Capital in the Twenty-First Century (45 page)

In countries where income from labor is most equally distributed, such as the Scandinavian
countries between 1970 and 1990, the top 10 percent of earners receive about 20 percent
of total wages and the bottom 50 percent about 35 percent. In countries where wage
inequality is average, including most European countries (such as France and Germany)
today, the first group claims 25–30 percent of total wages, and the second around
30 percent. And in the most inegalitarian countries, such as the United States in
the early 2010s (where, as will emerge later, income from labor is about as unequally
distributed as has ever been observed anywhere), the top decile gets 35 percent of
the total, whereas the bottom half gets only 25 percent. In other words, the equilibrium
between the two groups is almost completely reversed. In the most egalitarian countries,
the bottom 50 percent receive nearly twice as much total income as the top 10 percent
(which some will say is still too little, since the former group is five times as
large as the latter), whereas in the most inegalitarian countries the bottom 50 percent
receive one-third less than the top group. If the growing concentration of income
from labor that has been observed in the United States over the last few decades were
to continue, the bottom 50 percent could earn just half as much in total compensation
as the top 10 percent by 2030 (see
Table 7.1
). Obviously there is no certainty that this evolution will in fact continue, but
the point illustrates the fact that recent changes in the income distribution have
by no means been painless.

In concrete terms, if the average wage is 2,000 euros a month, the egalitarian (Scandinavian)
distribution corresponds to 4,000 euros a month for the top 10 percent of earners
(and 10,000 for the top 1 percent), 2,250 a month for the 40 percent in the middle,
and 1,400 a month for the bottom 50 percent, where the more inegalitarian (US) distribution
corresponds to a markedly steeper hierarchy: 7,000 euros a month for the top 10 percent
(and 24,000 for the top 1 percent), 2,000 for the middle 40 percent, and just 1,000
for the bottom 50 percent.

For the least-favored half of the population, the difference between the two income
distributions is therefore far from negligible: if a person earns 1,400 euros a month
instead of 1,000—40 percent additional income—even leaving taxes and transfers aside,
the consequences for lifestyle choices, housing, vacation opportunities, and money
to spend on projects, children, and so on are considerable. In most countries, moreover,
women are in fact significantly overrepresented in the bottom 50 percent of earners,
so that these large differences between countries reflect in part differences in the
male-female wage gap, which is smaller in northern Europe than elsewhere.

The gap between the two distributions is also significant for the top-earning group:
a person who all his or her life earns 7,000 euros a month rather than 4,000 (or,
even better, 24,000 instead of 10,000), will not spend money on the same things and
will have greater power not only over what he or she buys but also over other people:
for instance, this person can hire less well paid individuals to serve his or her
needs. If the trend observed in the United States were to continue, then by 2030 the
top 10 percent of earners will be making 9,000 euros a month (and the top 1 percent,
34,000 euros), the middle 40 percent will earn 1,750, and the bottom 50 percent just
800 a month. The top 10 percent could therefore use a small portion of their incomes
to hire many of the bottom 50 percent as domestic servants.
¹⁰

Clearly, then, the same mean wage is compatible with very different distributions
of income from labor, which can result in very disparate social and economic realities
for different social groups. In some cases, these inequalities may give rise to conflict.
It is therefore important to understand the economic, social, and political forces
that determine the degree of labor income inequality in different societies.

Although inequality with respect to income from labor is sometimes seen—incorrectly—as
moderate inequality that no longer gives rise to conflict, this is largely a consequence
of comparing it with the distribution of capital ownership, which is extremely inegalitarian
everywhere (see
Table 7.2
).

In the societies where wealth is most equally distributed (once again, the Scandinavian
countries in the 1970s and 1980s), the richest 10 percent own around 50 percent of
national wealth or even a bit more, somewhere between 50 and 60 percent, if one properly
accounts for the largest fortunes. Currently, in the early 2010s, the richest 10 percent
own around 60 percent of national wealth in most European countries, and in particular
in France, Germany, Britain, and Italy.

The most striking fact is no doubt that in all these societies, half of the population
own virtually nothing: the poorest 50 percent invariably own less than 10 percent
of national wealth, and generally less than 5 percent. In France, according to the
latest available data (for 2010–2011), the richest 10 percent command 62 percent of
total wealth, while the poorest 50 percent own only 4 percent. In the United States,
the most recent survey by the Federal Reserve, which covers the same years, indicates
that the top decile own 72 percent of America’s wealth, while the bottom half claim
just 2 percent. Note, however, that this source, like most surveys in which wealth
is self-reported, underestimates the largest fortunes.
¹¹
As noted, moreover, it is also important to add that we find the same concentration
of wealth within each age cohort.
¹²

Ultimately, inequalities of wealth in the countries that are most egalitarian in that
regard (such as the Scandinavian countries in the 1970s and 1980s) appear to be considerably
greater than wage inequalities in the countries that are most inegalitarian with respect
to wages (such as the United States in the early 2010s: see
Tables 7.1
and
7.2
). To my knowledge, no society has ever existed in which ownership of capital can
reasonably be described as “mildly” inegalitarian, by which I mean a distribution
in which the poorest half of society would own a significant share (say, one-fifth
to one-quarter) of total wealth.
¹³
Optimism is not forbidden, however, so I have indicated in
Table 7.2
a virtual example of a possible distribution of wealth in which inequality would
be “low,” or at any rate lower than it is in Scandinavia (where it is “medium”), Europe
(“medium-to-high”), or the United States (“high”). Of course, how one might go about
establishing such an “ideal society”—assuming that such low inequality of wealth is
indeed a desirable goal—remains to be seen (I will return to this central question
in
Part Four
).
¹⁴

As in the case of wage inequality, it is important to have a good grasp of exactly
what these wealth figures mean. Imagine a society in which average net wealth is 200,000
euros per adult,
¹⁵
which is roughly the case today in the richest European countries.
¹⁶
As noted in
Part Two
, this private wealth can be divided into two roughly equal parts: real estate on
the one hand and financial and business assets on the other (these include bank deposits,
savings plans, portfolios of stocks and bonds, life insurance, pension funds, etc.,
net of debts). Of course these are average figures, and there are large variations
between countries and enormous variations between individuals.

If the poorest 50 percent own 5 percent of total wealth, then by definition each member
of that group owns on average the equivalent of 10 percent of the average individual
wealth of society as a whole. In the example in the previous paragraph, it follows
that each person among the poorest 50 percent possesses on average a net wealth of
20,000 euros. This is not nothing, but it is very little compared with the wealth
of the rest of society.

Concretely, in such a society, the poorest half of the population will generally comprise
a large number of people—typically a quarter of the population—with no wealth at all
or perhaps a few thousand euros at most. Indeed, a nonnegligible number of people—perhaps
one-twentieth to one-tenth of the population—will have slightly negative net wealth
(their debts exceed their assets). Others will own small amounts of wealth up to about
60,000 or 70,000 euros or perhaps a bit more. This range of situations, including
the existence of a large number of people with very close to zero absolute wealth,
results in an average wealth of about 20,000 euros for the poorest half of the population.
Some of these people may own real estate that remains heavily indebted, while others
may possess very small nest eggs. Most, however, are renters whose only wealth consists
of a few thousand euros of savings in a checking or savings account. If we included
durable goods such as cars, furniture, appliances, and the like in wealth, then the
average wealth of the poorest 50 percent would increase to no more than 30,000 or
40,000 euros.
¹⁷

For this half of the population, the very notions of wealth and capital are relatively
abstract. For millions of people, “wealth” amounts to little more than a few weeks’
wages in a checking account or low-interest savings account, a car, and a few pieces
of furniture. The inescapable reality is this: wealth is so concentrated that a large
segment of society is virtually unaware of its existence, so that some people imagine
that it belongs to surreal or mysterious entities. That is why it is so essential
to study capital and its distribution in a methodical, systematic way.

At the other end of the scale, the richest 10 percent own 60 percent of total wealth.
It therefore follows that each member of this group owns on average 6 times the average
wealth of the society in question. In the example, with an average wealth of 200,000
euros per adult, each of the richest 10 percent therefore owns on average the equivalent
of 1.2 million euros.

The upper decile of the wealth distribution is itself extremely unequal, even more
so than the upper decile of the wage distribution. When the upper decile claims about
60 percent of total wealth, as is the case in most European countries today, the share
of the upper centile is generally around 25 percent and that of the next 9 percent
of the population is about 35 percent. The members of the first group are therefore
on average 25 times as rich as the average member of society, while the members of
the second group are barely 4 times richer. Concretely, in the example, the average
wealth of the top 10 percent is 1.2 million euros each, with 5 million euros each
for the top 1 percent and a little less than 800,000 each for the next 9 percent.
¹⁸

In addition, the composition of wealth varies widely within this group. Nearly everyone
in the top decile owns his or her own home, but the importance of real estate decreases
sharply as one moves higher in the wealth hierarchy. In the “9 percent” group, at
around 1 million euros, real estate accounts for half of total wealth and for some
individuals more than three-quarters. In the top centile, by contrast, financial and
business assets clearly predominate over real estate. In particular, shares of stock
or partnerships constitute nearly the totality of the largest fortunes. Between 2
and 5 million euros, the share of real estate is less than one-third; above 5 million
euros, it falls below 20 percent; above 10 million euros, it is less than 10 percent
and wealth consists primarily of stock. Housing is the favorite investment of the
middle class and moderately well-to-do, but true wealth always consists primarily
of financial and business assets.

Between the poorest 50 percent (who own 5 percent of total wealth, or an average of
20,000 euros each in the example) and the richest 10 percent (who own 60 percent of
total wealth, or an average of 1.2 million euros each) lies the middle 40 percent:
this “middle class of wealth” owns 35 percent of total national wealth, which means
that their average net wealth is fairly close to the average for society as a whole—in
the example, it comes to exactly 175,000 euros per adult. Within this vast group,
where individual wealth ranges from barely 100,000 euros to more than 400,000, a key
role is often played by ownership of a primary residence and the way it is acquired
and paid for. Sometimes, in addition to a home, there is also a substantial amount
of savings. For example, a net capital of 200,000 euros may consist of a house valued
at 250,000 euros, from which an outstanding mortgage balance of 100,000 euros must
be deducted, together with savings of 50,000 euros invested in a life insurance policy
or retirement savings account. When the mortgage is fully paid off, net wealth in
this case will rise to 300,000 euros, or even more if the savings account has grown
in the meantime. This is a typical trajectory in the middle class of the wealth hierarchy,
who are richer than the poorest 50 percent (who own practically nothing) but poorer
than the richest 10 percent (who own much more).

Make no mistake: the growth of a true “patrimonial (or propertied) middle class” was
the principal structural transformation of the distribution of wealth in the developed
countries in the twentieth century.

To go back a century in time, to the decade 1900–1910: in all the countries of Europe,
the concentration of capital was then much more extreme than it is today. It is important
to bear in mind the orders of magnitude indicated in
Table 7.2
. In this period in France, Britain, and Sweden, as well as in all other countries
for which we have data, the richest 10 percent owned virtually all of the nation’s
wealth: the share owned by the upper decile reached 90 percent. The wealthiest 1 percent
alone owned more than 50 percent of all wealth. The upper centile exceeded 60 percent
in some especially inegalitarian countries, such as Britain. On the other hand, the
middle 40 percent owned just over 5 percent of national wealth (between 5 and 10 percent
depending on the country), which was scarcely more than the poorest 50 percent, who
then as now owned less than 5 percent.