Wednesday, November 5, 2014

Global Wealth Inequality

Credit Suisse recently released the 2014 version of its Global Wealth Report, the bank's annual report on global household wealth.  In this posting, I will summarize their findings which reaffirm the concept of global wealth inequality.

This year's report notes that global wealth in calendar 2013 grew by 8.3 percent, breaching the $250 trillion mark for the first time, hitting $263 trillion.  Global wealth now stands 20 percent above its pre-Great Recession peak and 38 percent above its low in 2008.  If constant exchange rates are used, global wealth grew by $21.9 trillion, the largest amount gained in any other twelve month period since 2000.

If we look at per capita global wealth, it hit a new record high of $56,000 in mid-2014, up $3,450 per adult since mid-2013.  In calendar 2013, per capita global wealth grew by $3,900, exceeding the annual growth in every year since 2000.  The fact that total global wealth divided among all people living today is calculated at $56,000 shows us how relatively few people control most of the wealth, given that data from the World Bank shows that a substantial number of people concentrated in a relatively small geographic region live on less than $1.25 per day as shown on this map:

Obviously, as shown on the map, global wealth is not evenly distributed, particularly in the developing nations of the world.  Here is a graphic showing the share of the world's total wealth and the share of the world's total population by region:

North America has only 6 percent of the world's adult population but has 34.7 percent of the world's total wealth, the highest among the regions.  Europe has a greater population (12 percent of the world's total) and a wealth share that is slightly lower at 32.4 percent.  Africa has around the same share of the world's population but has around 1 percent of the world's total wealth, coming in last place.

Here is a listing showing the total wealth for each region as well as the entire world, the wealth per adult and the percentage change in total wealth over 2013:

It is quite obvious that North America, particularly the United States is substantially above the rest of the world when it comes to the level of personal wealth.

Let's look at the United States data in more detail.  For the year 2013, $12.9 trillion was added to the stock of personal wealth.  This exceeds the gain in any other 12-month period since Credit-Suisse began tracking personal wealth in 2000.  This amount exceeds the $12.3 trillion that was lost during the financial crisis and pushes the average wealth 19 percent above the pre-crisis peak seen back in 2006 and 50 percent above the Great Recession low in 2008.  In fact, since 2008, more than $31.5 trillion has been added to American household wealth, an amount that is equivalent to nearly two years of GDP.  It is also interesting to note that the year-over-year gain in total wealth in the United States was by far the highest among the nations sampled as shown on this graph:

Much of the increase in personal wealth in the United States was through appreciation in equity prices, although, rather surprisingly, the rise in the American market capitalization over the year was rather modest at only 22.6 percent, putting the U.S. solidly behind more than half of the 50 economies in the study.  By comparison, Canada, France and Germany saw their market capitalization gain close to 30 percent.  The balance of growth in personal wealth in the United States was through increases in the value of housing. 

We can easily see from this map that worldwide wealth is concentrated in a relatively small number of countries:

The world's most wealthy are concentrated in Western Europe, North America, a few oil-rich nations in the Middle East, Israel, Australia and New Zealand whereas the poorest are found in India, parts of Eastern Europe, parts of the Middle East, Africa and a handful of nations in South and Central America and the Caribbean.  The concentration of wealth has remained geographically consistent.

The wealthiest nations and their average individual wealth levels are:

Switzerland - $581,000
Australia - $431,000
Norway - $359,000
United States - $348,000
Sweden - $333,000
France - $317,000
United Kingdom - $293,000

While the Credit-Suisse analysis shows increasing average personal wealth across the globe, it shows us that there is great disparity between the wealthy and the poorest among us.  As we can see on this wealth pyramid, there is a large base of low wealth individuals and a small peak of very wealthy individuals:

It is estimated that there are 3.3 billion or 69.8 percent of the individual adults in the world that have less than $10,000 in wealth.  These 3.3 billion adults control $7.6 trillion in wealth or 2.9 percent of the world's total.  Another billion individual adults have wealth that ranges in the $10,000 to $100,000 range.  The remaining 408 million adults have a net worth above $100,000; this makes up a relatively small 8.6 percent of the world's population.  Of this number, only 35 million or 0.7 percent adults have more than $1 million in personal wealth.  These 35 million adults control $115.9 trillion in wealth or 44 percent of the total, a far contrast from the $7.6 trillion in wealth controlled by the poorest 69.8 percent of the world.

In conclusion, I'd like to quote from a single sentence in the report that helps summarize at least one reason why the world's wealth is increasingly becoming disproportionately distributed:

"...given that financial assets are disproportionately held by wealthier cohorts, this certainly reinforced the debate about the distributional effects of ongoing central bank asset purchase programs, or quantitative easing (QE)."

As we suspected, the authors conclude that the wealthiest among us are the greatest beneficiaries of the Federal Reserve's (and its counterparts in other nations) monetary policies that are in large part responsible for propping up both the stock and bond markets, investments that are less likely to be in the hands of lower income families are more likely to reside in the portfolios of the already wealthy.

1 comment:

  1. This is a lot to get your head around. For years I have crunched numbers and various scenarios that have left me wondering if what is coming was planned. Meaning could anyone have had such an encompassing vision and joining both the skill and luck to pull it off.
    This means winning the global game of monopoly that would leave you the last man standing and at the same time allow you to buy your bankrupt competitors assets for next to nothing. A most interesting issue to ponder.