Posts Tagged ‘Poverty’

Opportunities for wealth creation needed rather than just redistribution of wealth

October 13, 2015

Credit Suisse has published its Global Wealth report and its accompanying Databook. The data are based on the world’s adult population of about 4.8 billion. What is immediately obvious is that the wealth is very badly skewed with 71% of the world’s adults having a net worth of less than $10,000, 21% have net worth between $10,000 and 100,000 while just 8% have wealth of over $100,000. (I have also added the line of those in extreme poverty).

However my take is that the pyramid is actually a reflection of wealth creating ability.  The challenge is to make wealth creation opportunity less sensitive to the having of wealth. That suggests to me that it is not just a redistribution from rich to poor that is required in the first instance, but the provision of wealth creation opportunity for those having lower net worth. If extreme poverty can be eliminated, and wealth creation opportunity be made less dependant upon having wealth, then we will have a resultant wealth distribution that automatically matches the wealth creation ability of individuals.

CS global-wealth-report-2015 (pdf)

CS global-wealth-databook-2015 (pdf)

The global wealth pyramid is particularly interesting (wealth being taken as net worth):

It has a large base of low wealth holders and upper levels occupied by progressively fewer adults. We estimate that 3.4 billion individuals – 71% of all adults in the world – have wealth below USD 10,000 in 2015. A further billion adults (21% of the global population) fall in the USD 10,000–100,000 range. While average wealth is modest in the base and middle tiers of the pyramid, total wealth here amounts to USD 39 trillion, underlining the economic importance of this often neglected segment. Each of the remaining 383 million adults (8% of the world) has net worth above USD 100,000. This group includes 34 million US dollar millionaires, who comprise less than 1% of the world’s adult population, yet own 45% of all household wealth. We estimate that 123,800 individuals within this group are worth more than USD 50 million, and 44,900 have over USD 100 million.

Global Wealth Pyramid - adapted from Credit Suisse

Global Wealth Pyramid – adapted from Credit Suisse

The take-away from this depends somewhat on from which side of the political spectrum the data are viewed. Looking from the left it is a strident call to arms to “take from the rich and give to the poor”. But this, I think, is just a little too simplistic. How net worth is distributed generally reflects not only wealth concentration but also wealth creation. Merely redistributing existing wealth will actually reduce the total amount of wealth that is created. The bulk of wealth creation thus lies at the initiative of those having the most wealth. It is this coupling between having wealth and wealth creation opportunities which needs to be addressed. It is wealth creation opportunities for those at the lower reaches of the pyramid which is the real need. It is the cliche – but true – of giving a man a fish (wealth) or teaching him how to fish (or create wealth).

Just redistribution will not increase the world’s wealth creation and it is more likely that it will reduce most for those having the lowest net worth. And that would be entirely counterproductive.

However there is little denying that at the top of the pyramid, the concentration of net worth can be almost obscene. Just 123,800 individuals are each worth over $50 million and 44,900 of them are each worth over $100 million.

Top of the wealth pyramid from Credit Suisse

Top of the wealth pyramid from Credit Suisse

120 years on and Chekhov’s depressive alarmism has not changed

October 13, 2012

I was listening to BBC radio this morning where somebody was talking about a new production of Chekhov’s Uncle Vanya. The play was written in 1896 and the speaker quoted this line from the play:

“There are fewer and fewer forests, rivers are drying up, wildlife has become extinct, the climate is ruined, and the earth is becoming ever poorer and uglier.”

“Prescient” commented the speaker.

Prescient? I wondered. There is no shortage of forests, climate continues its normal cycles, some species have died and new ones found and the world has become richer and cleaner. No, just a depressed Russian of the 1890’s, and one without hope or any belief in the ingenuity of humans. Not prescient, just another alarmist now proven wrong.  And his kind of Malthusianism is alive and well even today – and is just as wrong.

In 1897 the world population was 1.5 billion with about 60% living in poverty. Life expectancy was about 32 years (average). At that time some 600 million people were being fed clothed and supported in a reasonably satisfactory way. In 2012 the world population has grown to 7 billion with about 25% still living in poverty (and the threshold for poverty has changed drastically). Average life expectancy is now 67 years. Today some 5 billion people are fed and clothed and supported in a reasonably satisfactory way. Almost 10 times as many as in 1896.

In another 120 years the current sayings of the Malthusians, the climate alarmists, the energy alarmists, the food alarmists, the resource alarmists and the bio-diversity alarmists will seem equally ridiculous. World population will probably stabilise at about 10 billion (at the current rate at which fertility rates are reducing) in the next 50 years or so. The challenges then will be the complete eradication of poverty and the biggest barrier may then be a shortage of “working” population.

By 2140 we will be close to 2.1 children per woman, studying longer (say till 27), working  for 45 years (till say 72) and living much longer – say 85 years (on average). Maybe less than 5% of 10 billion people will be living in poverty. Hunger and malnourishment will have almost disappeared. It may well be that it is the proportion of “working population”  which becomes the limiting factor in satisfactorily maintaining the young and the elderly.

But there will  still be no Malthusian resource crunch.


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