Talk:Wealth concentration

This article needs better support and to be written more clearly. Did Marx really write about CEO pay? I think not. — Preceding unsigned comment added by 67.51.122.18 (talk) 16:31, 16 January 2013 (UTC)

It could do with a discussion of Thomas Piketty. Ben Finn (talk) 09:55, 5 September 2014 (UTC)

Needs two further sections

This article needs a section Effects of wealth concentration and a section Arguments for and against. 208.50.124.65 (talk) 20:57, 20 September 2014 (UTC)

Wealth Concentration

Wealth Concentration is the resulting dispersion of net wealth to individuals and/or entities within a society as a result of economic, government, and social activity. Economic activity is the primary cause of wealth concentration within a society because the economy inherently exchanges capital (or other goods and services) for goods and services of equal value. As a result, wealth between individuals or entities transfers hands. Depending on the economic system, wealth concentration as a result of economic activity will vary. Government activity has historically effected the wealth concentration within a country through the use of taxes and regulations to redistribute the wealth of its population. This occurs in order to fix inequality which is inherent in a capitalist economy [6].

History of Wealth Concentration

Wealth Concentration during the 19th-20th Century

Source Roine & Waldenstrom 2009

Wealth Concentration in the United Kingdom As shown in the figure, the United Kingdom experienced an increase of wealth concentration among the 1% during the 1stindustrial revolution. This is tangential to the conclusion drawn by data by Roine and Waldenstrom. However, the figure only takes into account the top 1%. During the same time, wealth within the top 2% and 5%, dropped significantly. A wealth gap between the absolute top of individuals was increasing with mostly landlords and merchants on the winning side. However, the wealth in the middle class (individuals within the 60thand 95thpercentile) was beginning to grow during the same period [6]. the 20thcentury, from 1913 to 1980, the wealth concentration seemed to flip with the top 1% of individuals by wealth share owning 70% of the wealth to 20%, and steadily rising since then [6]. Of the seven countries studied, the United Kingdom had the highest skew of wealth towards the 1% from the 18th-20th century [6].

Wealth Concentration in the United States of America Wealth Concentration within the 1% has historically been lower than other western countries during the 18th and 19th century [6]. Wealth concentration within the 10% steadily increased from 1780-1920 [6]. During the “Roaring Twenties” wealth concentration within the 1% was sporadic, peaking at 40%, and eventually declined during the great depression. The wealth concentration continued to decline during World War II and eventually settled during the 20th century around 20% [6]. This was caused for a multitude of reasons. Politically, the United States implemented progressive tax rates for the top 1% causing wealth concentration to spread within the population [10]. Economically, the United States saw a rise in the middle class which caused wealth within the economy to shift more towards middle income individuals [10]. As a result, wealth concentration during the mid to late 20th century in the United States was more equal within society.

Wealth Concentration After the 2007 Housing Crisis After the 2007 Housing Crisis, the United States (and much of Europe as well) suffered from economic recessions [3]. Wealth within the United States’ economy disappeared as a result of the market crashes. At the same time, many Americans lost their jobs, causing the unemployment rates to increase [10]. After the recession, wealth recovery within the United States was not equal for all income groups. As shown in Figure 2, the top .01% of individuals gained the most in terms of income during 2010. Additionally, the top 10% income in the United States has grown from 2010 to 2012. Also, the top 10% incomes have been steadily growing since 1970, adjusted for inflation [10]. However, the bottom 90% of real incomes since 1970 has actually decreased [10]. Based on data from MIT, level of education has become increasingly important since the 1960’s. Individuals with a Bachelor’s degree or higher have experienced greater real income changes since the 1960’s, but individuals with some college or lower have experienced generally stagnant wages [10]. Income inequality within the United States has steadily increased since the late 20th century.

Figure 2 Source: MIT Technology Review

Wealth Concentration in Different Economic Systems

Since the industrial revolution, there have been different levels of government activity implemented in order to alter wealth concentration. In the modern world, most countries are relatively capitalist compared to other systems, like communism and feudalism. However, like many things, capitalism is a spectrum that exists to label many different levels of government and economic relations [5]. Very few pure capitalist societies exist within the world. Social activity is an important means of the re-distribution of wealth within a population. Historically, religious institutions were the main source of social redistribution of income that effectively change the wealth concentration within a state [4, 10]. In the 20thand 21stcentury, non-governmental organizations (links to NGO wikipage), or NGOs, have been an important source in the redistribution of income, focusing on the most impoverished individuals in the world. Some economists believe that, in general, wealth concentration tends to favor the 1% as an economy becomes more industrialized. However, new research suggests that the opposite is actually true [6]. Swedish researchers, using historical data, were determined to test the relationship between industrialization of the 19thand 20thcentury and wealth concentration in order to find the long-run changes in the wealth concentration of specific countries. Based on the data collected and graphical analysis, the researchers concluded: Overall the data, hence, seems to suggest that (1) there was a mixed impact of industrialization and (2) in later stages, after countries became industrial, significant wealth-holding spread to wider and wider groups, bringing wealth inequality down. In terms of the often discussed inverse U-shape over the path of development the first upward part does not seem to be present everywhere, while the later stage decrease in inequality does fit all countries we have studied [6]. The researchers are not concluding that the modernization of an economy is explicitly causing the wealth concentration within industrializing nations. Instead, the researchers conclude that something that occurs within industrialization is most likely causing economies to become less wealth concentrated in the upper ends of wealth in a society. Then, concluding that, “The proper characterization of wealth inequality over the path of development hence seems to be that it follows an inverse J-shape with wealth being more equally distributed today than before industrialization started [6].”

Capitalism Wealth Concentration in a capitalist system is based off of the premise that an individual shall receive an amount of capital with respect to the market value of the goods or services that one provides [5]. As a result, wealth concentration within a capitalist system is inherently unequal in its distribution. The majority of the wealth is concentrated to a limited few. In a recent report, the top 8 wealthiest individuals in the world are as rich as the bottom approximately 4 billion [8]. Some economists attribute this to the Pareto principle which explains that 80% of the effects are related to 20% of the causes [7]. Based on the principle, wealth concentration (among other things) is naturally unequal within a population. The level that which government decide to limit the natural flow of capitalism is heavily debated in the political and academic space.

           Capitalism in Hong Kong in Relation to Wealth Concentration

Hong Kong, according to the Heritage Economic Freedom Index, is the freest economy in the world (Heritage, 2018). Based on the Gini Coefficient [Link Gini Coefficient], Hong Kong has the highest income inequality in any developed country in the world (CIA, 2018). The Gini Coefficient is at a 45 year high in Hong Kong and has been increasing steadily for the past decade (CIA, 2016). Very little published research has been conducted to understand what is causing this increase in inequality. However, individuals believe that it is a mixture of lowered taxes, reduced regulation of environmental business liability, and decrease in government spending in social programs (SCMP, 2018). The increase in income inequality as economies become more capitalist and less regulated confirms economists’ theories that wealth concentration in capitalist systems favor the upper echelon of wealthy individuals within an economy (Burda et, al, 2002).

Nordic Model The Nordic Model [Link to Wikipage] is a different approach to limiting wealth concentration from heavily skewing to the wealthy that utilizes a capitalist system in conjunction with social policies in an effort to reduce socioeconomic inequalities that tend to proliferate in capitalist societies [9]. This type of economic/social system was coined after the Nordic countries’ (Denmark, Finland, Sweden, Norway, Iceland, etc.) system that typically comprises of an elaborate social safety net, a large welfare state, higher income tax, free markets, private ownership, and free trade [1,9]. Wealth concentration in the Nordic Model tends to differentiate itself from traditional capitalism by government intervention in the form of high taxation in an effort to reduce wealth inequality by creating social programs [2]. Instead of replacing capitalism, the goal of the Nordic model is to create opportunity and economic mobility for all individuals, regardless of current socioeconomic standing, within the current capitalist framework [9]. The Nordic Model has been lauded by individuals in politics and academia as a potential new system for other western countries.

           Nordic Model in Context in Relation to Wealth Concentration: Sweden

Sweden is a primary example of the Nordic Model in action. Before the implementation of the current economic system, Sweden had a wealth concentration skewed to the top wealthiest individuals within the economy; the top one percent of the wealthiest Swedes held approximately 45-55% of the wealth from 1910-1930 [6]. Since the implementation of the Nordic Model, the concentration of wealth within the 1% has dropped dramatically, especially during the 1990’s and early 2000’s [2]. However, in the past 15 years, wealth concentration within the 10% has been steadily rising. The increase in wealth within the one percent has been postulated as the result of the decrease in necessity of wealth in the middle and lower class due to the increase in social safety nets [2]. However, the top wealthiest individuals still accumulate wealth through businesses and investments [2]. Thus, the Gini Coefficient is a better measure of the real wealth inequality within Sweden. Based on the Gini Coefficient, Sweden is ranked 152 out of 157 in terms of wealth inequality with a Gini Coefficient of 24.9. This is less than half of the Gini Coefficient of Hong Kong and twenty points lower than that of the United States [3]. Although wealth concentration within Sweden is heavily skewed to the top wealthiest individuals, the social programs and progressive tax rates allow for socioeconomic inequality caused by skewed wealth concentration to be a non-issue.

References

Source 1 Alvaredo, F., & Saez, E. (2009). Income and wealth concentration in Spain from a historical and fiscal perspective. Journal of the european economic Association, 7(5), 1140-1167.

Source 2 Dell, F., Piketty, T., & Saez, E. (2007). Income and wealth concentration in Switzerland over the twentieth century. Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries, 472-500.

Source 3 Goda, T., & Lysandrou, P. (2013). The contribution of wealth concentration to the subprime crisis: a quantitative estimation. Cambridge Journal of Economics, 38(2), 301-327.

Source 4 Piketty, T., Postel-Vinay, G., & Rosenthal, J. L. (2006). Wealth concentration in a developing economy: Paris and France, 1807-1994. American economic review, 96(1), 236-256.

Source 5 Quadrini, V. (1999). The importance of entrepreneurship for wealth concentration and mobility. Review of income and Wealth, 45(1), 1-19.

Source 6 Roine, J., & Waldenström, D. (2009). Wealth concentration over the path of development: Sweden, 1873–2006. Scandinavian Journal of Economics, 111(1), 151-187.

Source 7 Burda, Z., Johnston, D., Jurkiewicz, J., Kamiński, M., Nowak, M. A., Papp, G., & Zahed, I. (2002). Wealth condensation in pareto macroeconomies. Physical Review E, 65(2), 026102. Source 8 Hardoon, D., Fuentes-Nieva, R., & Ayele, S. (2016). An Economy For the 1%: How privilege and power in the economy drive extreme inequality and how this can be stopped. Oxfam International.

Source 9 Pontusson, J. Forthcoming.“once again a Model: nordic social democracy in a Globalized World.”. Futures of the Left Once Again a Model: Nordic Social Democracy in a Globalized World (Duke University Press, Durham, NC).

Source 10 Rotman, D. (2014). Technology and Inequality: The disparity between the rich and everyone else is larger than ever in the United States and increasing in much of Europe. Why? MIT Technology Review.

Source 11 Santos, M. A., Coelho, R., Hegyi, G., Néda, Z., & Ramasco, J. (2007). Wealth distribution in modern and medieval societies. The European Physical Journal Special Topics, 143(1), 81-85.