Much of Adam Smith’s classic treatise on “The Wealth Of Nations” is not really about wealth at all, but about income. The two concepts are different: income is the flow of money a nation or household receives in a given lapse of time, say a year. Wealth, conversely, is the stock of capital assets the nation or household have accumulated over their lifetime, minus debts. The difference matters, but how much is hard to say.
On the one hand the distribution of income has been debated over and over but, on the other hand, the distribution of wealth has been largely ignored. This is so because whereas it is relatively simple to measure global income inequality, to measure wealth is an entirely different story. This is all the more true in this time and age, when the richest 10 percent of adults in the world own 85 percent of global household wealth, while the bottom half collectively owns barely 1 percent.
Even more strikingly, with the appreciation of real property assets particularly in Western nations, the average person in the top 10 percent of wealthy adults owns nearly 3,000 times the wealth of the average person in the bottom 10 percent.
In everyday conversation the term ‘wealth’ often signifies little more than ‘money income’. But the economic interpretation of wealth is much broader and encompasses the value of all household resources, both human and non-human, including the ownership of real capital. Although real capital is only one part of all personal resources, it is widely believed to have a disproportionate impact on household well-being and economic success, and more broadly on economic development and growth.
The World Institute For Development Economics Research (WIDER) in Helsinki has now attempted to measure personal wealth, which includes real estate, financial assets, consumer durables and even livestock. Specifically, estimates of wealth levels are based on household balance sheets and wealth survey data, which are available for 38 countries. These include many of the rich OECD countries, that is those nations members of the Organization For Economic Cooperation And Development, as well as the three most populous developing countries, China, India and Indonesia; so the data cover 56 percent of the world’s population and 80 percent of all household wealth.
The researchers at WIDER found that wealth levels vary widely across nations. Among the richest countries, mean wealth measured in US Dollars was $144,000 per person in the USA and $181,000 in Japan. Lower down among countries with wealth data are India, with per capita assets of $1,100, and Indonesia with $1,400 per capita. Even within the group of high-income OECD nations the range includes $37,000 for New Zealand, $50,000 for Denmark and $127,000 for the UK.
The regional pattern of asset holdings shows wealth to be heavily concentrated in North America, Europe, and high-income Asia-Pacific countries which together account for almost 90 percent of all global wealth. Although North America has only 6 percent of the world adult population, it accounts for 34 percent of household assets. Europe and high-income Asia-Pacific countries also own disproportionate amounts of wealth. In contrast, the overall share of wealth owned by people in Africa, China, India, Russia and other lower income countries in Asia is considerably less than their population share, sometimes by a factor of more than ten.
So, how wealthy are you compared to the rest of the world?
If you have more than $2,161 in net worth, defined as the overall value of your capital and financial assets minus debts, you belong to the wealthier half of the human race. If you are lucky enough to own more than $515,000, you belong to the top 1 percent of wealthy mankind, although this is hardly an exclusive club, since it contains 37 million adults just like yourself.
The top ranks are dominated by the Japanese, Americans and Europeans, in that order. China occupies the middle ground. Throughout the globe, wealth is shared much less equitably than income: more than one-half of it is held by just 2 percent of the world’s adults. The distribution is equivalent to a world of ten people, in which one had $1,000 and the other nine had $1.00 each.
Furthermore, there are some appalling results as well. Many people in poor countries have next to nothing, but quite a lot of people in affluent countries have even less than that, since their liabilities exceed their assets (negative net worth). Take Sweden, for example: the bottom half of all Swedes have a collective net worth of less than zero. And this is a characteristic of pretty much all Nordic countries, due in large part to their social welfare set-up. Sweden, for example, has a wealth per head of $39,000 – less than South Korea.
Someone ought to tell the Swedes that ownership pays.