Wealth ownership in the West has reached unprecedented levels. Today, there are more billionaires than ever, and housing and stock prices have climbed to record highs. Meanwhile, the taxation of labor and capital has seen significant shifts. How have these changes impacted household ownership and wealth inequality?
For years, data gaps left these questions unanswered, filled only by speculation and isolated policy statements. In a book on wealth inequality and ownership in the Western world, I provide new insights into the current landscape and the historical evolution dating back to the early 20th century. This book draws on extensive research into household wealth ownership and the role of capital formation in shaping prosperity and the wealth divide.
My analysis leads to three key discoveries, which are displayed in Figure 1, below.
Figure 1: Wealth in the West: The three historical facts
Note: Figures show unweighted averages for six Western countries: France, Germany, Spain, Sweden, the United Kingdom and the United States. Source: Waldenström (2024).
Firstly, households today are vastly wealthier than in the past, with net worth increasing tenfold over the last century, even after accounting for inflation. Remarkably, this growth has accelerated since 1980, surpassing previous rates.
Secondly, the nature of wealth has transformed. A hundred years ago, wealth was largely concentrated in agricultural and business assets owned by a small elite. However, political and economic reforms ushered in democracy, education, and improved working conditions, enabling workers to save for homes and retirement for the first time. Now, housing and pension savings make up three-quarters of all property ownership.
Thirdly, wealth is now more evenly distributed than in most past eras. At the start of the 20th century, the top 1% of households held well over half of all private wealth (around 70% in the UK, likely the highest globally at that time). This concentration dropped dramatically, reaching about 20% by the 1970s. Recently, the share has risen slightly but remains historically low in European countries. In contrast, inequality in the United States has increased significantly, with the wealthiest 1% holding between 35% and 40% of the nation’s wealth.
When examining whether wealth equalisation was driven by reduced capital holdings among the wealthy or increased ownership from below, Figure 2, below, provides a clear answer. The decline in top wealth shares (white bars) from 1910 to 1980 correlates with positive wealth growth for the bottom 90% (blue bars) rather than a decrease in wealth for the top 1% (red bars).
Have the recent increases in wealth concentration in Western countries come at the expense of the middle class? No, the evidence speaks against this. Top ownership is dominated by successful entrepreneurs and Figure 2 indicates that their wealth grew by an average of 4.3% per year between 1980 and 2010 in a sample of six countries. However, the wealth of the rest of the population grew by almost as much, 3.1% per year, over the same period.
Figure 2: Wealth in the West: The three historical facts
Note: Average annual growth in real wealth per adult in blue and red bars over six Western countries (see Figure 1). Source: Waldenström (2024).
These new findings provide a more nuanced perspective on capital formation and wealth distribution in modern economies. Notably, they challenge the view of my former colleague, French economist Thomas Piketty, who attributed twentieth-century equalisation primarily to the destruction of wealth during the world wars and the redistributive effects of capital taxes. However, non-belligerent countries like Sweden and Spain followed similar trends, suggesting other forces at play. While capital taxes have indeed restrained entrepreneurship and capital formation, the heaviest tax increases historically have impacted workers’ wages more significantly than capital.
In my book, I argue that it is primarily economic growth and financial development and, importantly, the inclusive political and economic reforms of the twentieth century, that have made us both richer and more equal today than in the past.
Can today’s and tomorrow’s policymakers learn from this new wealth analysis? I believe so. History never fully repeats itself, but a number of lessons are highly relevant today.
(1) Question zero-sum thinking. The view of the economy as a zero-sum game – that someone’s success comes at someone else’s expense – has little support in the data and should be challenged. During the 20th century, ownership of assets increased at both the top and the bottom of the distribution. New businesses created products, jobs, incomes and tax revenues that previously did not exist and thus were not ‘taken’ from anyone. My book instead emphasises that dynamic and value-creating growth lifts everyone.
(2) Homeownership leads to a reduction in wealth inequality. Higher rates of homeownership benefit households’ personal finances as well as reducing inequality in ownership. OECD countries with a higher share of home-owning households generally have lower wealth inequality. Research also shows that owner-occupied housing wears less than rented housing and that housing investments tend to provide as high a return as shares but at half the risk.
(3) Private pension planning: security through funded savings. Tax benefits linked to long-term savings plans, especially for retirement, encourage workers to build private wealth. A private pension buffer strengthens personal finances in retirement and provides the opportunity to invest beforehand if needed. We should continue to move towards a funded pension system, which addresses the demographic trend towards more retirees and fewer contributing wage earners and allows wage earners to share in stock market returns at low risk.
(4) Tax capital income, not wealth. Capital taxation is a natural part of the tax system, but how we tax capital matters. Taxes on capital income, such as corporate profits and dividends, are most effective in both redistribution and revenue generation. Wealth taxes, and even inheritance taxes, have always caused problems. They drain the free resources of entrepreneurs, are difficult to collect, and generate little revenue, so most countries no longer use these capital taxes.
(5) Power and wealth: fix politics and media rather than hamper business activities. One potential externality resulting from large fortunes and wealth inequality is that rich individuals may get a disproportionate amount of power over policymakers and the media. The most direct way to handle this is not to hamper businesses and growth but to shield policymakers and media outlets from unwarranted influence. This can be done by improving transparency, strengthening rules about campaign contributions and media ownership, and supporting public service media.
In summary, economic history reveals that broad and equitable ownership isn’t achieved by limiting those at the top – where successful entrepreneurs reside – but by empowering those below who have yet to build their own wealth. Two key assets, housing and pension savings, have been particularly essential in this process. Promoting homeownership and long-term savings, therefore, supports both wealth creation and economic equality.
‘Richer and More Equal: A New History of Wealth in the West’ is published by Polity.
A version of this article first appeared at the LSE blog.
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