Last week, CNBC ran an interesting story on global wealth inequality.
It was based on the recent global wealth ranking by Bloomberg, which attempted to neatly slot in everyone in the world in 14 buckets.
Pictured below is the summary output of that exercise.
Global Net Worth Distribution
Now, there are a number of interesting observations you could draw from the analysis above.
There’s a striking number of people in the world with a net worth below $1000 (£819). If your net worth is above that threshold, you are already wealthier than 1.5bn people.
1.5bn people. Reflect on that for a moment.
Then there’s the “what you can afford” column. If I could make one edit to the table, I’d put quotations around “afford” instead.
For this first-generation immigrant, the concept of someone with a net worth of $10k (£8,190) being able to afford a new car is pure madness.
The same goes for someone with a net worth of $1m (£820k) being able to afford a “second home by the shore” (though I’m sure BoJo has one).
However, what I find most fascinating is the noise everyone starts making around the re-distribution of wealth every single time a piece of analysis like this gets published.
Now, I’ve only been around for 40 years, give or take. That’s not a massive sample size. Nonetheless, of the relatively short list of life wisdoms I accumulated in that stretch of time, here is the most important one.
“The Cavalry Isn’t Coming”
Fixing Wealth Inequality – A Real-Life Case Study
Let me tell you a little story.
Back in 1996, a husband and wife in one of the recently formed countries on the emerging market frontier have had enough.
They were 40 and 36 years old, with a teenage daughter and son. Well-educated and hard-working, they had nothing to show for their fifteen-odd years in the workforce.
Things were always just about to get better.
The new president would fix things. The next tranche of aid from the IMF would help with the infrastructure. The local police would finally do something about the rampant crime in their home city.
But days would go by, and the cavalry never showed up.
Frustrated, they sold everything they had (hint: it wasn’t much) packed it in and emigrated to a large, well-developed, English-speaking country.
Following a number of initial setbacks, they managed to pin down steady, unglamorous jobs. Then they slowly started to rebuild from zero.
22 years later, they are semi-retired. Their net worth puts them firmly in bucket #6 on the chart above.
At the same time, economically speaking, the country they emigrated from hasn’t moved an inch in those 22 years. Things are still pretty much the same.
In other words, the cavalry didn’t come.
Those people are my parents. Never in their life did they drive a car that wasn’t less than five years old. Last time I went over to check in on them, there was no mention of a “second home by the shore” either.
What there’s plenty of is what psychologists call self-authorizing behavior.
What it means is that you become the author of your own life.
It means moving to a new country if you have to.
Going back to school if you aren’t happy with your earnings potential.
Starting a business if your company just isn’t treating you right.
Or, in that wild idea of the day, taking charge of your personal finances.
Self-Authorizing Behaviour Is Your Only Option
Let’s get one thing straight. When it gets out of control, wealth inequality can be very BAD. That’s right, caps lock bad.
It stifles economic progress. It leads to increased crime levels. It undermines the fairness of our political institutions, our economic system and potentially even our democracy.
But wealth inequality is not going away anytime soon.
Yes, politicians wax lyrical about all the things they will do to fix wealth inequality.
Yes, many rich people acknowledge wealth inequality is an issue and commit to giving their wealth away.
But even if you believe some of those promises (and I do believe that at least some of them are made with the best intentions), the reality is that it will be too late to help you.
Fundamental changes like a peaceful, sustainable redistribution of wealth are incredibly complex – and will take many decades to play out, if they ever do.
So yes, by all means – exercise your democratic right to support the initiatives that have the potential to improve your life.
But remember – IF the cavalry ever comes, you probably won’t be around to see it.
Self-authorizing behaviour is your only way out.
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6 thoughts on “Global Wealth Inequality: The Cavalry Isn’t Coming”
It’s the Pareto Principle (the 80/20) rule at work. Imagine you would collect all the wealth in this world and equally redistribute it amongst everyone. Some time will pass and after that: the final result might be strikingly similar again. Capitalism works this way. It takes a few rounds Monopoly to see what happens. Sooner or later one player gets it all (and yes, it’s not all about skills). Compound interest is the eighth wonder of the world. He who understands it, earns it… he who doesn’t… pays it.
Love the Monopoly example. Typically the players who understand rules the best win much more often than those who don’t!
Too bad that when it comes to money, not many people take the time to learn the rules.
Why is wealth inequality bad? And the trend over the last hundred years is that *global* inequality has decreased, due to globalization. Take a look at the gini index over time. There will always be inequalities is wealth because there’s inequality is productivity. We can argue how much inequality could cause harm, but certainty not equality. I’m disappointed in poor the analysis and unsubscribing.
Thanks John. To make it very clear, I am not advocating for total equality. Growing up in a communist country I have seen first-hand that it doesn’t work. I do, however, think that when it gets out of control, the effects on society can be very detrimental.
In either event, the core point of this post is that the best way to overcome inequality is to do something about it yourself as opposed to waiting for others to help.
I think the possibility that people might “make it” one day is what modern times is all about. Or maybe that’s the American dream.
The impressive thing is that most people think thier turn is right around the corner. The top quartile are definitely winning this game and telling everyone else that there turn is coming soon is a big part of it.
AND! I don’t want the cavalry to come! They might realize how many properties I own and push me right out of them. Cuban revolution style :O
You’ve hit the nail on the head. Everyone thinks they’ll make it to the top at some point. The reality is most people won’t unless they take proper action today, without waiting for politicians to fix their problems.