What does a ‘rich list’ tell us about wealth distribution?

Imagine watching a march-past of the whole Australian population. It lasts a hundred minutes. The people file past your vantage point in order of their wealth; starting with the poorest and ending with the richest. Each household is represented by one individual whose height is proportional to the total wealth of that household in the year 2002 – at a rate of one centimeter for every thousand dollars.

For the first four minutes there is absolutely nothing to be seen. The people marching past are, in effect, burrowing under the ground. These are the four percent of Australian households whose debts are bigger than their assets. They have "negative net wealth".

Then some tiny figures start to appear. Yet after ten minutes they are only four centimeters (i.e. $4 000) high. As the parade continues the average height slowly and steadily increases. At the 30-minute mark, however, the marchers’ height is still only just over 80 centimeters tall. It is beginning to look like an endless parade of dwarfs.

At the 50 minute mark, exactly half way through the parade, the height of the marchers has risen to nearly 2.2 metres. These households represent middle Australia. Typically, their home is the bulk of their wealth, although some also have rental "investment" properties, some are "mum and dad" shareholders and nearly all have wealth tied up in superannuation funds.

During the last 20 minutes of the parade really huge people come into view. At the ninety minute mark the average height is nearly 9.4 metres. With each minute after, the average height rises by more than the total increase in height that had occurred in the whole of the first half of the parade. Then in the last minute veritable giants appear, all over a hundred metres high.

Right at the end come the people on the BRW (Business Review Weekly Magazine) "rich 200" list. Any onlooker who blinks might miss seeing them because they comprise only the last sixth of a second in the parade. The shortest of this elite group is 930 metres tall – five times taller than the loftiest skyscraper buildings in Australian CBDs. Bringing up the rear is the tallest individual, Kerry Packer: at nearly 60,000 metres, puncturing the stratosphere.

This is a dramatic way of describing the overall distribution of wealth in Australia. It is based on information from a survey of the assets and liabilities of Australian households, analysed in a report by the Reserve Bank of Australia released in April 2004. It gives a broad picture that sets the BRW "rich 200" in perspective. It also raises many questions. What determines the extent of wealth inequality? How has the extent of wealth inequality been changing over time? Is this wealth inequality a good thing, economically and socially, or a source of discord, undermining social cohesion?

Analysing the Rich List

We can probe these questions by looking at the BRW ‘rich 200’ data over the last decade in more detail. Of course, trying to infer something about society as a whole from information on approximately 0.001 per cent of the population is a tall order.

Certainly the wealthy have become much wealthier. To get on to the BRW "rich 200" list in 1993 required a mere $30 million: by 2003 this had risen to $94 million. Even allowing for inflation, this represents a substantial hike in the price of the entry ticket to the rich list.

The concentration of assets among the super-rich themselves has also increased over time. When the BRW list was introduced in 1983 the share of the top ten asset-holders in the wealth of the top one hundred was 25%. In other words, the wealthiest ten people had a quarter of the total wealth of the top hundred. The corresponding figure was in the 39-41% range for each year in the period 1997-2003.

It is also interesting to probe how the sources of concentrated wealth have changed over the last decade. Media, retail industry and the development of shopping centers also feature increasingly prominently among the wealth sources of the top ten. Property stands out as the most important single source of wealth. 48 "property barons" had a combined wealth of $16.7 billion last year, well ahead of services and manufacturing industries as sources of wealth.

What underpins these trends?

Broadly speaking, two forces have shaped the concentration of wealth in Australian society. One is asset price inflation. The decade of the 1990’s in particular was remarkably buoyant for share prices. The growth in real estate values, only recently coming to a temporary halt at the end of a prolonged and dramatic property price boom, has widened the gulf between existing land and property owners and those aspiring to join this group. The dominant effect of asset price inflation is to intensify the advantaged position of those holding the greatest initial wealth.

The other driving force has been growing disparities in the distribution of incomes. Whereas wealth is a stock, income is a flow. Increased disparities in income flows can be reliably expected to increase disparities in wealth stocks over time. That is clearly what has happened in practice. The recent Reserve Bank analysis shows that very wealthy people are more likely to be holding their wealth in income-generating forms, such as shares and investment property. Not surprisingly, the phenomenal surge in payments to CEOs of large companies in recent years has also flowed through into corresponding accumulations of wealth. The average executive remuneration level is now 74 times average weekly earnings, up from 22 times average weekly earnings a decade ago.

Do these growing disparities matter?

Some would say that as long as the poor are not getting poorer it is a good thing that the rich are getting a lot richer. But if our well-being is assessed in relative terms, a growing gulf between rich and poor intensifies the latter’s feelings of relative deprivation. So social cohesion can be threatened.

The big question is whether there is a trade-off between equity and economic efficiency. The international evidence on this issue is quite inconclusive. More equitable societies like the Scandinavian nations are not notably less economically prosperous than more in inegalitarian ones. And within individual nations, efficiency has only a weak connection with reward.

The concentration of wealth could be justified on the grounds that it provides the basis for a "trickle-down" effect. On this reasoning, society as a whole benefits from the presence of very wealthy people because of the employment they create, the economic stimulation resulting from their consumer spending and the tax contributions they make to government revenues. But there is a difference between an argument for accumulation of capital in general and for the concentration of the wealth in a few hands. The positive employment effects, consumption effects and tax revenue effects are not contingent on wealth concentration and may even be impaired by it.

Economically, the key issue is the relationship between material rewards and economic contributions – reasoning that those who make the greatest economic contribution should receive larger material reward. This sort of "incentivation" argument has often been used to justify increased inequalities of income and wealth. As political economist J. K. Galbraith has noted, it is an argument for economic inequality that rests on an odd behavioral assumption - that the rich will work harder if their incomes are increased but the poor will work harder if theirs are reduced!

Even accepting the general rationale of economic incentives though, one has to wonder just how much inequality is necessary. There are always going to be some rich people and some poor people but there are major variations between nations in the extent of that inequality. Australia is moving from its middling position on the international league table towards a less egalitarian position.

Therein lie some significant dangers, because the perception of unwarranted inequalities can generate adverse economic outcomes. Among any group of people, cooperative and productive relationships depend on the expectation of reasonably "fair shares" in the distribution of the fruits of cooperation. It is not just the facts of inequality that matter, but also the perceptions of whether the inequalities are justifiable in terms of differential effort or merit. That is why the way in which wealth data is presented and analysed is so important.

To emphasise this last point, it is pertinent to recall that before BRW started publishing its annual rich list the task had largely been undertaken – more sporadically and unevenly – by the publications of the political left. The former Communist Party of Australia, for example, ran a series of "portraits of the ruling class" in its newspaper Tribune during the 1970s. It is somewhat ironic that BRW continues as the bearer of this tradition in a rather different political context.

The Challenge of Wealth

The modern social, economic and political challenge is how to reconcile the individual pursuit of wealth with broader social goals. Neoliberal politics have emphasised the former, as successive governments have pursued policies of privatisation and deregulation, expanding the role of markets throughout the society in order to create more options for private wealth-creation. Federal ALP leader Mark Latham now seems to be offering a political variation that emphasises personal economic and social mobility – increasing equality of opportunity but without necessarily reining in inequality of outcome. Meanwhile, growing numbers of people are "downshifting" – in effect, opting out of the relentless process of competition for wealth accumulation. Research undertaken by Clive Hamilton at the Australia Institute indicates that more than a fifth of the working population has made this sort of choice.

As a society we seem to be at a crossroads in terms of attitudes to wealth. Most people would wish to be wealthier, even if the possibility of getting on to the BRW ‘Rich 200’ list remains beyond their wildest dreams. Yet the evidence compiled by Clive Hamilton and other contemporary social scientists indicates no reliable connection between income and happiness. So the picture of the "top people" presented here by the BRW may give us occasion to reflect on the big question we all face – 'what sort of economy and society do we want to live in?' A society in which wealth is relentlessly sought and celebrated? A society in which material wealth is more evenly redistributed? Or a society which starts to question wealth as the primary indicator of personal success?