Pearls and Irritations

During 2020, the first year of the pandemic, when the world economy shrank by more than four percent, the world’s billionaires increased their share of the planet’s wealth more steeply than during any other year on record. These individuals, who number fewer than 3000, now possess about 3.5 percent of the world’s private household wealth, almost twice the total wealth owned by the poorest half of the earth’s population, who number nearly four billion.

The contrast between what has happened to the world’s wealthy and the wider economy is neatly illustrated by the inequality trends in Australia, although some caution is always required in making such international comparisons. The last two years have seen an upward redistribution in Australia, continuing the trend towards gradually increasing economic inequality that has been occurring in the country since the 1970s. It is, however, too early for a full understanding of what has happened specifically during the pandemic because we still lack official real-time statistics on the distribution of the yield from economic growth — or recession.

What, then, do we know? For a start, Australia has become a substantially wealthier country since 2019. The national accounts show that Australia’s household wealth rose by almost 40 percent over the two years to September 2021— that is, total wealth increased by nearly half during the pandemic, a surge that was virtually oblivious of the severe economic recession in the first half of 2020 and the macroeconomic contraction in the September 2021 quarter. With the single exception of the March 2020 quarter, Australia’s household wealth rose during every quarter over the two years to September 2021. It now amounts to an extraordinary $13,918.5 billion — over seven times the value of the nation’s current annual income.

This makes Australia one of the ten richest countries on earth — behind, in ascending order, Canada, Italy, India, France, the United Kingdom, Germany, Japan, China, and the United States (on an exchange rate basis as at the end of 2020). Given that it only ranks 55th in population size, this also makes Australia the world’s fourth-richest nation on a per capita basis — behind only Hong Kong, the United States and Switzerland, the last being the only country where the gains appear to have exceeded those in Australia. Further, as one of the richest countries in the world today it can be safely assumed that Australia is one of the richest countries in history.

Not every country accumulated more wealth during the pandemic. Latin American states and India appear to have suffered the biggest losses. Nor, on the other hand, does becoming a richer country necessarily translate into a higher standard of living. Of course, there is nothing inherently wrong with becoming a richer country. On the contrary. The problems arise not from the great pile, but from it being unequally distributed — actually, very much more unequally distributed than the nation’s income.

So, what is the present distribution of wealth? The most robust and most recent figures have been published by the World Inequality Database, which estimates that as of July 2021, well over half Australia’s private household wealth (total financial and non-financial assets, net of debt) — a gobsmacking 56.2 percent — is owned by the richest 10 percent of adults. Close to half this wealth — some 23.7 percent of the nation’s total — is owned by the top one percent of adults. Meanwhile, the poorest half of the adult population owns only 6.1 percent of the total. In other words, the top one percent own four times the wealth possessed by the bottom 50 percent. Or, putting it in round terms, the top ten percent of the people in one of the richest countries in history own close to 60 percent of the wealth, while the bottom 50 percent own practically none of it.

This inequality increased during the pandemic. According to the same dataset, since 2019, the share of the nation’s wealth owned by the top 10% increased by 0.43 percent, while the share owned by the top one percent increased by 0.75 percent. The percentages look small, until you remember that 0.75 percent of the national pile is about $100 billion.

This leads us to an important — and potentially explosive — feature of the trend. Inequality is widening along two fault lines, not only between the top and bottom halves of the population but also between the top ten percent and the next 40 percent, comprising the propertied “middle class.”

Over the two pandemic years, while the share of the nation’s wealth owned by the top ten percent increased by 0.43 percent, the share owned by the bottom 50 percent only decreased by a small fraction of this (0.06 percent). In other words, while it is obviously true that Australia’s rich are becoming ever richer in absolute terms compared with the poorest half of the population, this is simply because the latter own practically nothing — or what they do own is offset by debt. It follows then that the rich can only increase their share by reducing the proportion owned by the middle 40 percent, those with enough wealth to be distinguished from the bottom 50 percent but less than the top 10 percent. As of July 2021, this middle class owned 37.7 percent of Australia’s wealth, less than their 40 percent population share and 0.37 percent less than they did before the pandemic.

To be sure, a relatively small redistribution to the top ten percent over two years is hardly a concern in a context where the total wealth of the top half of the population has increased by some 40 percent. Yet it reflects the longstanding double fault line that is evident throughout the world’s developed economies. In the extreme case of the United States, the top ten percent of adults already own more than 70 percent of the nation’s wealth. If the trends are not arrested, it is estimated that by 2070, the proportion of the world’s wealth owned by a tiny global elite — the top 0.1 percent — will overtake that possessed by the middle 40 percent.

While a consciousness of rising inequality is now apparent worldwide, there is no clear prospect of reform yet. Indeed, far from responding, in Australia there is some evidence that the government would prefer to obfuscate or degrade the quality of the data, rather than deal with the phenomenon itself. Conspicuously, the outcomes for the 2019-20 issue of the official biennial wealth survey, the results of which have hitherto always been published the following year, have not appeared. In this, Australia is not alone. “It is paradoxical that in the so-called age of big data, public data on inequality are so woefully inadequate” observed the leading inequality scholar Thomas Piketty in his monumental work, Capital and Ideology. Wealth statistics in particular have become poorer in recent years, and Piketty specifically notes deteriorations in public statistics in the United Kingdom, France, Sweden, and Norway.

Why does any of this matter? Because of the growing volume of evidence that increasing economic inequality inhibits economic growth, destroys social cohesion, undermines democracy, and exacerbates myriad social problems — including the management of COVID-19 and other health problems — not to forget that it offends the idea of a just society by upending the belief in Australia as “the land of the fair go.” As the “godfather” of contemporary inequality studies, Sir Anthony Atkinson, once wrote: “If we are concerned about equality of opportunity tomorrow, we need to be concerned about inequality of outcome today.”

Dr Christopher Sheil is a Senior Visiting Fellow in history at UNSW, an Adjunct Professor in social policy at Boston University and a former senior executive in the government of New South Wales. He has published widely on labour history, economic inequality and public policy.

This article is published under a Creative Commons Licence and may be republished with attribution.