The latest issue (Jan. 22) ofÂ The Economist carries a special report on the wealthy and the state ofÂ inequality around the world. AsÂ is almost always the case with the BritishÂ magazine’s special reports, “The Few” is well worth reading. Here are some of the moreÂ instructive points:
* While inequality within nations, as measured by the Gini coefficient, has risen slightly,Â itÂ hasÂ declined globally since 1980. This reflects theÂ higher growth of developing nations like China and India that haveÂ implemented marketÂ reforms.
* Insofar as inequalityÂ has risenÂ somewhat within countries, it is up both in countries with extensive welfare states (i.e., Sweden and Germany) asÂ well asÂ those with relatively smaller welfare states (i.e., the United States and Britain). In other words,Â recent trendsÂ in the distribution of income have little to do with the supposed retrenchment of the stateÂ in economic life overÂ the lastÂ three decades.
* Of late, inequalities have been driven by theÂ move towards an ever more technological society.Â By making cognitive skills more valuable in the marketplace, this shiftÂ has raisedÂ theÂ wage premiumÂ for those who successfullyÂ obtain higher education credentials.Â Â Those who earn more tend to be those whoÂ stayed in school and worked to complete one or more university degrees.
* Only 16% of the world’s rich individuals — defined as those with $1 million or more in net worth — inherited their wealth. The remaining 84% either gained their fortune byÂ running a successful business,Â by securingÂ Â jobs (i.e., doctor, CEO, investment banker) that pay well, or just by living frugally and saving what they earn.
Critics of the free market say that it enables the rich toÂ become richer and condemns the poor toÂ become poorer. But markets have reduced inequality between human beings around the world. Nor do you have to come from wealth to become wealthy.Â Market exchanges permit anyone toÂ rise to prosperity by working, studying, saving, and investing.