How bad a recession? Ask the new millionaires

21 06 2010

Category: Finance, Politics

Business Week has produced a report on the countries with the most households with assets of more than a million dollars.

Comparisons like that are always a bit dubious given it’s a random figure, all the statistics they’re based upon, and global variations, but there are some striking elements relating to how many new millionaire households there are – lots – and how much of the national wealth is held by those households.

Some of the numbers I was most interested in weren’t included in the report (based on figures from Boston Consulting) so I’ve done some digging to provide more comprehensive information…

Here’s Business Week’s list: Click on the image to open a larger version.

See what I mean about the increase in the number of millionaire households (it’s a percentage increase, in the last column headed ‘Year on Year Change’)? There is an across the board rise over the past year, and a big one. In some cases massive.

The Far East has seen the biggest increase, with Singapore, China and South Korea recording around 30% increases. But the European countries on the list have almost all seen a double figure growth. Yet we’re told we’ve been through the biggest recession since heaven knows when.

Could it be that the fiscal stimulus measures in operation around the world have channelled money into the wealthiest sectors of society?

Yes, it could – as George Soros says of recession; “the ones who suffer aren’t the ones who benefited”. From these figures it looks like Soros wasn’t being cynical enough; the ones who benefited from the boom are benefitting from the recession. The rich are getting richer and richer – so who was it a recession for?

Wealth of households matters because it is the key determinant of social privilege. It’s no good knowing how many rich people there are if you don’t know how many people are dependent upon them or benefit from their status. It’s especially important given the decline in social mobility in recent decades.

The missing figure in the Business Week list is the proportion of millionaire households to non-millionaire households; only then can you say what share of the national wealth is held by the richest households.

I’ve gathered together the most recent and most reliable figures I could find for numbers of households and here’s what I came up with, the new figures are in the last column; ‘Proportion of Millionaire Households’.

That means you can see what percentage of households are wealthy and how much of a nation’s wealth they control.

For example in the Netherlands 2.2% of the households are millionaire households and they control 22% of the wealth. So that’s ten times greater than their proportion of society. Quite a few countries are around that 10x level but it’s not a useful rule of thumb.

In Hong Kong for example, where a massive 10% of households are millionaire households, they actually seem to under-perform, controlling a share of the wealth only seven times that level. Till you realise that 10% of the households control three quarters of the wealth.

I’m not sure what conclusions you should draw from these figures – how much inequality is too much?

That’s something we have to work out for ourselves as it’s not a topic covered by political discussion.

Why not? Clearly the examples of India and China with 40-50% of the wealth owned by 0.1% – 0.2% of the households are shocking; it means in India the wealthiest households control wealth 380 times their proportion of society, and in China  it’s 250 times. But otherwise, how much is too much?

So all we can do – and what we ought to do – is ask the questions.

Is it acceptable that 4.5% of households hold 56% of the wealth in the USA? Or 1% in Spain hold 26% of the wealth? or 3% in Saudi Arabia 77%?

We live in a societies where inequality is accepted, sometimes celebrated, as integral to the social, economic and political systems we live in.

We had such a fright from the faux-equality of communism we accepted Francis Fukuyama’s conclusion that capitalism had ‘won’ and to that extent history had ‘ended’. We didn’t have a language to explore other ideas – or we let those ideas become dusty.

It’s interesting that Business Week didn’t feel that knowing the relative inequality of these countries was relevant. There are those who consider it vitally important.

Take for example Richard Wilkinson and Kate Pickett, authors of The Spirit Level. In their analysis of statistics relating to health and well-being, internationally and between American States, they found that without exception, in the developed world, levels of inequality were the defining factor for health and well-being in a country.

Their work fits in to an emerging strand of political debate that focuses on what factors and policies really go to improve people’s lives; the most famous work on the subject being Richard Layard’s book Happiness. At the moment it has not become codified in a political doctrine, and it does not fit in the competing-interests models of western democracy.

Until newer doctrines become more fully formed and holistic and become part of the mainstream political debate we can stare at the numbers and reflect on how much inequality might be too much, and why.

(click here – households – to see the sources of the statistics for number of households)

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