for example, provides an invaluable service. Perhaps more than any other worker, a teacher adds a great deal of what I referred to earlier as ‘intangible capital’ to the economy, and therefore to the nation. But the reason we call it intangible capital is that teachers add a kind of value that we can’t see or touch, and therefore can’t really measure. The whole nation – business especially – benefits from a good education system, which is one reason why we shouldn’t begrudge paying for it in taxes.
But it should be clear enough that, to pay those taxes, there must be some real wealth entering the economy. If everyone worked in education or the health service, or any other service, where would the wealth come from?
A more obvious example still is the army. For as long as there have been city states and other organized societies, there have been armies to protect them from attacks by ‘barbarians’ or rival armies. But armies had to be equipped and soldiers had to be fed, which meant either a raid on a neighboring state’s gold supplies or a tax on landowners, or possibly both. One of the first forms of taxation was the demand by Persian emperors and other ancient rulers for a portion of the harvest to feed the army. And effectively, this still goes on today: the produce of the earth, and of industry, is still the source of all government revenue.
That isn’t what the figures will tell you, of course. A breakdown of UK economic output as measured by GDP suggests that less than 1% of the nation’s wealth comes from agriculture, 16% from manufacturing and over 30% from financial and associated services. Most of the rest comes from other services. So if Britain is a nation of shopkeepers and bankers, where does the real wealth come from?
Investment banking is totally dependent on large funds of accumulated wealth, all of which must have come from industrial activity of some kind. It’s not easy to trace the source of private wealth, but there are enough clues around to give us a general picture. A lot of the money that finds its way into the City of London, for example, originates in Middle Eastern oil or Siberian gas fields.
In fact, as I will explain in more detail later in this book, more than half of all wealth in the world today has come from oil.
For most of the world’s population, the accumulation of wealth is something that happens only to other people: rich people. Even the prospect of buying a modest home is way beyond reach for the vast majority of the global population. Day-to-day existence is the best that can be hoped for: another meal for the family, another week’s rent paid to the landlord, another shirt for a child.
According to a United Nations report from 2006, half the world’s adults had assets of less than $2,200, which meant the poorest 50% owned barely 1% of all wealth between them, while the richest 2% of adults owned over half the world’s assets. The UN researchers estimated that total household wealth at the beginning of this century was in the region of $125 trillion. A more recent report by Credit Suisse gives a figure of $240 trillion for 2013, which would work out at over $50,000 per adult, if it were evenly distributed. The bank estimates that the richest 1% now own 46% of the world’s wealth, and the latest data from the World Economic Forum (as of November 2013) puts this closer to 50%.
Figure 8 shows how wealth has accumulated over the last decade or so. [Credit Suisse actually gives a lower figure than the UN for 2000. These are only educated guesses, as actual figures aren’t available; wealthy people, and Swiss banks, being understandably secretive about their accounts.] This chart, using Credit Suisse data, shows how the world’s privately held wealth has almost doubled this century. If one thinks about it, this is an astonishing fact, assuming these figures are correct. How is it possible that the same amount of wealth has been created in one decade as was accumulated in all of past history?
The short answer: it isn’t possible. Although the boom in China explains some of the rise, this increase in wealth is partly an illusion, linked to the related trends of rising credit (which leads to higher asset prices) and devalued money (especially the US dollar). I will return to these themes in detail later in the book, but first we can still learn something useful from this chart, because although it might be misleading in some respects, in other ways it is accurate enough. For example, the chart shows how wealth is split roughly into thirds between North America, Europe and the rest of the world, which means of course that it’s very unevenly distributed, as we might expect. The US, with 4% of global population, has 30% of all wealth and over 40% of all individuals with $50 million or more.
Figure 8
What we find, in other words, is that wealth is highly concentrated among relatively few very rich people, and, as I noted in the opening chapter, this inequality is increasing.
Figure 3 showed how the richest 1% were grabbing ever more of the world’s wealth, leaving less for everyone else. Figure 9 shows the huge gains seen by the wealthiest 10% in Britain and the US, especially since 1980, compared to the rest of the population, whose incomes have actually fallen in recent years, to the point where most people are earning less, in real (inflation-adjusted) terms, than they did in the 1970s.
Figure 9
It isn’t possible to get such accurate data for most countries but, although the equivalent figures for Europe might show less of a gap between the rich and everyone else (because Europe generally has a more even spread of wealth), the trend in most of the developed world is for declining wages in real terms, as Figure 10 shows.
This trend for declining earnings for the majority, while the rich get richer, coincides with the decline in manufacturing jobs that we saw in Figure 2. As the number of jobs in industry falls relative to output, the share of corporate profit that goes to owners and executives increases and the share that goes to the general population falls. Combine this with the rise of the financial sector, where a relatively small workforce – traders and fund managers and so on – earn large incomes, as can be seen in Figure 11, and we begin to see why income inequality, and especially wealth inequality, is increasing.
There are various ways of looking at the gap between the very wealthy and the rest of us, but they all show the same trend: the rich are getting richer while the middle classes of the developed world get poorer and everyone else – the really poor – struggle along on next to nothing, as they always have done. Something has gone seriously wrong with the idea that free-market capitalism is the best way to spread wealth.
Figure 10
Yet in the relatively recent past, over the last half-century or so, a vast amount of wealth has been made in this world, all of it originating in the earth before being turned into something useful by industrial workers. So what’s gone wrong with the system? How can so much of the earth’s wealth, most of which comes from natural resources that can’t really ‘belong’ to any one
