What do we know about the distribution of wealth in Latin America? Rafael Carranza, Mauricio De Rosa and Ignacio Flores compile scattered data sources to provide a picture of wealth across the region – suggesting a pattern of high and stable wealth inequality over time.
Who is the wealthiest man in all of history? The economist Branko Milanovic asks this question, as well as proposing a way to answer it: the richest man is the one who can use his wealth to purchase the most workers at the average wage of that time. He shows how the Roman general Crassus, the “richest man in Rome”, could hire 32,000 people in a year. The US magnate John D. Rockefeller could hire 116,000 workers while Mikhail Khodorkovsky, the Russian oligarch, could hire 250,000. They are all surpassed by the Mexican billionaire Carlos Slim, who could hire 440,000 workers in a given year. What this shows is not only Mr Slim’s considerable wealth, but the particular gulf between wealth at the top vis-à-vis the average person.
More generally, however, our understanding of the distribution of wealth in Latin America is still at an early stage (by contrast, studies on wealth inequalities in Europe and the United States have proliferated in recent years), in part due to the lack of good quality data sources. In our recent paper, we compile scattered data sources in order to provide a general picture of wealth and its distribution across the region.
Gauging overall stocks of wealth in Latin America
Unlike income, the most common variable of interest in economic inequality studies, wealth is a stock. It includes financial assets such as savings, pension funds, bonds and equities, as well as non-financial assets, such as real estate, the ownership of businesses and even luxury goods. Wealth can be privately or publicly owned, and it produces income in the form of interests, dividends or rents. Beyond its impact on income, however, wealth matters because it gives security and freedom to its owners and, more importantly, confers upon them economic and political power.
Before looking into how wealth is distributed across households, we first need to quantify how much overall wealth there is in any given country. In several high-income countries, central banks or statistical agencies compile balance sheets on wealth – and these have resulted in a boom of studies reporting wealth aggregates for those countries. Those aggregates are typically reported in the form of wealth-to-income ratios – the total level of wealth in a country divided by its national income – as a rough indication of how fast wealth is growing relative to the overall economy. An increase in this ratio means that the country in question is rapidly accumulating wealth or that its existing stock of assets are growing in value.
During recent decades, wealth-to-income ratios have been growing in Latin America. For countries like Brazil, Chile and Mexico, these ratios have gone from two to almost three in 15 years. However, they still remain well below the levels found in high-income countries, where total wealth is 5 to 7 times larger than income. Interestingly, public wealth to income ratios have remained relatively stable, meaning that the overall growth in wealth has been driven by increases in private wealth. While this pattern does not say much about inequality, it does reflect the growing importance of wealth in these economies.
What we can say about wealth inequality
As mentioned, data on wealth distributions for the region is scarce. For that reason, we compile all available information to date and arrange it by how reliable it is.
We start with estimates derived from administrative records, which we can only provide for Chile, Colombia and Uruguay. As Figure 1 shows, the share of wealth accrued by the top 1% is remarkably consistent across these countries and over time, at around 40%. This is considered a high level of concentration, much higher than for European countries (where it ranges from 20% to 30%) and closer to that of the United States. We complement this finding with household wealth surveys for Chile, Colombia, Mexico and Uruguay. These surveys show Gini coefficients for wealth that go from 0.7 to 0.8. They also show that the share of wealth accrued by the bottom 50% is lower than 10% for these countries and even negative (that is, total debts outweighing total assets) for Colombia. Despite the very limited number of countries in our analysis, we begin to paint a picture of high levels of wealth inequality in the region.
Figure 1: Top 1% wealth shares using administrative records
Our second tier of data in terms of its reliability is information on capital incomes. Capital incomes are all income flows that stem from the ownership of wealth, including interest, dividend and rent payments. While not the same as wealth, capital income gives us a rough approximation of what the distribution of wealth would look like – and there is information on capital incomes for a large number of countries.
What these estimates show is that capital income is highly concentrated, with the capital income share of the top 10% ranging between 40% and 50% on average. Furthermore, more than 95% of households receive no capital income at all (although once we include imputed rents that share falls to 50%). In other words, capital incomes are extremely concentrated at the top, with housing being the only asset owned for most of the population.
Finally, we propose a third tier of data that allows us to speculate about wealth distributions in a broader context: the Forbes billionaire list from 1988 to 2018. This dataset reveals a large increase in the number of billionaires in the midst of the commodity boom. This was the case especially for Brazil, where the number of billionaires went from less than 10 in 2003 to over 60 at the peak of the boom in 2014. Other countries that saw a sizeable increase are Argentina, Chile, Mexico and Peru. In particular, Chile saw the largest increase relative to its population, reaching over 11 billionaires per 10 million adults, followed by Peru with 5 and Brazil with 4.
Taking stock of wealth: a historical perspective
To complement this picture, we explore long-run trends based on postcolonial studies of wealth concentration. These studies focus on the ownership of rural assets in Latin America, from the late eighteenth to early nineteenth century. To our surprise, these studies show Gini coefficients very similar to those shown in present-day surveys, ranging from 0.7 to well over 0.8. Of course, the composition of wealth has changed considerably, moving from rural to financial assets, and the wealthy nowadays are unlikely to be descendants of the rural oligarchs of the time. Nonetheless, what these findings suggest is that the current levels of wealth inequality seem to be a feature of the region rather than an aberration.
Overall, our review of the existing evidence suggests a pattern of high and stable wealth inequality over time. It also reflects the need for better and more frequent data on wealth levels and their distribution. In the absence of such data, global efforts such as the ones by the World Inequality Lab or the Global Wealth Report rely on predictions that are not necessarily consistent with what administrative records suggest.
At best, our work can only speculate about wealth inequality for those countries without administrative records or surveys, and we can say very little about trends over time. We are in the early stages of wealth inequality research in Latin America, then, much like the state of income research in the 1980s. But looking ahead, there is great potential to complement our analysis through different data sources, including further data reporting in the form of national balance sheets, administrative records and new household surveys.
All articles posted on this blog give the views of the author(s). They do not represent the position of LSE Inequalities, nor of the London School of Economics and Political Science.
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