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The Global Rich and Poor Gap Widens


A recent study reveals a widening gap between the world's rich and poor, with the richest two percent of adults controlling more than half of the world's household wealth.

In 2000, the wealthiest one percent of the world's adults owned 40 percent of its assets. The richest ten percent of adults controlled 85 percent of global wealth, according to a recent study by the United Nations University's World Institute for Development Economics Research in Helsinki.

Most of the wealth, says New York University economist Edward Wolff, who co-wrote the report, is narrowly concentrated. "A big chunk of it is in the United States - - about 30 percent. And if you look at just the richest one percent of households, the United States accounts for 40 percent of that. Another third is in Europe. And another third is in the rich Pacific-Asian region - - Japan, Australia and so on. And the rest of the world has only about ten percent of the world's wealth. That actually includes today China, India, Latin America and Africa," says Wolff.

Uneven Wealth

Household wealth, as defined by the study, includes welfare benefits, investments and properties, including homes and land, but excludes wages. Average household wealth in the United States was $144,000 per person in 2000, compared to per capita assets of about $1,100 in India and $1,400 in Indonesia.

According to the World Bank, 1.1 billion of the world's 6.5-billion people live on less than a dollar a day. People in developed countries earn, on average, an annual per capita income of more than $17,000.

But Maurizio Bussolo, a senior economist with the World Bank, says the income gap between rich and poor states and within countries themselves is smaller than the disparity in household wealth.

"Currently, the disparity between income in developing countries with respect to income in rich countries is 16 percent. This disparity will be reduced by 2030. For each dollar a high-income country earns, the average earning in a developing country will be 16 cents. This is in purchasing power parity. If it were in market exchange rates, it would be even worse because there are differences in the cost of non-tradable goods. Services cost much less in developing countries. So that is to taken into account."

Savings and Productivity

Most analysts agree that some of the reasons for the disparities in wealth and income are historical. Other causes include political, cultural and economic dynamics, such as high productivity levels in industrialized countries, which typically lead to higher per capita incomes. That, in turn, notes New York University's Edward Wolff, yields more savings and personal wealth.

"That's probably the main reason. But secondarily is the fact that different countries have different savings behaviors. In the United States, for example, families have accumulated a lot of wealth. They have very advanced financial markets. They have a well-developed housing market. But most countries in the world don't have financial markets. They don't have housing markets. So it's a combination of differences and income levels, plus the availability of savings instruments. That plays a big role. Japan, for example, has high savings rates because they have historically had institutions that encourage them," says Wolff.

Nonetheless, many economists concede that regardless of a country's savings rate, the poorest families need all of their income just to meet basic needs and are unlikely to save.

Technology and Globalization

Some experts say globalization is helping narrow the gap as more and more people from poor countries seek better-paying jobs in the industrialized world. But the same technological advancement that creates some of these jobs also contributes to wealth and income disparities, according to Oxfam's Research Director in London, Duncan Green.

"Technology tends to be something that exacerbates differences. If you look at where the knowledge is, 97 percent of patents are taken out in the north [i.e., the Northern Hemisphere]. So the north is creating technology and giving patents to keep its technology from filtering down to the poor countries. That gives them an edge. And that means that's where most of the wealth is generated," says Green.

Many analysts emphasize that bridging the divide between the two worlds is a long-term, slow process. One reason for this, says David Roodman, a senior fellow with the Washington-based Center for Global Development, is that many of the world's poorest countries have not undergone the kind of industrial renaissance the West has seen.

"The rich people are not rich because they took money from everybody else. For the most part, the rich countries are rich because they had a particular history of industrial development. And the real question is how can we help the rest of the world go through that same process so that they too can become much better off," says Roodman.

Current initiatives designed to help narrow the wealth and income gaps include a United Nations micro-credit program that helps finance small businesses in developing countries, and a World Bank program that gives cash assistance to needy families if they agree to provide their children with schooling and health care.

World Bank experts predict that globalization will lift many more of the globe's poorest people out of poverty during the next 25 years. But even if the gap between rich and poor countries begins to narrow, many experts warn that a bigger problem may be the widening income disparity within rich and poor countries themselves.

This story was first broadcast on the English news program,VOA News Now. For other Focus reports click here.