The Hindu Business Line : Disparities in global assets

Wealth creation and ownership can be accessible to all, if governments discourage corruption in every form and ensure inclusion by facilitating financial assistance to asset-less households.

The imbalances of current account position have been much discussed to shift international liquidity from rich emerging countries in South Asia and rich Asia-Pacific region but imbalances in global wealth distribution have been given least attention by the rich countries.

A World Institute for Development Economics Research Report brings out the pattern of asset holding by households across the world. The richest 10 per cent of households own 85 per cent of global wealth whereas the 50 per cent at the bottom share just 1 per cent. The report shows that on average a person in the top 10 per cent has accumulated wealth nearly 3000 times that of a person in the bottom 10 per cent.

Region-wise facts reveal larger gaps between the haves and the have-nots. While households in North America account for 34 per cent of global assets followed by Europe (30 per cent), and rich Asia-Pacific countries (24 per cent).

Latin American and Caribbean households got only a 4 per cent share. African households were the poorest, at 1 per cent assets. Among the developing countries, China and India with 75 per cent of global population owned only 3 per cent and 1 per cent respectively. All this despite the efforts of the World Bank and other multilateral institutions that claim to be the saviours of the world's poor.

Since assets have influence on their welfare and economic success, one can easily understand the plight of the poor with no assets. In India, Bangladesh and many other poor countries, a large section of the population remains asset-less.

The disparity becomes glaring when comparing per capita assets country-wise. The average wealth in the rich countries was estimated at $1,44,000 per person in the US and $1,81,000 in Japan. In the OECD countries, New Zealand accounted for $37000 and Denmark for $70000 while the average for the UK was $127000. At the lower-end of the ladder were India ($1100) and Indonesia ($1400). North America with 6 per cent of the world population accounted for 30 per cent of all household assets, while African nations, China, India and other low-income countries, with considerably larger populations, got a marginal share of the total global wealth.

Pockets Of Wealth

Though income distribution is skewed, wealth distribution shows high concentration. The augmentation of wealth in a few regions has been favourably supported by openness of the economies, strong financial systems and higher levels of development. The stage of development influences the composition of world assets considerably. Households in countries where agriculture is dominant and the stage of development is low prefer to own real assets such as land and farms. This implies that in such countries financial institutions still have a large role in building assets based on massive capital formation and robust domestic saving rate.

The major reason for skewed ownership of assets by households is poverty. A major cause for poverty is corruption that siphons out money from government projects. This dismal functioning across nations only enriches the already rich households. For instance, industrialists benefit from not following anti-pollution laws. Or, by bribing a government official, a contractor may put up an unsafe building. The double whammy for the poor is that they are also harassed by the officials. In fact, because of moral hazards, bribes are paid upfront without corresponding benefits. It is usually not the case that the poor receive the benefits after payment.

The consequences of such an environment are that poor are excluded from potential jobs, and from social assistance such as medical care, technical education and professional training simply because they are not able to pay bribes.

The Corruption Trap

Corruption is like a disease that stultifies the poor and enriches the the rich. This skews further the imbalance in the pattern of wealth ownership.

It has been the general experience that corruption in different forms allows low-capability households to collude with government authorities to keep out the capable. Poor households with competence and skills have, for instance, not been able to access bank credit, leading to unemployment and zero asset holding. This give the lie to the received wisdom that hard work and ability can build a better life and create assets. Thus, if poverty is to be reduced, fighting corruption should be Priority No.1. This can be achieved by monitoring of all public activities, in the public or private sectors, and introducing punishments for wrong-doing. The government should also focus on eliminating credit market imperfections. New Delhi has already adopted the policy of financial inclusion which would facilitate supply of credit and other benefits to everyone.

Though per capita assets or per capita income is only one factor influencing people's welfare, it has been statistically proved to have a disproportionate impact on well-being and economic achievements of the people and definitely influences the pattern and direction of the country's growth. A visible outcome of asset ownership is the social welfare of the communities. Experience shows that the higher the assets, the higher the income, and vice-versa. Households with low levels of assets have to live on low incomes that perpetuate poor health and low productivity.

Wealth creation and ownership can be achieved by all, provided governments can discourage corruption in every form, eliminate wealth concentration by unethical means, and ensure the inclusion of asset-less households by facilitating the flow of financial assistance to the have-nots. The World Bank and other multilateral financial institutions must take up the cause of asset-less households.

(The author is a former Economic Advisor to SEBI.)