The fact that the richer are getting wealthier, and the poor are getting poorer all across the world has been well documented for decades, but exactly how bad is it and what can be done about it? Virgin Group Founder recently weighed in with his thoughts on the matter stating that ‘we will have to close the gap’
Income and wealth inequality has received more attention over the past decade than previously, and for good reason. In fact, global inequality is at its worst levels. According to the Credit Suisse Global Wealth Report in 2017, it was found that 70.1% of the world’s population held only 3% of global wealth, with assets under $10,000 USD.1 Conversely, the wealthiest individuals in the world – which Credit Suisse defined as individuals having over $100,000 USD in assets, held just over 85% of global wealth, but represented a mere 8.6% of the global population.1 Let that sink in for a moment. In 2017, the world’s population was 7.6 billion, which means 653.6 million people held 85.6% of global wealth and were richer than 6.94 billion people by more than $90,000 USD. If that weren’t troubling enough, most of these wealthy individuals as defined by Credit Suisse, were concentrated in Western Nations. This means, by the laws of economics, that western nations, and western people will continue to get richer, while poorer and developing nations will grow poorer. This doesn’t mean that each individual in non-western countries will be poorer, it means that those who are not wealthy in those nations, will find it even harder to break out of poverty and those that are wealthy is non-western nations will acquire more wealth, making the gap wider even on a national level.
Taking it one step further, those that are so called “ultra-high net worth individuals”, who are commonly referred to as the prestigious 1%, now hold approximately half of the worlds wealth, and they’re on an upward trajectory.2 Using the same population figure referenced above, to put it into numerical terms, 76 million people own half of the worlds wealth. Furthermore, in a report issued by Oxfam earlier this year, it was found that the richest 42 people in the world by net worth, held as much wealth as the half of the world’s population.2
By now, you can see just how large the wealth gap is, it is a startling realization, but one that is supremely important. The fact that 42 people, or .000000526% of the world’s population has half of the world’s wealth begs the question of how much longer can this go on, and why is it harmful?
Well, it can go on forever, until the rich hold almost all of the wealth in the world, if nothing is done about it. This is due to the simple fact that having money makes money, which makes more money, which in turn increases wealth. The more money you have the more money you make. While this is a common and well understood principle, it means that those that don’t have money, and aren’t able to save, will never accumulate wealth, or at a rate anywhere close to those who are already wealthy. In western nations, this isn’t so much of an issue, as we are fortunate to have social programs that assist us. The hard truth is that in developing and underdeveloped economies, those at the bottom are likely to stay there, and their offspring won’t have it any better.
What this all means is that for those that are at the bottom, no matter how hard they work, they will continue to struggle to put food on the table let alone meet their other basic needs. It is an obvious flaw in the system, we are taught that if we work hard we can achieve wealth and success, but what isn’t said is that there is a caveat to that. You must be fortunate enough to have the opportunity or foundation laid to acquire wealth, and save money, which means making more than you need to spend on your basic needs.
So, what can be done about it? Well, there are a number of solutions, but at the end of the day, it is up to the individual, as nobody can be forced to give away their wealth, at least not in western nations.
One solution is wealth and income redistribution, which can take many forms, but well discuss the most common one that is present today. Arguably one of the easiest ways wealth can be redistributed is to increase tax rates on the richest, so that any additional income they make, goes towards support those who are at the bottom. This won’t redistribute wealth these individuals have already acquired, rather, it would reduce the rate at which the rich are getting richer. Progressive income tax systems, which many countries already have is a type of income distribution system. However, most progressive income tax systems aren’t structured in a way that would dramatically reduce the wealth gap. Some wealth is being redistributed to the poor, but the rate at which the rich are acquiring more wealth triumphs that. Raising tax rates on the richest or adding additional brackets at the higher income levels could help, but it would come with opposition, which makes policy makers unlikely to implement such a change.
As individuals, we can help by donating to those less fortunate, setting up infrastructure and providing resources so the poor have the opportunity to work and acquire wealth. The fact of the matter is that for the global economy to continue to grow and expand, money needs to be spent. Most of the wealth in the world isn’t being spent on anything, it is invested, yes, but it isn’t benefiting the global economy in aggregate. The more people that have disposable income to spend, the greater the number of goods and services exchanged, which in turn means more job creation, and feeds into aggregate global economic growth. The rate that wealth and income inequality is growing is unsustainable, and there will inevitably come a time where the global economy slows enough to warrant a redistribution. Few are benefiting, and more are suffering as of now, but it can be changed.
One problem is that those that have wealth, don’t know how bad the wealth and income gap is, and why it is an issue. This is the reason for writing this article, to educate and highlight how bad it has gotten, and the fact that action needs to be taken in order for us to all thrive and for the global economy to thrive.