The real numbers behind wealth inequality

The reality of wealth distribution is much more complex than just pointing fingers. spoke with Allianz chief economist Michael Heise to discuss the reasons and trends of what has undoubtedly become a global discourse. We are seeing a rise of populism around the world. Many blame it on globalization and the increase of income inequality. However, isn’t one of the positive effects of globalization that, worldwide, there is less poverty today than there was 20 years ago?

Michael Heise: From the perspective of global wealth distribution, recent decades have indeed witnessed great progress. The success story written by the emerging markets helped more and more people to participate in general progress and prosperity, and created a new global middle class. At the same time, poverty levels have dropped significantly across the globe over the past few decades. Although the vast majority of the five billion people living in the countries included in our analysis still belong to the low wealth class, its share has fallen from 80 percent in 2000, to 69 percent today. This is because in recent years, more and more people – almost 600 million in total – have moved up to the middle wealth class.

However, seen from the national perspective, the question of wealth distribution is more complicated. In fact, in many industrial countries – but only in a few emerging markets – we can see greater wealth concentration in recent years. The perception of widespread dissatisfaction thus stems not from more widespread poverty among the population at large, but more from the concentration of more and more wealth in the hands of a (very) select few. In some cases, there are seemingly contradicting processes at work at the same time. The middle class is growing and the very rich are distancing themselves further and further from the average. In fact, the question of distribution is more complex than the catchy headlines referring to rising inequality would like to suggest.


Financial assets are expanding by double-digit percentages in Asia. Why is Asia now the only dynamic region?

Asia weathered the financial crisis in good shape. This shows up in the global ranking of net per capita financial assets. Three Asian countries – Japan, Taiwan and Singapore – were among the Top 10 in 2015; back in 2000, it was only Japan.

China, too, has climbed steeply up the rankings to come in 28th in 2015, up from position 40 back in 2000. Last year, it actually overtook Greece, which is still smarting from the euro crisis. With EUR 11,500 euros net financial assets per capita, Chinese households are nowadays richer than the average households in the eastern European EU countries. China’s rise is one of the most remarkable stories in economic history. And it’s not over yet.

On the other hand, the other two emerging regions are now clearly falling behind, but for different reasons. Eastern Europe suffered from the euro crisis and Latin America’s economic ascent came to an abrupt halt with the end of the commodity boom (which also affected Russia heavily).


The middle class is shrinking in many industrial countries and growing in others. Why is that?

Viewed globally, the middle wealth class has grown considerably in recent years, with the number of people more than doubling to over one billion; the share of the overall population has climbed from 10 percent to around 20 percent. The proportion of global assets held by this wealth class has also grown significantly, rising to a good 18 percent at the end of 2015, almost three times the figure at the start of the millennium. So the global middle class has not only been getting bigger in terms of the number of people it encompasses, it has also been getting increasingly richer. The process is mainly driven by the emerging markets, first and foremost by China.

In many industrial countries, another story emerges: the middle class is shrinking, i.e. the story is one of the gradual emaciation of the middle class, which is participating less and less in overall wealth. Significantly, this trend applies mainly to the euro crisis countries (Italy, Ireland, Greece) and the traditional industrialized nations (the US, Japan, the UK). The reason for this is obvious: the financial crisis and the subsequent economic malaise. However, from the point of view of wealth distribution, monetary policy made a bad situation worse. Why? One side effect of ultra-loose monetary policy is ever-rising asset prices such as stocks. But investments in equities tend to be held primarily by already wealthy households. The average saver depends more on duller savings instrument such as bank deposits – which are interest bearing. But interest rates were more or less abolished after the financial crisis. The result is growing wealth inequality.

Michael Heise, chief economist of Allianz
Michael Heise, chief economist of Allianz

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