Raphael ThysThe global financial system remains distinctly opaque in the 21st century, despite recent announcements about the end of tax evasion and financial secrecy. In practice, researchers, journalists, citizens, and public servants still encounter serious difficulties in tracking income and wealth flows across the world. Let us say at the onset that this situation is the consequence of policy choices and is not inevitable. In the digital age, inequality is omnipresent, but often missing from public statistics. It is paradoxical, for instance, that tax administrations and the general public across the world often learn about the extent of wealth inequality through fortune magazines. In principle, tax authorities should collect and publish information on how different wealth groups fare in the global and national economies, from the very poorest to the very richest1.
Without such information, it is impossible fully to understand the impacts of monetary, budget and tax policies on the economy, and impossible to make governments accountable for their choices. Certain magazines (Forbes, Bloomberg), and a handful of financial institutions (for instance, Credit Suisse) have been producing billionaire wealth estimates for several years. These studies find that the wealth of top wealth holders have been increasing at very high speed in recent decades—substantially faster than the size of the world economy—and we agree with this general conclusion. However, the methods used by these institutions often lack transparency; in particular, they do not release their raw data sources or detailed methodologies, so it is impossible to reconstruct their statistical results. This is not merely a technical question; methodological choices can have a significant impact on the measured changes in wealth inequality, and transparency of methods and sources is crucial if we want to reach better agreement about the facts of inequality.
Moreover, while billionaire data is important, it is not sufficient for a full grasp of the dynamics of wealth inequality in a given country and around the world. It is equally important to understand the dynamics of wealth at the bottom of the distribution (say, the poorest half of the population), among the middle class, and among the very wealthy non-billionaires. In particular, we stress the importance of millionaires and multi-millionaires, i.e. individuals with a few million or sometime a few dozen or hundreds of millions—but not billions—of dollars in assets, and who collectively possess much more wealth than the billionaires, as we see below.
The WID.world project seeks to address these issues of scope and methodology by providing estimates on the entire distribution of wealth, from the poorest groups to the richest. We also make very clear what we know and do not know about wealth inequality, and we publish all our assumptions and methodology online so that anyone interested in contributing to this work can do so. In recent years, we have partnered with several statistical institutions, tax administrations, and international organizations to improve our common understanding of wealth inequality. A lot of work remains to be done before we fully understand the dynamics and drivers of wealth concentration worldwide, but we are starting to get a good picture of many important facts and trends about global wealth inequality, which we present below.
In Chapters 1 and 3, we presented some insights into global wealth inequality. In this chapter, we focus on the distribution of global household wealth, i.e. the inequality of private wealth among individuals. We also look at how wealth inequality levels have changed in the past several decades, and more recently during the Covid-19 pandemic.
The total market value of household wealth possessed by individuals around the globe amounts to €377 trillion (or USD535 trillion), a value roughly equal to 4.4 times global income (factoring in the wealth of public actors and private foundations raises this value to €510 trillion, i.e. 5.9 times global income, see Chapter 1)2. Figure 4.1 shows the amount of household wealth owned by the global top 10% of wealth owners, the middle 40% and the bottom 50%. The top 10% owns collectively €285 trillion (76% of the world total), the middle 40% owns €85 trillion (22% of the total) and the bottom 50% owns €8 trillion (2% of the total)3. As discussed in Chapter 1, wealth concentration levels are particularly extreme: half of the world’s population is almost entirely deprived of wealth, while the top 10% owns nearly three quarters of it.
These statistics are based on wealth levels expressed at Purchasing Power Parity (PPP), in order to reflect differences in purchasing power across the world. Purchasing Power Parity definitely gives a more accurate picture of global inequality from the point of view of individuals who do not travel across the world and who essentially spend their incomes in their own countries. However, Market Exchange Rates (MER) are perhaps better to inform about inequality in a world where individuals can easily spend their incomes where they want. At Market Exchange Rates, the bottom 50% of the population owns just 1% of global wealth and the top 10% captures over three quarters of global wealth. While using PPP is standard practice when looking at global income inequality, it is less often used when discussing wealth inequality. But for talking about wealth, both PPP and MER can be relevant, depending on the question asked. When focusing on the bottom of the distribution of global wealth owners, using PPP values makes sense: €3,000 (at market exchange rates) in Ghana is a non-negligible amount of money, whereas €3,000 (at market exchange rates) in Germany is not very much. Using PPP helps us to grasp these differences: €3,000 in Ghana is worth the equivalent of a little more than €9,000 in Germany, given differences in the costs of goods and services in the two countries.
For the cases of global multimillionaires and billionaires, PPP is less suited, and Market Exchange Rates are more informative. Individuals possessing one billion dollars, whether in Ghana or Germany, typically spend large portions of their incomes and wealth globally rather than only in their home country. It therefore makes more sense to use Market Exchange Rates to study the wealth of the very rich and its implications in terms of taxation and redistribution, for instance. In this chapter, numbers are expressed in PPP because we focus both on the bottom and top of the global wealth distribution. In Chapter 7, where we focus more specifically on global multimillionaires and billionaires, and taxation issues, we use Market Exchange Rates. The World Inequality Database allows anybody to check wealth inequality levels in all countries, both at PPP and at MER.
To return to Figure 4.1, the rectangles inform about the geographical composition of each global wealth group. Colored rectangles show the relative wealth share of each region within wealth groups. For instance, the East Asia rectangle tells us about the amount of wealth owned by East Asians relative to other regions. It appears that East Asians, North Americans and Europeans make up the bulk of the global top 10%. More precisely, East Asians own 36% of the wealth of the global top 10%, North Americans and those from Oceania own about 21% of it and Europeans 22%. If there were no wealth inequalities, then these shares would be equal to each region’s share of the global population: about a third for East Asians, 15% for Europeans, and 21% for North Americans.
