Series: Thomas Piketty’s Capital in the 21st century: an ABC

Concentration of wealth in the hands of the 1%

Part 1

29 March by CADTM


Piketty’s Capital in the Twenty-First Century [1] is an indispensable book for anyone interested in learning more about the unequal distribution of wealth in the world today. As I read this major 950-page study, which is supplemented by a large amount of statistical data and tables available on Internet [2]), it became obvious that the Occupy Wall Street movement and others in its wake were completely right to target the richest 1 percent.


Indeed, in 2013, in France the wealthiest 1 percent owned 25 percent of the total wealth, [3] 30 percent in the United Kingdom, 20 percent in Sweden, and 32 percent in the United States. [4] If we include the portion of wealth that is hidden in tax havens or in other ways, that percentage would increase by at least 2 or 3 points. To simplify, the wealthiest 1 percent represents the capitalist class that possesses an impressive amount of the total wealth. [5]

If we increase that number to the richest 10 percent, we arrive at the following percentages: in France, the wealthiest 10 percent own 60 percent of the wealth; in the UK, 70 percent; in Sweden, 60 percent; and in the US, 70 percent. Overall, we can consider that the additional 9 percent represent the circle or allies –in the broad sense of the term—of the capitalist class. The concentration of wealth in the hands of a few has further increased since Piketty’s book came out.

Popular movements should make precise claims in terms of the measures that should be taken with respect to the richest 1 percent and the next 9 percent. The amount of tangible and intangible assets that this 10 percent possesses reveals to what extent wealth is unequally distributed. It also shows where a left-wing government could find the necessary resources in great abundance for implementing policies that would 1) improve the living conditions of most people, and 2) bring about the profound structural changes needed to move beyond productivist capitalism, and launch the ecological transition process.

In a compelling table, Piketty sums up the share Share A unit of ownership interest in a corporation or financial asset, representing one part of the total capital stock. Its owner (a shareholder) is entitled to receive an equal distribution of any profits distributed (a dividend) and to attend shareholder meetings. of wealth owned by the richest 10 percent, the next 40 percent, and the poorest 50 percent.


Table 1. The unequal ownership of capital
 [6]

Share of diffrent groups in total capitalEurope 2010United States 2010
The top 10% 60% 70%
Including the top 1% 25% 35%
Including the next 9% 35% 35%
The middle 40% 35% 25%
The bottom 50% 5% 5%

50 percent of the population in Northern countries owns but 5 percent of the total wealth. When the left argues for a tax on wealth, this is obviously an important figure to mention in favour of not taxing the poorest 50 percent. Meanwhile, the middle 40 percent in Piketty’s model, who own 35 percent of the total wealth in Continental Western Europe, and 25 percent in the US and the UK, are mainly employees, with a small percentage of self-employed. At least three quarters of them could be exempted from a tax on wealth.

If we go from percentages to amounts in euros, we can understand even better what it means when we say that wealth is concentrated in a very small fraction of the population.

 An idea of wealth distribution among the various groups

According to Piketty, in several European countries where the standard of living is close to the French standard, the average wealth of the poorest 50 percent is about €20,000; however, the fact that many of these households have no wealth or are in debt is also an important consideration.

The middle 40 percent, to use Piketty’s terms, have an average personal wealth of €175,000 (ranging from €100,000 to €400,000). The next 9 percent have €800,000, and the upper 1 percent owns €5 million. Of course, at the top of this 1 percent, there are super-wealthy individuals like Bernard Arnault (LVMH), who is currently the richest European with a wealth of over $76 billion.

 From the unequal distribution of private wealth in the European Union to its necessary redistribution

The case of the European Union is worth analyzing. In 2013 it had a GDP GDP
Gross Domestic Product
Gross Domestic Product is an aggregate measure of total production within a given territory equal to the sum of the gross values added. The measure is notoriously incomplete; for example it does not take into account any activity that does not enter into a commercial exchange. The GDP takes into account both the production of goods and the production of services. Economic growth is defined as the variation of the GDP from one period to another.
of €14,700 billion. The total private wealth of European households amounted to approximately €70,000 billion. The top 1 percent had €17,500 billion (25 percent of €70,000 billion). The next 9 percent owned €24,500 billion (35 percent), as did the middle 40 percent. The remaining 50 percent had €3,500 billion or 5 percent of the total. [7]

The annual budget of the European commission (€145 billion) is equivalent to approximately 1 percent of the EU’s GDP. Meanwhile, a 1 percent annual tax on the wealth of the richest Europeans would raise €175 billion (€30 billion more than the EU’s annual budget). How about a 5 percent wealth tax? This simple illustration gives a concrete example of what is potentially achievable, if social movements can succeed in obtaining radical change in European policies or even of the policies in only one EU country. [8]

A 1 percent annual tax on the wealth of the richest Europeans would raise €175 billion, i.e. more than the EU’s annual budget

An exceptional tax (i.e. a tax levied only once in a generation) of 33 percent in the wealth of the richest 1 percent in the EU would provide nearly €6,000 billion (that is over 41 times more than the EU’s annual budget!). And we are not even close to an 80 percent rate!

These examples help us to size up the issues at stake in terms of taxing the private wealth of the capitalist class and the possibilities that exist for coming up with propositions so that we can find money where it is plentiful, in order to put it to use to bring about social justice.

An exceptional tax (i.e. a tax levied only once in a generation) of 33 percent in the wealth of the richest 1 percent in the EU would provide nearly €6,000 billion (that is over 41 times more than the EU’s annual budget!)

Many economists keep repeating that it is of no use to tax the wealthiest, because as there are so few of them the amount raised would not be very significant. On the contrary, Piketty shows that the richest 1 percent has concentrated such a phenomenal amount of tangible and intangible assets that a tax policy targeting the richest 1 percent, 2.5 percent, or even 10 percent would provide substantial means for breaking with neoliberalism. [9]

To those who claim that wealth is inaccessible, because it can cross borders easily, we must respond that sequestration, the freezing of financial assets, heavy fines, and the control of capital movements are powerful tools that could be applied if there is the public will and political determination.

 The unequal distribution of private wealth throughout the world

What has just been said about the European Union could be extended to the rest of the world, because from the North to the South there has been a substantial increase in the personal wealth of the richest.

We could also focus on an even smaller minority of wealthy individuals as Piketty does: In 1987, there were 150 people in the top 1/20 million fractile of the adult population worldwide, with an average personal fortune of $1.5 billion. [10] Twenty-six years later, in 2013, the top 1/20 million fractile of the population numbered 225 people with an average personal fortune of $15 billion, which represents a 6.4 percent increase per year. [11] The top 0.1 percent (1/1000 of the world population [12]) in the world own 20 percent of the wealth in the world, the top 1 percent own 50 percent. If we take into account the wealth of the top 10 percent, Piketty estimates that it holds 80 percent to 90 percent of the total world wealth, while the bottom 50 percent certainly have less than 5 percent. [13] These figures allow us to understand just how much redistribution must take place, and that this redistribution would require the confiscation of a very significant share of the personal wealth owned by the richest.

The top 0.1 percent at a global level (1 thousandth of the world population) owns 20 percent of the world’s wealth; the top 1 percent owns 50 percent

Piketty observes that the wealth of the richest 1/1000 on the planet increased by a rate of 6 percent per year in recent decades, whereas the wealth of the overall population increased by only 2 percent. If a radical shift does not occur, and all else remains the same, within 30 years, the top .1 percent will own 60 percent of total world wealth, three times the 20 percent they possessed in 2013! [14]

 The distribution of income is also extremely unequal

Piketty also analyses labor income, and shows that the 10 percent who earn the most take home 25 percent of the income from labor in Europe, and 35 percent in the United States.


Table 2. Total labor income inequality
 [15]

Share of different groups in total labor incomeEurope 2010United States 2010
The top 10% 25% 35%
Including the top 1% 7% 12%
Including the next 9% 18% 23%
The middle 40% 45% 40%
The bottom 50% 30% 25%

If we add labor income and other forms of income (rent, interest Interest An amount paid in remuneration of an investment or received by a lender. Interest is calculated on the amount of the capital invested or borrowed, the duration of the operation and the rate that has been set. on savings, corporate profits, dividends, and so on), the distribution is even more unequal, as shown in Table 3.


Table 3. Total inequality of income from labor and capital
 [16]

Share of different groups in total incomeEurope 2010United States 2010
The top 10% 35% 50%
Including the top 1% 10% 20%
Including he next 9%) 25% 30%
The middle 40% 40% 30%
The bottom 50% 25% 20%



Footnotes

[1Thomas Piketty, Capital in the Twenty-First Century, transl. Arthur Goldhammer, Cambridge (MA): Harvard University Press, 2013; page numbers are to the pdf edition.

[3A simple definition of wealth is ‘the total amount of tangible and intangible assets belonging to an individual minus that person’s debts.’ Piketty argues that today the total wealth of a country (private wealth + public wealth) such as France, the United States or Belgium corresponds in reality to total net private wealth, because net public wealth is more or less equal to zero since public debt represents nearly 100 percent of GDP. See Piketty for a fuller explanation of this notion.

[4Chapter 10, p. 246.

[5Throughout this article, the term “wealth” corresponds to what Piketty takes into account in his calculations (see above). It does not include other items of wealth, which are priceless and vital for the survival of humanity and nature. For a discussion on the wealth and value that are beyond the bounds of this article, see Jean-Marie Harribey La richesse, la valeur et l’inestimable (in French—Wealth, Value, and what is Priceless), 2013.

[6Based on chapter 7, table 7.2.

[7Chapter 12., p. 308.

[8Nota bene: the proposals in this article are the author’s sole responsibility and do not commit Piketty. When a proposal is a summary of one of Thomas Piketty’s, this is said explicitly.

[9Piketty writes, “Take for example a wealth tax of 0 percent on fortunes below 1 million euros, 1 percent between 1 and 5 million euros, and 2percent above 5 million euros. If applied to all member states of the European Union, such a tax would affect about 2.5 percent of the population, and bring in revenues equivalent of 2 percent of Europe’s GDP” (p.368). Even putting this modest proposal into practice would bring in the equivalent of two times the EU’s current budget!

[10All figures in dollars are in US dollars.

[11Chapter 12, p. 307.

[12Approximately 4.5 million adults.

[13Chapter 12, p. 308, already quoted above.

[14Chapter 12, p. 309.

[15This table is based on data in Table 7.1

[16This table is based on data in Table 7.3

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