Study Finds Wealth Inequality Is Widening Worldwide
By EDUARDO PORTER
Published: December 6, 2006
Experts have long worried about the skewed
distribution of the world’s income, with vast rewards
massing in the hands of a wealthy elite and precious
little left over for the vast majority of the global
population.


But even as income inequality has reached near record
levels in many countries, the distribution of the
world’s wealth — things like stocks, bonds or physical
assets like land — has become even more narrowly
concentrated than income, according to a new report by
the World Institute for Development Economics Research
of the United Nations University.

In 2000, the top 1 percent of the world’s population —
some 37 million adults with a net worth of at least
$515,000 — accounted for about 40 percent of the
world’s total net worth, according to the report.

The bottom half of the population owned merely 1.1
percent of the globe’s wealth. The net worth of the
world’s typical person — whose wealth was above that
of half the world’s population and below that of the
other half —was under $2,200.

The widening gap between the global haves and the
have-nots in large measure reflects the failure of
less- developed countries to develop, while rich
countries — particularly the United States — have
experienced fast economic growth and a spectacular
buildup of assets.

“Developed countries have pulled ahead of the rest of
the world,” said Edward N. Wolff, a professor of
economics at New York University who is a co-author of
the new study. “With the notable exception of China
and India, the third world has drifted behind.”

Moreover, poorer nations face many obstacles to
amassing wealth, including sketchy property rights and
land tenure systems, and underdeveloped financial
markets. Rich countries have developed financial
products like 401(k) defined-contribution pension
accounts, which spur wealth accumulation.

Global inequality in wealth may well be somewhat lower
today. The data in the report is six years old. Fast
growth and wealth accumulation in China and India
since 2000 are likely to have closed the average gap
between the rich world and the poor.

Americans have amassed much of the world’s treasure.
According to the report, in 2000 the United States
accounted for 4.7 percent of the world’s population
but 32.6 percent of the world’s wealth. Nearly 4 out
of every 10 people in the wealthiest 1 percent of the
global population were American.

The average American had a net worth of nearly
$144,000, losing only to the average Japanese, who had
$180,000, at market exchange rates; the average person
in Luxembourg, who had $183,000; and the average
Swiss, who had $171,000.

By contrast, in 2000 the average Chinese had a net
worth of roughly $2,600, at the official exchange
rate. China, home to more than a fifth of the world’s
population, had only 2.6 percent of the world’s
wealth. And India, with 16.8 percent of the world’s
people, accounted for only 0.9 percent of the world’s
wealth.

Among Americans, wealth is distributed about as
unequally as it is around the globe. The new study
cited data from the Federal Reserve’s Survey of
Consumer Finances, which found that the richest 1
percent of Americans held 32 percent of the nation’s
wealth in 2001. (This excludes the billionaires in the
Forbes list, who control roughly another 2 percent of
the nation’s wealth.)

This tops the inequity in every country but
Switzerland, among the 20 nations that measure these
wealth disparities and are cited in the report. And it
vastly outstrips the inequality in the distribution of
income. A recent study by Emmanuel Saez of the
University of California, Berkeley, and Thomas Piketty
of the École Normale Supérieure in Paris, found that
in 2004 the top 1 percent of Americans earned a higher
share of the nation’s income than at any time since
the 1920s. Still, that share was only 16 percent.

The authors of the new study acknowledged that their
results were a little rough. Wealth is difficult to
measure accurately, and many countries do not even
try. For many countries, the authors had to impute
data, making several assumptions.

Worldwide wealth comparisons become somewhat less
skewed when they use so-called purchasing power
parities — the exchange rates at which products like a
quart of milk or a TV set would cost the same thing
everywhere. They correct distortions resulting from,
for instance, the undervaluing of the Chinese yuan,
and reflect more accurately the purchasing power of
typical consumers in different countries.

Using this method, the United States still comes out
on top but with a smaller share — about a quarter of
the world’s wealth. And China’s share jumps to about
8.8 percent.

Income inequality shows few signs of abating in most
countries. Still, there is evidence that the global
gap in wealth may close somewhat over coming years.
Paradoxically, the reason is the fast growth of China
and India.

Inequality is growing rapidly in both those countries.
As tens of millions of Chinese and Indians climb out
of poverty, they are leaving tens of millions of less
fortunate Chinese and Indians behind.

But even as wealth and income become more unevenly
distributed within China and India, these hundreds of
millions of people making their way into the middle
class and accumulating assets will actually make
global wealth distribution more equal than it was
before.

“China and India are definitely an offsetting factor,”
said James B. Davies, a professor of economics at the
University of Western Ontario and director of the
world institute’s program to study global wealth
accumulation and a co-author of the report. “If they
weren’t rising in the ranks of the world’s wealthy,
inequality would be increasing at a fairly good rate.”

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