THE STOCK market bubble of the late 1990s and its subsequent collapse have been well publicised. But although a lot of small investors and pension funds got burnt fingers, the really wealthy seem to have come away relatively unscathed.
In the United States, recent financial scandals such as Enron and Global Crossing highlighted the fact that new entrepreneurs had built up (and sometimes siphoned off) hundreds of millions of dollars in assets in the late 1990s bubble. But these are the tip of the iceberg. There are now more than 4 million dollar millionaires in America and Paul Krugman, the renowned economist, argues that wealth inequality has returned to the level of the golden age of American capitalism from the 1870s to 1929.
This was the period when Rockerfeller, Morgan, Vanderbilt, Carnegie, Mellon and others built up massive fortunes in iron and steel, railroads and finance. In recent years, Sam Walton (Wal- Mart) and Bill Gates (Microsoft), Larry Ellison (Oracle) and Michael Dell have also built up large fortunes. In Britain, we have entrepreneurs such as Philip Green, Sir Richard Branson and the landed estates of the Duke of Westminster and many others.
What's been happening to the distribution of income and wealth in Britain in recent decades and how does it compare with the US? The short answer is that both countries have become more unequal since the late 1970s. Income is a flow to individuals and households, whereas wealth is the stock of assets including savings, stocks and shares, houses and other property. In general, wealth tends to be more unequally distributed than incomes, not least because it reflects a build up over time.
A report earlier this week from the Institute of Public Policy Research showed the gap between rich and poor has widened since Tony Blair became Prime Minister, accompanied by a rise in the number of people with no savings at all.
The distribution of wealth in Britain was much more unequal in the years before the Second World War than it is today, largely because the middle classes were relatively small and wealth was concentrated in the hands of landed interests, industrialists and landlords. Most households rented their houses and owned little or no property.
The growth of the middle classes post-war and, crucially, the growth of home ownership from about a quarter of households in 1939 to 70 per cent today, have greatly widened the distribution of wealth. In 1923, the wealthiest 1 per cent of individuals owned no less than 61 per cent of total wealth and the top 10 per cent owned almost 90 per cent (chart 1). By 1939, this had begun to reduce, and by 1960, the shares of the top 1 per cent and 10 per cent had fallen to 34 per cent and 74 per cent respectively. By 1976, when the home ownership revolution had begun to bite, these figures were down to 21 per cent and 50 per cent.
Nonetheless, the distribution of wealth in Britain is still far from equal. In 2001, the latest year for which figures are available, the top 1 per cent of individuals owned 23 per cent of all wealth, the top 50 per cent owned 95 per cent and the bottom 50 per cent just 5 per cent (chart 1). When housing is stripped out of the figures - leaving land, savings, stocks and shares - the distribution is much more unequal, with the top 1 per cent owning a third of total wealth (chart 2). …