Addressing the Wealth Gap and Redefining Wealth
Global Wealth Gap Indicators:
1. Only nine countries, representing four percent of the world’s population, have narrowed the wealth gap while for 80 percent of the world’s population the wealth gap has increased. The five hundred highest income earners earn more than the poorest 416 million people (Source: UN Human Development Report 2005).
2. In Sub-Saharan Africa, according to World Bank PovertyNet figures, the $1.25 a day poverty rate of Sub-Saharan Africa has been virtually the same--at around 50% between 1981 and 2005. The number of poor people in the regions has nearly doubled, from 200 million in 1981 to 380 million over that period.
US Wealth Gap Indicators:
1. According to Picketty & Saez, the top one percent of US households received 21.8 percent of all pre-tax income in 2005, more than double the figure in the 1970s. This represents the greatest concentration of income since 1928, when 23.9 percent of all income was earned by the wealthiest one percent.
2. US Census Bureau figures indicate that between 1979 and 2005, the top five percent of American families saw their real incomes rise by 81 percent. Over the same period, the lowest-income fifth saw their real incomes decline 1 percent.
3. According to the EPI State of Working America 2006-07 Report the richest one percent of U.S. households now owns 34.3 percent of the nation's private wealth, more than the combined wealth of the bottom 90 percent. The top one percent also owns 36.9 percent of all corporate stock.
One of the central missions of the Capital Institute is to heighten awareness of the consequences of the widening gap between the world’s richest and poorest, and to support efforts to reverse this troubling trend. The good news that we will be spreading is that accumulating statistical evidence suggests that countries that have a smaller gap between rich and poor are better off by a number of measures. According to the UK-based Equality Trust, these include greater physical and mental health, lower levels of drug abuse, higher levels of education, lower rates of imprisonment, less violence, lower teen births, and more cohesive communities. Furthermore, a growing body of research also indicates that the more well-to-do in countries with smaller wealth gaps experience greater levels of well-being and happiness than those who live in countries where the wealth gap is largest.
The Capital Forum will be highlighting, on an ongoing basis, the research and policymaking efforts of advocates for a more equitable distribution of wealth and income, including Kate Pickett and Richard Wilkinson of the Equality Trust (and authors of the recently published book “The Spirit Level”), James Galbraith of the Inequality Project at the University of Texas, Demos, and The Institute for Policy Studies' Program on Inequality and the Common Good. We will also be examining the intriguing approaches to redefining wealth of thought leaders like Juliet Schor.
Chicago Federal Reserve in early June: “Beyond Foreclosure: The Impact of the Financial Crisis on the Wealth Gap and Economic Opportunity.”
Much of the discussion at this forum centered on the correlation between the growing wealth gap in the United States (especially when drawn on racial lines) and under-utilization of banking services. It was reported that 21 million American households are currently underbanked with an additional nine million additional households completely unbanked, representing, all together, 26 percent of the population.
There was frustration at this forum as community bankers spoke of their inability to extend credit under tighter regulatory scrutiny to loyal customers who were then forced to turn to under-regulated predatory lenders offering pay day loans at usurious rates. At the same time there was optimism expressed as one banker chronicled his success with the FDIC Pilot Small Dollar Loan Program and another described how theIndividual Development Accounts matched savings program she oversees has had the surprising result of empowering clients to look beyond hard assets to invest in wealth creation that may be less tangible but more enduring, like their own educations.
Indeed the unanticipated consequences of many community banking programs and practices have led to a transformation in how bankers and their customers define wealth and asset building. Which brings us to the second and most challenging goal we have set for ourselves at the Capital Forum: to uncover those financial market initiatives that address the wealth gap in ways that are also aligned with the long-term sustainability of the planet. Look for those stories in upcoming postings.