#74 - How is Wealth Inequality Impacting Societies

Addressing inequality is not just a matter of fairness but also resilience—societies with greater equality are often better equipped to adapt and thrive.

Some studies suggest (but have not yet conclusively proved) that leveling is beneficial even for the most advanced modern societies. Those that do best for their citizens in quality of life, from education and medical care to crime control and collective self-esteem, also have the lowest income differential between the wealthiest and poorest citizens (Wilson, 2012).

How to Measure Inequality

As appealing as it sounds, inequalities have proven fairly persistent. They can be measured in different ways. A very popular measure of inequality is the GINI coefficient, which shares some limitations with correlation analysis. Both are fairly theoretical and difficult to visualize in real-life situations. After a deep dive into several measures, I recommend focusing on the share of certain groups in the total income of society. For example, the share of the top 10% and bottom 50%. These measures are easier to visualize and relate to personal experiences.

There are also two main areas to examine: income and wealth. Let’s explore both perspectives using percentage share parameters.

What Are the Inequality Trends over Time

Bottom 50% of world's population have not reached even 8,5% of total income in any year since 1900[1].

The global average is fairly stable, but when you look at the country level, there is no clear trend distinguishing advanced nations from others. For example, the share of income by the poor increased in Sweden (from 15.8% to 24.5%), but in the US, it slightly declined (from 14.5% to 13.3%).

Below you will find a chart with countries I typically analyze. This group is my favorite for national culture analysis—diverse enough to discuss important global trends, and I have worked and interacted extensively with these populations throughout my career.

Wealth Inequality

Another measure of inequality is wealth. Accumulated wealth within the global population is around five times higher than GDP. The disparity in this measure looks even more extreme than for income, partially due to the prolonged process of wealth accumulation.

The bottom 50% of the population accumulated just about 2% of total wealth—with India, surprisingly, leading our group with 5.5% share, despite performing rather poorly on income inequality - only slightly better than the USA.

This measure, however, suffers from some important issues:

• Demographic split within groups is not available, and it matters. The bottom 50% includes many younger people who are just starting to build their wealth, are repaying mortgages, or are spending money to raise children. Therefore, we should expect this number to be lower in every society. While comparisons between countries can be useful, discrepancies may be related to demographic structures rather than underlying inequalities.

• Wealth without an income stream is like a prince with a castle but no cash to maintain and heat it. Asset depreciation makes wealth vulnerable. Therefore, economists compare economies by GDP rather than total wealth. When GDP declines, wealth can quickly become a burden.

Deep Dive into Poland

Poland has experienced unprecedented journey over the last three decades. By 2022, it had increased its output per person more than threefold compared to 1990.

However for the large part of the population this journey did not deliver any real benefits. From the country of relative equality, - in 1990 poor 50% earned almost 26,5% of all income and top 10% - 24%, the country shifted it income distribution quite dramatically - in 2023 poor 50% earned only 19,6% of total income whereas top 10% more than doubled its share to 38,4%. The wealthiest 1% tripled its share from 5% to more than 15%.

As a result, the entire middle class (the remaining 40% of adult citizens) is shrinking, with the wealthiest disproportionately drawing wealth away from this group.

Wealth equilibrium did not change during these three decades. Half of Poland’s poorest citizens still do not own anything; they actually owe more than they own—about 1% of the country's total wealth.

Even with my concerns regarding this measure, it is fairly embarrassing. Poland is the only country in our group that has managed to keep half of its population without any assets of their own. Income inequality may not be as severe as in the US or India, but...

Takeaways

If the studies suggesting that leveling is beneficial for every society are sound, we are not moving in the right direction. Inequalities in most societies are growing, the middle class is shrinking, and the world is becoming increasingly polarized.

The Rise of the Super-Rich - The wealthiest 1% earns more than the bottom 50% of citizens in the USA and India. It may sound unreal, but it is happening.

Poland is moving in the same directions - Only Switzerland and Sweden have managed to keep this ratio relatively stable. However, the growth of the super-rich is still a concern in those countries.In Sweden, for example, in 1996, there were just 28 people with a net worth of a billion kronor or more. By 2021, there were already 542 "kronor billionaires" [2]. Global scalability is a substantial ingredient in this trend and its result is the decoupling of wealth generation from the value generated by the job for the society. Nurses, teachers, police officers—all end up in the bottom 50% of the population in terms of income.

Luck or hard work and talent? - Do you earn more because you work harder and have more talent? This is what representatives of top 1% tend to claim, opposing with force any changes in taxation of their income. Even though it is partially true, a substantial body of research claims otherwise - the family we were born and luck play much larger role that we want to admit when we reach success in life.

Progressive Society - UBS’s Wealth Report claims it’s consistently likelier for people to climb the wealth ladder than slip down. However, this can also be phrased differently—once you are rich, it is unlikely you will lose that status. Societies with greater inequality tend to become more rigid. The competitive advantage created by wealth is a strong instrument for preserving the status quo. Stiff structures are, however, not resilient and have often been catalysts for revolutions and conflicts.

I believe that inequality measures are essential to track and interpret in the context of social developments in recent decades. The 50% of world citizens doing so much worse than the top 10% represents a potential source of frustration and unrest.

There is no doubt that the general conditions of life have improved dramatically worldwide. However, we are wired to compare ourselves with others, a phenomenon beautifully illustrated by the Capuchin Monkey experiment. The experiment, which demonstrated how monkeys react strongly to perceived unfairness when rewarded unequally, illustrates a fundamental human drive for fairness that cannot be ignored.

I encourage you to watch and reflect on how our desire for fairness influences growing social unrest and uncertainty. Inequality not only breeds frustration and unrest but also undermines social cohesion and resilience—key factors for thriving in a rapidly changing world.

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Resources

Keuschnigg, M., Van De Rijt, A., & Bol, T. (2023). The plateauing of cognitive ability among top earners. European Sociological Review, 39(5), 820-833.

Fejfer, K. (2023). Problem rynku jednego zwycięzcy [The problem of a one-winner market]. Pismo. Magazyn Opinii , 8(68).

Global Wealth Report 2024, UBS.

Wilson, E. O. (2012). The social conquest of earth. WW Norton & Company.

[1] All data in this article are based on World Inequality Report

[2] The rise of Sweden's super rich