of adults accounted for 85 per cent of the world total.

By contrast, the bottom half of the world adult population owned barely 1 per cent of global wealth.

The research finds that assets of $2,200 per adult places a household in the top half of the world wealth distribution.

To be among the richest 10 per cent of adults in the world required $61,000 in assets, and more than $500,000 was needed to belong to the richest 1 per cent. The latter figure, according to the study, is surprisingly high since it represents 37 million adults and is "therefore far from an exclusive club."

Not surprisingly given its massive economic surge and the size of its population, China is a rising star and accounts for 8.8 per cent of world household wealth. At the same time, the distribution of wealth within China is getting more unequal.

"The growth of the Chinese economy, greater prosperity of people there, has got an equalizing impact on the world distribution of wealth, but there is increasing inequality within China," Prof. Davies says.

According to the study authors, China is already likely to have more wealthy residents than its data reveal for the year 2000, and membership of its super-rich seems set to rise quickly in the next decade.

"Back in the year 2000, there were one or two billionaires in mainland China," said Prof. Davies, citing a Forbes list of wealthiest people. "But the number has gone up to five or six by now, so it's a period of rapid change."

A small number of countries account for most of the wealthiest 10 per cent in the world. One-quarter are Americans and another 20 per cent are Japanese, who tend to have a very strong preference for liquid savings, according to the research.

The two countries feature even more strongly among the richest 1 per cent of individuals in the world, with 37 per cent living in the United States and 27 per cent in Japan.

Prof. Davies said he was particularly struck by one result of the study, which undermines the notion that poor people in low-income countries are mired in debt.

"It's true that there are people heavily indebted in poor countries. But for a couple of reasons there is not that much use of debt and borrowing there as in high-income countries. . . . "The other aspect is that a lot of people in poor countries are leading very precarious lives. One way to react to that is to try to build up your assets as a buffer against things that can go wrong," he said, giving as an example the hoarding of small quantities of gold.

Prof. Davies said the results of the research will provide a baseline for future studies on where the world is going.

"The trend over the last 20 to 25 years has likely been more concentration of wealth, simply because that's been observed for income. . . . Where we're going in the future depends on a lot of things, for example on what happens to major economies like China and the evolution of wealth in those countries."

A piece of the pie

By taking into consideration total assets minus total debts, the first-ever study of global wealth distribution finds that a net worth of $2,161 (U.S.) is enough to belong to the top half of the world's wealth, but to be a member of the top 10 per cent requires at least $61,000 and membership of the top 1 per cent requires more than $500,000 per adult.

Where the wealthy live

Percentage breakdown of the world's wealthiest 1%

United States: 37%

Germany: 4%

Italy: 4%

France: 5%

Britain: 6%

Japan: 27%

Netherlands: 2%

Canada: 2%

Spain: 1%

Switzerland: 1%

Taiwan: 1%

Rest of world: 10%

What the rich own

1% of richest adults

own

40% of total global wealth

2% of richest adults

own

51% of total global wealth

5% of richest adults

Own

71% of total global wealth

10% of richest adults

Own

85% of total global wealth

SOURCE: UNU-WIDER RICHARD JOHNSON/THE GLOBE AND MAIL