Wealth Inequality

Wealth inequality refers to the unequal distribution of assets and financial resources among individuals or groups within a society. It is often characterized by a significant gap between the wealth of the richest individuals and that of the broader population. This disparity can arise from various factors, including economic policies, access to education, inheritance, and market dynamics. Wealth inequality can have profound social implications, influencing individuals' opportunities, health outcomes, and overall quality of life.

The phenomenon is not limited to any one country; it can be observed globally, with varying degrees of severity. Discussions around wealth inequality often touch on themes of fairness, economic mobility, and the impact of systemic factors that perpetuate disparity. Addressing wealth inequality involves complex economic, political, and social considerations, prompting diverse perspectives on potential solutions. Understanding the nuances of this issue is essential for fostering informed discussions about economic justice and societal well-being.

Published in: 2021

By: Mercadal, Trudy

Subject Terms

Wealth Inequality

Abstract

Among the measures for the health of an economy are rates of income and wealth inequality. This article addresses the meaning of inequality and the differences between wealth and income inequality, as well as the different kinds of social inequalities that correlate with wealth. It also explores the history and theories that provide the background necessary to understand the rising rates of wealth inequality worldwide. Although today there are better scientific tools than ever before to measure wealth inequality, it is a difficult and complex task, usually framed by ideology and politics.

Overview

Inequality is often studied in relation to wealth and income distribution; both wealth and income are used as indicators of national and global economies and are considered important elements of social inequality. Inequality, in the field of social sciences, is usually understood in terms of an economic disadvantage for some in relation to status, wealth, and income, and as an advantage for those who accumulate most of it. Inequality results in the division of the members of a society into different groups, in which dominant groups benefit and create disadvantages for others. Inequality is related to different forms of discrimination, such as racism, sexism, classicism, xenophobia, and others. Economist William Dugger finds that there are some specific factors that describe inequality, including—among others—that it is pathological, cumulative, social, and supported by myth.

In its most common definition, wealth refers to the value of all that a household or a person owns minus debts. It includes all assets which may be bought and sold with relative ease, such as material property and stocks. Wealth is different from income. Income refers to money earned by a person from his or her work, as well as money received from rental property, royalties, and interest from investments. There may be cases in which an individual or household with a high income does not own wealth. The opposite is also true; that is, somebody may possess much wealth but not a high income. Wealth, in the view of many experts, is a more encompassing way to measure economic wellbeing. Wealth, less tied to fluctuations than income, is often inheritable and thus anchors economic bases and perpetuates privilege through generations. It also defines social status more comprehensively than income does.

Most of a nation's wealth is concentrated at the top income brackets. Moreover, many of the wealthiest individuals in society do not earn most of their income from work; they tend to inherit a large amount of it. In the United States, wealth is concentrated among the top 1 percent of the population, and the following 20 percent own approximately 35 and 54 percent of the private wealth of the nation. About 20 percent of households in the nation own close to 90 percent of its private wealth. According to the US Census estimate for 2015, 43.1 million Americans were living in poverty that year (US Census Bureau, 2016). A correlation between the amount of wealth one possesses and life expectancy has also been explored. The Journal of the American Medical Association reported that as of 2014, the men in the top 1 percent tend to live fourteen years longer than men in the poorest 1 percent of the population while women in the top percent tend to live over a decade longer than those in the bottom 1 percent (Krisberg, 2016).

Inequality accumulates; that is, it gradually increases. Nobel Laureate economist Joseph Stiglitz stated that in the United States, the top 1 percent of Americans gained 93 percent of the additional income produced in 2010 (2013). At the global level, experts posit that the rapid expansion of the global economy in the last decades has impacted the global distribution of wealth, with a growing proportion going to the wealthiest individuals in transnational capitalist economies. It is important to note that the top 1 percent of people is not a single monolithic group. It is a sector composed by many groups, who may be landowners, manufacturers, professionals, entrepreneurs, and others.

Inequality is not a spontaneous or natural phenomenon. It is a social phenomenon, one in which the actions of some groups create, promote, and maintain a system of social inequality. For example, groups of people have lobbied and voted for policies and laws that establish structures of slavery, or political systems in which women, racial minorities, and low income workers hold very little political power. Dominant groups use various systems to enforce and justify their political, social, and economic power within the family, society, nation, and even at the global level. For example, in the international arena, armies, border patrols, and other such institutions must be deployed and maintained at great cost in order to support systems of power that help support exclusion and global inequality. The disadvantaged groups hold much less wealth than the dominant groups; in consequence, they are deprived of status, income, power, and social participation. Having less access to wealth and social services, they are reduced to vulnerable positions and deprivations, often becoming dependent upon dominant groups for their well-being and survival. Many are led to believe that things are the way they are because this is the natural order of things.

Experts have argued that inequality is entrenched in myths. Overall, these myths follow two main tracks. One is a series of assumptions and stereotypes about the inferiority of those who are at the lower socioeconomic rungs of society. These stereotypes justify the disempowerment of disadvantaged groups, and take different forms, such as racism, sexism, xenophobia, classism, and others. Racism and classicism, for example, are based on a series of beliefs about the superiority of those in the upper rungs, due to their work ethic and frugality, for example, and the slothfulness and lack of work ethic of those who are worse off. In other words, these myths argue along the lines that some people are disadvantaged because of some inherent fault of their own. These myths hide the ways in which the disempow-ered have been historically exploited. For example, they cover up the roles played by colonization, enslavement, and other exploitative practices in the rise of dominant nations and groups. Although these stereotypes are not sustainable under scrutiny, they persist to the benefit the dominant classes.

Another set of myths is related to the social order. Many market ideologies promote the idea that unregulated capitalism allows the trickle-down of wealth from the highest economic echelons to the rest of the population. However, many studies suggest that very little wealth trickles down from the top 1 percent of the population, but from those placed lower among the top 5 quin-tiles of the population.

The dominant classes seek to justify the establishment or social order by disseminating an ideology, or set of beliefs. In western society, these myths and beliefs often posit that the economy and distribution of wealth is rooted solely in individual freedom, hard work, personal initiative, and the efficiency of the market. When the disadvantaged adopt these beliefs unquestioningly, they may internalize the ideas of their own inadequacy and inability to achieve success. It becomes hard to fault and challenge the system.

Further Insights

In the eighteenth century, philosopher Adam Smith created an economic theory based on a free market system, which sought to better the situation of small and medium manufacturers, farmers, and shopkeepers. His ideas, revolutionary at the time, were adopted by different powers. The radicals and idealists of the French Revolution also viewed the economy as a way to empower the disadvantaged majority against a powerful minority. These market models were based on democratic ideals. The goal of efficient markets was to expand the middle classes. In time, however, these ideals were co-opted by the powerful and used by conservative economists to sustain the establishment.

The 1 Percent. At the inception of the modern era, few women were able to accumulate wealth, given the way in which most laws were structured. In the Americas, the system of inequality survived the colonial period. Slaves, for example, accounted for about 20 percent of the population. By the middle of the nineteenth century, which marked the accelerated growth of industrialization, economic inequality increased. Women held less than 10 percent of wealth, and white males still had to own a specific amount of property in order to vote. Neither women nor slaves were allowed to vote. Some studies show that during the colonial and early postrevolutionary era, the top 1 percent of the population held a smaller share of wealth than they did later in the nineteenth century. In other words, there was less inequality. Other studies, however, show that if the wealth owned by the British elite in America is taken into account, wealth was significantly more concentrated on the top quintile of the population. At the time, according to data, the top quintile or 20 percent held about 95 percent of the wealth. Levels of wealth inequality were similar in Western Europe and the United States, although the exact percentages vary significantly, depending upon analytical methodology. Nevertheless, the hold of the top 1 percent over a quarter to a third of total national wealth has remained.

The late nineteenth century and early twentieth century saw the incipient rise of a consumer ideology and the need for people to earn more in order to create a consumer class. There were several waves of European and Asian immigration in the United States, flooding the markets with workers. Activism to raise the minimum wage and overtime payment grew; labor unions organized. The period known as the Progressive Era marked the development of a welfare state, the legalization of worker unions, and collective bargaining and other socially oriented measures. President Franklin D. Roosevelt established the New Deal, a set of policies meant to provide for citizens upon retirement, ensure they had the basics to survive when the economy weakened, and increase living standards and purchasing power for the majority.

These measures were the basis for the prosperity boom of post-World War II. By the 1970s, however, the wealth gap between the haves and have-nots began to expand. Among the reasons that many experts adduce for the expansion rise in the wealth gap which started in the late twentieth century are the following:

The persistent stagnation of wages for low and middle income workers
Taxes that became less progressive with time
Increased deregulation and tax breaks for corporations
Lack of savings and growing debt among the middle and low income classes
Changes in job market conditions; for example, American working class jobs were transferred to peripheral nations offering cheaper labor

Economic crises and spikes in unemployment have worsened wealth inequality. Globally, peripheral nations have often also suffered the deleterious effects of wars, climate change, market conditions, and the material effects of widespread poverty. In fact, international experts state that the wealthiest 1 percent of people worldwide own close to half the global wealth.

The Role of the State. Wealth distribution is correlated to government policies. For example, phenomena such as the peak of inequality in the mid-nineteenth century and the more equitable systems of the Progressive Era in the United States were due in part to tax rates. Labor and tax legislation, and other measures enacted in World War I and during the Depression, helped develop a welfare state and distribute wealth more proportionately. Wages and benefits improved, allowing more people in society to accumulate wealth. For example, government policies helped increase home ownership. Some experts argue that social security measures established in the late 1930s reduced wealth inequality in the United States by 30 percent. It is important, however, to note that the majority of wealth still remained in the hands of the top 1 percent. Wealth, however, was better distributed across the population because of government policies.

On the other hand, tax exemptions for businesses increased in the postwar years, particularly in the 1980s. Income and work benefits began to decline. In the twenty-first century, after a real estate boom and bust, homeownership rates declined and most property values fell, harming mostly people in the middle and low income brackets. Government policies during these decades also played a role. There was a reluctance to enact progressive taxation and pro-worker economic programs. Governments legislated significantly in favor of big business, provided tax breaks for the wealthiest segments of society, and invested less in social welfare, among other such policies.

The state also plays an important role in the market. States maintain strategies and policies that help encourage and control different kinds of market systems. The state and the market, however, are a collective of human actions, rather than a series of spontaneous or natural occurrences. Humans address different problems in different ways. There is no universal market or economic system. Market systems and policies also impact inequality. The state must constantly balance the interests of producers, consumers, workers, and employers, while striving to reduce inequality. Addressing issues of inequality involves a series of complex measures which include enacting series of laws which may be contradictory across different sectors, such as labor laws, discrimination laws, antitrust legislation, market incentives, patenting laws, regulatory legislation, and many others. These are managed through the actions and interests of different groups of people, often in conflict with one another. Private sector groups may exert pressure on governments to pass policies and measures that favor them. Other interest groups, such as those of women, minorities, or labor unions, exert pressure on the state to act against inequality. How these issues are addressed and the solutions provided have an important impact, direct or indirectly, on wealth inequality.

There are many ways in which the state can help reduce wealth inequality, besides measures of business and labor legislation and taxation. It protects the right to vote of disenfranchised groups and provides access to health care, education, housing, food aid, community subsidies, small business or minority business incentives, and other forms of support.

Viewpoints

Many current philosophies and ideologies related to wealth inequality arose at the inception of the modern era, with much debate on what drives wealth inequality and how to solve it. Although there are many theories and viewpoints, most are rooted in two main basic currents: Classical liberalism and Marxism.

Classical liberalism advocates minimal government power and interference. It aims to maximize individual liberties and establish a laissez-faire, or free market, system. Among its first proponents were Adam Smith, David Ricardo, Thomas Malthus, and John Stuart Mill. An unrestricted market is the system that would lead most efficiently to increasing a nation's wealth and individual prosperity. From this perspective, inequality is a natural by-product of the market system. Critics argue that a laissez faire system inevitably worsens inequality, and rather than be free, it is manipulated by the most powerful.

At the other extreme is the economic theory of Marxism, developed by Karl Marx and Friedrich Engels in the nineteenth century. Marx and his followers did not believe a pure laissez faire system is viable. They proposed that a constant class struggle exists in society, between the owners of capital and means of production and the workers. The latter are alienated from the products of their labor. Because the dominant classes seek to maximize profits, it is in their best interests to exploit workers, who sell their labor to them. Laborers would eventually join forces and reject the system. The goal was to create a classless society. Critics claim, however, that the modern communist systems that evolved from Marxism have also presented serious economic problems, including inefficient and unwieldy markets.

From these two philosophies evolved other economic ideas which also sought to understand the problem of inequality. Some argue that in a true laissez-faire market, perfect competition would eventually reduce profits to zero. Therefore, a purely free market is not sustainable. The fact that large companies continue to generate increasing rates of profit shows they thrive in a system favorable to their sector, in large part because of state maneuvers and incentives. In other words, it is politics that allows the state of the market to be as it is.

Socialized capitalist economies, such as those in Norway, Denmark, Sweden, and Finland, have been successful at developing significant economic growth and less inequality than other advanced nations. Greater wealth equality, claim supporters of more government intervention, leads to more social and political equality, thus bringing about a more democratic and just society. Critics, on the other hand, claim that highly interventionist states impinge upon creativity and individual freedoms, and may impose too high a tax burden on its most prosperous citizens, carry large debt burdens, and hinder market growth. In other words, it may not be sustainable in the long term. The jury is still out on which system would work best to reduce the growing gap in wealth inequality, with many arguing that there is no universal system that would work perfectly.

Terms & Concepts

Ideologv: A series of ideas and beliefs that frame a social structure and worldview. These may relate to the origin and nature of a nation or social system. Ideologies may be political, religious, economic, etc.

Policv: A series of actions or dispositions proposed by a government or other institution.

Wealth: The accumulation of possessions of a person, household, or nation. Although it generally refers to material and quantifiable goods, there are more abstract understandings of wealth, such as when reference is made to social capital, or the advantageous networks that people form in society.

Bibliography

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Stiglitz, J. (2013). The price of inequality: How today's divided society endangers our future. New York, NY: WW. Norton.

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Wealth Inequality

On this Page

Subject Terms

Wealth Inequality

Abstract

Overview

Further Insights

Viewpoints

Terms & Concepts

Bibliography

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