Bellerbys Economics - Mr Stephenson

Wednesday, December 06, 2006

United Nations University - Wealth & Inequality - Module 5

The UNU is based in Tokyo but operates largely as a virtual university, offering courses aimed particularly at developing countries.

A new report by the UNU, considered one of the most comprehensive to date, shows that 2% of the people in the world own 50% of its wealth - in effect, we have created a super-rich elite of 120 million people, located mostly in the USA, EU and Japan, but members of whom can be found in just about every country in the world. The report further concludes that the bottom 50% of the world - that's 3 billion people - own just 1% of the world's wealth.

But the most interesting aspect of the report is the way it illustrates sharply the difference between Income and Wealth. Income is current, wealth is accumulative.

For example, some of the poorest people in the world - in terms of wealth - are to be found in the USA and UK. This is because wealth is defined as net assets (what you have - what you owe). Sadly, mnay people in the USA and UK are deeply in debt because of house mortgages, credit card spending and so on. And yet, their levels of income and consumption are of course very high - compared to the average person worldwide.

So does wealth matter? Well, it does and it doesn't. It does because having high positive wealth means you get to control more of the world's resources and development (allocative efficiency). Low negative wealth means you could be in trouble if you get sick, lose your job and so on - the safety net provided by the state then becomes crucial. A poor state safety net could mean that people in high income countries could suddenly fall into destitution and dysfunction much more quickly than people in low income countries where the social safety net (family, village) may sometimes be stronger.

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