are many estimates of income inequality, both between
and within countries, and even a flourishing debate
about the extent to which income inequalities have
been growing in the recent past. And it is also commonplace
to assume that income inequalities are closely related
to asset (or wealth) differentials. After all, wealth
allows households to use their resources to greater
advantage and therefore get higher incomes; more income
enables households to accumulate wealth.
Despite this, there has been little or no careful
investigation into the actual extent of wealth inequalities
in the world. Part of the problem has been defining
wealth; another has been the relative paucity of data
that would allow for cross-country comparisons and
assessments of wealth distribution over time within
A new study by the UN University's World Institute
for Development Economics Research ("The world distribution
of household wealth" by James B. Davies, Susanna Sandstrom,
Anthony Shorrocks, and Edward N. Wolff, UNU-WIDER
5 December 2006) is therefore especially interesting,
for it provides the first careful consideration of
the extent of wealth inequalities in the world as
a whole as well as within countries.
Broadly speaking, personal wealth covers all the resources
controlled by households, although of course that
can be difficult to define and measure. In this study,
wealth is interpreted as "net worth", that is, the
value of physical assets (such as land and tangible
property) and financial assets minus liabilities.
This therefore is essentially the ownership of capital
by households, and excludes the assets held by corporate
entities. So the study is really about the distribution
of purely personal wealth.
Obviously, such assets are only part of personal resources,
and recently there has been much focus on the aspect
of "human capital" or skills, as an important factor
in determining economic opportunity. However, the
authors recognise that control over physical and financial
capital can have a disproportionate impact on household
well-being and economic success. It also affects overall
economic development and growth in societies as a
The study finds, not surprisingly, that there is extreme
inequality in wealth distribution in the world as
a whole, both across countries and within countries.
Also, the distribution of personal wealth in the world
turns out to be much more concentrated than the distribution
of personal income. According to the study, for the
world as a whole the share of the top 10 per cent
was 85 per cent in the year 2000 and the Gini coefficient
(a measure of inequality between 0 and 1) equalled
0.892 at official exchange rates.
This is an extraordinarily high value of the Gini
coefficient and indicates extremely high concentration
of wealth. For comparison, it can be noted that a
recent study by Branko Milanovic found the Gini coefficient
of world income to be 0.795 in 1998.
As expected, the US is found to be the richest country
even in personal wealth terms. The average wealth
per person in the US is estimated to have been $144,000
in 2000. This compares with around $6,500 per person
(in purchasing power parity or PPP terms) in India,
which is at the bottom of the list of countries with
wealth data. However, this does not mean that this
is actually the lowest per capita wealth of all countries.
The data used in the study are not comprehensive,
and so a number of poor countries have been excluded
for want of adequate data. So the actual wealth inequality
across countries is likely to be even higher.
The study also finds that the concentration of wealth
within countries is high. Typical Gini coefficients
for wealth distribution within countries lie in the
range of about 0.65 - 0.75, and there are several
above 0.8. In contrast, the mid-range for the Gini
coefficients for income distribution is from about
0.35 – 0.45. So the concentration of wealth has become
more acute than the concentration of income.
Many people argue that it is better to use Purchasing
Power Parity (PPP) rather than official exchange rates
in inter-country comparisons of income, and this has
generally become the common practice. It is certainly
true that the concentration of wealth is less marked
when it is measured on a PPP basis, and also less
on per adult (rather than per person) basis.
However, the authors argue that using PPP is not so
relevant for wealth comparisons. The reasoning is
that in most countries, a substantial proportion of
wealth is owned by people who can travel easily and
increasingly invest their assets globally rather than
within their own countries. This means that converting
at official exchange rates provides a more accurate
indicator of the actual distribution.
Using these official exchange rates and the available
data from countries that do have wealth statistics
provides some information that is startling even when
we are inured to inequality. In 2000, the richest
1 per cent of adults alone owned 40 per cent of global
assets, and the richest 10 per cent of adults accounted
for 85 per cent of total world assets. In contrast,
the bottom half of the world adult population owned
barely 1 per cent of global wealth.
While there are differences across countries, the
common worldwide phenomenon that is reiterated by
this study is the rise of the super-rich, especially
but not exclusively in the rich countries. Socio-political
trends across the world have contributed to this greater
tolerance of wealth inequality, but this will not