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Wealth Concentration

Wealth Concentration is the resulting dispersion of net wealth to individuals and/or entities within a society as a result of economic, government, and social activity. Economic activity is the primary cause of wealth concentration within a society because the economy inherently exchanges capital (or other goods and services) for goods and services of equal value. As a result, wealth between individuals or entities transfers hands. Depending on the economic system, wealth concentration as a result of economic activity will vary. Government activity has historically effected the wealth concentration within a country through the use of taxes and regulations to redistribute the wealth of its population. This occurs in order to fix inequality which is inherent in a capitalist economy (Roine & Waldenstrom, 2009).

Wealth Concentration in Different Economic Systems

Capitalism

Wealth Concentration in a capitalist system is based off of the premise that an individual shall receive an amount of capital with respect to the market value of the goods or services that one provides (Quadrini, 1999). As a result, wealth concentration within a capitalist system is inherently unequal in its distribution. The majority of the wealth is concentrated to a limited few. In a recent report, the top 8 wealthiest individuals in the world are as rich as the bottom approximately 4 billion (Hardoon et. al, 2016). Some economists attribute this to the Pareto principle which explains that 80% of the effects are related to 20% of the causes (Burda et. al, 2002). Based on the principle, wealth concentration (among other things) is naturally unequal within a population. The level that which government decide to limit the natural flow of capitalism is heavily debated in the political and academic space.

Capitalism in Hong Kong in Relation to Wealth Concentration

Hong Kong, according to the Heritage Economic Freedom Index, is the freest economy in the world (Heritage, 2018). Based on the Gini Coefficient [Link Gini Coefficient], Hong Kong has the highest income inequality in any developed country in the world (CIA, 2018). The Gini Coefficient is at a 45 year high in Hong Kong which has been increasing steadily for the past decade (CIA, 2016). Very little published research has been conducted to understand what is causing this increase in inequality. However, individuals believe that it is a mixture of lowered taxes, reduced regulation of environmental business liability, and decrease in government spending in social programs (SCMP, 2018). The increase in income inequality as economies become more capitalist and less regulated confirms economists’ theories that wealth concentration in capitalist systems favor the upper echelon of wealthy individuals within an economy (Burda et, al, 2002).

Nordic Model

The Nordic Model [Link to Wikipage] is a different approach to limiting wealth concentration from heavily skewing to the wealthy that utilizes a capitalist system in conjunction with social policies in an effort to reduce socioeconomic inequalities that tend to proliferate in capitalist societies (Pontusson, 2011). This type of economic/social system was coined after the Nordic countries’ (Denmark, Finland, Sweden, Norway, Iceland, etc.) system that typically comprises of an elaborate social safety net, a large welfare state, high tax, free markets, private ownership, and free trade (Pontusson, 2011; Sachs 2006). Wealth concentration in the Nordic Model tends to differentiate itself from traditional capitalism by government intervention in the form of high taxation in an effort to reduce wealth inequality by creating social programs (Sachs, 2006). Instead of replacing capitalism, the goal of the Nordic model is to create opportunity and economic mobility for all individuals, regardless of current socioeconomic standing, within the current capitalist framework (Pontusson, 2011). The Nordic Model has been lauded by individuals in politics and academia as a potential new system for other western countries.

Nordic Model in Context in Relation to Wealth Concentration: Sweden

Sweden is a primary example of the Nordic Model in action. Before the implementation of the current economic system, Sweden had a wealth concentration skewed to the top wealthiest individuals within the economy; the top one percent of the wealthiest Swedes held approximately 45-55% of the wealth from 1910-1930 (Roine & Waldenstrom, 2009). Since the implementation of the Nordic Model, wealth shares in Sweden has dropped dramatically, but has increasing since the 2000’s (Credit Suisse, 2018). The increase in wealth within the one percent has been postulated as the result of the decrease in necessity of wealth in the middle and lower class due to the increase in social safety nets (Credit Suisse, 2018). However, the top wealthiest individuals still accumulate wealth through businesses and investments (Credit Suisse, 2018). Thus, the Gini Coefficient is a better measure of the real wealth inequality within Sweden. Based on the Gini Coefficient, Sweden is ranked 152 out of 157 in terms of wealth inequality with a Gini Coefficient of 24.9. This is less than half of the Gini Coefficient of Hong Kong and twenty points lower than that of the United States (CIA, 2016). Although wealth concentration within Sweden is heavily skewed to the top wealthiest individuals, the social programs and progressive tax rates allow for socioeconomic inequality caused by skewed wealth concentration to be a non-issue.

History of Wealth Concentration

Wealth Concentration is the resulting dispersion of net wealth to individuals and/or entities within a society as a result of economic, government, and social activity. Economic activity is the primary cause of wealth concentration within a society because the economy inherently exchanges capital (or other goods and services) for goods and services of equal value. As a result, wealth between individuals or entities transfers hands. Depending on the economic system, wealth concentration as a result of economic activity will vary. Government activity has historically effected the wealth concentration within a country through the use of taxes and regulations to redistribute the wealth of its population. This occurs in order to fix inequality which is inherent in a capitalist economy (Roine & Waldenstrom, 2009).

Throughout history, there has been different levels of government activity implemented in order to alter wealth concentration. In the modern world, most countries are relatively capitalist compared to other systems, including socialism, communism, and Feudalism. However, like many things, capitalism is a spectrum that exists to label many different levels of government and economic relations (Quadrini, 1999). Very few pure capitalist societies exist within the world. Social activity is an important means of the re-distribution of wealth within a population. Historically, religious institutions were the main source of social redistribution of income that effectively change the wealth concentration within a state (source this?). In the 20thand 21stcentury, non-governmental organizations (links to NGO wikipage), or NGOs, have been an important source in the redistribution of income, focusing on the most impoverished individuals in the world.

It has been said that, in general, wealth concentration tends to favor the 1% as an economy becomes more industrialized. However, research suggests that the opposite is actually true (Roine & Waldenstrom, 2009). Swedish researchers, using historical data, were determined to test the relationship between industrialization of the 19thand 20thcentury and wealth concentration in order to find the long-run changes in the wealth concentration of specific countries. Based on the data collected and graphical analysis, the researchers concluded:

Overall the data, hence, seems to suggest that (1) there was a mixed impact of industrialization and (2) in later stages, after countries became industrial, significant wealth-holding spread to wider and wider groups, bringing wealth inequality down. In terms of the often discussed inverse U-shape over the path of development the first upward part does not seem to be present everywhere, while the later stage decrease in inequality does fit all countries we have studied (Roine & Waldenstrom, 2009).

The researchers are not concluding that the modernization of an economy is explicitly causing the wealth concentration within industrializing nations. Instead, the researchers conclude that something that occurs within industrialization is most likely causing economies to become less wealth concentrated in the upper ends of wealth in a society. Then, concluding that, “The proper characterization of wealth inequality over the path of development hence seems to be that it follows an inverse J-shape with wealth being more equally distributed today than before industrialization started (Roine & Waldenstrom, 2009).”

Source Roine & Waldenstrom 2009

Wealth Concentration in the United Kingdom from the 18thto the end of the 20thcentury

As shown in the figure, the United Kingdom experienced an increase of wealth concentration among the 1% during the 1stindustrial revolution. This is tangential to the conclusion drawn by data by Roine and Waldenstrom. However, the figure only takes into account the top 1%. During the same time, wealth within the top 2% and 5%, dropped significantly. A wealth gap between the absolute top of individuals was increasing with mostly landlords and merchants on the winning side. However, the wealth in the middle class (individuals within the 60thand 95thpercentile) was beginning to grow during the same period (Roine & Waldenstrom, 2009). During the 20thcentury, from 1913 to 1980, the wealth concentration seemed to flip with the top 1% of individuals by wealth share owning 70% of the wealth to 20%, and steadily rising since then Roine & Waldenstrom, 2009).

First Draft of Wealth Concentration

https://docs.google.com/document/d/1rCZvl-e9XmVzxdd3pXSiRcQlIxQaUDeRtCsvykAQ7Hc/edit?usp=sharing

Greg Cherry

Gcherry2

10/7/18

Wealth Concentration Wikipedia Page Sources

Source 1

Alvaredo, F., & Saez, E. (2009). Income and wealth concentration in Spain from a historical and fiscal perspective. Journal of the european economic Association, 7(5), 1140-1167.

This source gives a thorough statistical analysis of wealth concentration within Spain during the 20thcentury. This may be useful when building the history of wealth concentration section of the Wikipedia page. Alvaredo and Saez compare the wealth concentration of Spain to other countries, including the United States, over the course of the century. Their main means of measuring the wealth concentration was using personal income and wealth tax return statistics. They also conclude that tax evasion during the time was probably less than what was previously thought.

Source 2

Dell, F., Piketty, T., & Saez, E. (2007). Income and wealth concentration in Switzerland over the twentieth century. Top Incomes over the Twentieth Century: A Contrast between Continental European and English-Speaking Countries, 472-500.

This source starts off with both a liberal and conservative view of wealth concentration. The information presented will be valuable for adding to the history of wealth concentration as well as a general overview of wealth concentration. I believe it is relevant to add opposing views on wealth distribution and the benefits and dangers it may or may not behold. Wealth concentration has been an inherently political topic and omitting the obvious partisanship can cause readers to not fully understand the topic.

Source 3

Goda, T., & Lysandrou, P. (2013). The contribution of wealth concentration to the subprime crisis: a quantitative estimation. Cambridge Journal of Economics, 38(2), 301-327.

This source adds to the negative effects of wealth destruction on an economic system. The authors suggest that economic inequality was an important catalyst to the 2007 crash caused by the collateralized debt obligation market. This source I am unsure about. This may be too political for Wikipedia. However, I believe if I add a section covering wealth distribution in USSR (and its failures), then it will be only fair to add a section covering the 2007 market crash.

Source 4

Piketty, T., Postel-Vinay, G., & Rosenthal, J. L. (2006). Wealth concentration in a developing economy: Paris and France, 1807-1994. American economic review, 96(1), 236-256.

This is a more comprehensive analysis of wealth concentration as a result of industrialization. This source is similar to source 6. These sources can be used to prove that either one of these examples are just anecdotal. This source also touches on the relationship between wealth inequality and growth. This will be important in the history of wealth distribution and the effects of different systems on wealth distribution.

Source 5

Quadrini, V. (1999). The importance of entrepreneurship for wealth concentration and mobility. Review of income and Wealth, 45(1), 1-19.

This source speaks about how [capitalism?] can be used as a means to change wealth concentration. This source will be of great value when discussing different economic system that can be used to facilitate wealth distribution within an economy. Ideally, I would also look for different systems that facilitate wealth distribution (e.g. Feudalism, Socialism, etc.). I believe it would be important to list multiple means of facilitation of wealth concentration to attempt to remain unbiased. I am particularly interested in finding more information on the USSR. During the week, finding more sources to achieve this will be my main priority.

Source 6

Roine, J., & Waldenström, D. (2009). Wealth concentration over the path of development: Sweden, 1873–2006. Scandinavian Journal of Economics, 111(1), 151-187.

This source builds on the history of wealth distribution in Europe, specifically Sweden. This is a particularly intriguing source for it is a study that encompasses the beginning of industrialization in Sweden to modern day. Sweden has seen many changes to its economic system, so it will be interesting to note the differences of wealth concentration within the population as a result of the changes.

Sources still needed

1.    Wealth concentration throughout human history

2.    Information on different system that effect wealth concentration with examples

Week 3 Assignment

Distribution of wealth


 * Is everything in the article relevant to the article topic? Is there anything that distracted you?
 * Yes all the subsections of the article are relevant to the concept of Distribution of wealth. However, I do not know if having such a big section of wealth inequality is relevant to the subject of Distribution of wealth when there is an entire section on the topic. A possible change could be to just link the inequality section and write a paragraph to connect distribution of wealth to wealth inequality.
 * The editors also mentions data from multiple countries, but only expands on the United States in the section afterwards. Instead, adding subsection for all of the countries would be more logical.
 * Is any information out of date? Is anything missing that could be added?
 * Most of the information and graphs shown are at least 4 years old. New reports from the same organizations should be used in place of the older data.
 * As mentioned in the last bulleted question cluster, in-depth information should be added in order to match the data given. Wikipedia is a global website that should give examples of wealth inequality in other countries as well.
 * I think that economic systems should be mentioned (e.g. capitalism, socialism, feudalism) to properly explain the differences in wealth distribution between the different economic systems. Obviously this can be controversial because of the political nature of mentioning the differences of each economic system. However, it is an important aspect of wealth distribution that should be expanded upon.
 * What else could be improved?
 * Instead of linking the available data on wealth distributions in different countries. It would be ideal to write a small paragraph summarizing each countries' information. Adding a section to talk about differences between the countries could be a possible improvement to the section as well.
 * As mentioned, the inequality section of the distribution of wealth wiki page seems to be too prominent given the fact that there is a page on wealth inequality.
 * I think adding a new wiki page on wealth concentration would be helpful as well. Wealth concentration is caused by distributions of wealth, but it seems out of place on a page specifically about distributions of wealth.
 * Is the article neutral? Are there any claims that appear heavily biased toward a particular position
 * Overall, I believe that this wiki page is fairly neurtral. This is obviously a very political topic so it possible that the sources are in itself bias. This is the difficulty of trying to create neutral wiki pages. The editors seemed to purposely leave out conclusions and opinions based on the data given which is helpful in keeping the information free of bias.
 * Are there viewpoints that are overrepresented, or underrepresented?
 * I believe that it is possible to argue that the idea that inequality is rampant in our current distribution of wealth system is overrepresented in this article. The inequality section is longer than all the other sections in the wiki page combined. Obviously inequality is a problem with any economic system, but if compared with other economic systems, people would see the changes in the distribution of wealth over time.
 * Check a few citations. Do the links work? Does the source support the claims in the article?
 * Yes the citations used seem to be all working. I went over many of the sources. The sources seem to be related to the claims given in the wiki page.
 * Is each fact referenced with an appropriate, reliable reference? Where does the information come from? Are these neutral sources? If biased, is that bias noted?
 * The wiki page seemed to be lacking some references in the wealth concentration section. Adding sources to some of the assertions will strengthen the credibility of the overall wiki page.
 * The sources come from many different organizations and groups. It is hard to determine whether these research groups are bias, but it is reasonable to assume that all sources are bias because researches have the ability to skew data to fit a certain narrative. This is probably not likely though.