Why Thomas Piketty's wealth equation doesn't work in Britain
|
Version 0 of 1. Thomas Piketty, in his much-cited recent book on the distribution of wealth, argues that because the return on capital is greater than the long-term growth rate, wealth must by definition become increasingly concentrated in fewer hands. But today's data on the wealth and assets survey from the Office of National Statistics gives little evidence to support that view in Britain. If you take a 100-year view, Piketty is clearly wrong. One in five people in the early 20th century owned property; today two thirds do. Pension wealth is far more widely distributed now than for earlier generations. Today's data shows that three quarters of the population have some kind of pension wealth, with public-sector workers outstripping the private sector across the board by a considerable margin. Taking a short-term view, a more nuanced picture emerges, but there is little to show a marked trend. The ONS survey, covering the period 2010-12, is the third data point since 2006 of the wealth distribution in Britain, enabling tentative conclusions to be drawn about the direction of travel. It shows that the distribution of total wealth – comprising net financial wealth (cash minus debts), net property wealth (value minus mortgage), physical possessions and pension pots – has not altered since 2006-08. The Gini coefficient, the standard measure of inequality, has remained steady over this time at 0.61, where 0 is perfect equality and 1 represents perfect inequality. Within this, however, there has been some movement. Inequality in property wealth has widened very slightly – the Gini coefficient here has risen from 0.63 to 0.64, as house prices continue to polarise between London and the rest. The distribution of financial wealth has also deteriorated, linked to the increasing prevalence of high levels of consumer debt at the bottom of the wealth distribution; the Gini coeffient here has risen from 0.89 to 0.92, although it should also be noted that net financial wealth makes up only 14% of the total wealth of the nation. More positively, the distribution of private pension wealth has become more equal: from 0.77 to 0.73, with a slight improvement (from 0.46 to 0.45) of the distribution of physical wealth as well. The figure below shows how different categories of wealth are spread more widely in Britain: the steeper the gradient towards the right of the graph, the more unequal the distribution. So rather than being a vindication of the Piketty argument, what this also points to is the potential for policy action to impact the asset position of households. It looks as though recent policy action to build up pension pots, whether through raising the age of retirement or the introduction of auto-enrolment, could have an effect. Conversely the need to reformulate consumer credit policy to make it far harder for those who cannot afford it to take on debts becomes ever more acute now that we understand the extent to which it is holding back some cohorts of the population. And – while it may present problems politically – there is no getting away from the need to consider the effect of regional house prices if we want to discuss overall wealth distribution in Britain. |