Concentration of Wealth

Concentration of Wealth

The concentration of wealth in the American stock market is staggering. The wealthiest Americans own most of the stocks and shares in publicly traded U.S. companies. According to Federal Reserve data, the top 10% of U.S. households own about 93% of all stocks and mutual fund shares as of the end of 2023, the highest level on record. The top 1% of households saw their public equity market wealth ownership rise from 40% in 2002 to a staggering 54% in 2023.

Concentration of Wealth: Overview

The top 10 wealthiest Americans own over $1 trillion in public company stocks and shares, or around 10% of the total market capitalization of publicly traded U.S. firms. Institutional investors like Vanguard, BlackRock, and State Street own large stakes in public companies on behalf of wealthy individuals and funds, controlling over 20% of the total stock market.

While some level of democratization has occurred, the lion’s share of equity wealth remains firmly in the hands of the richest 10% of American households, with the top 1% reaping the most benefits. This concentration of wealth has significant implications. Public corporations are directing a large portion of their profits to these wealthy shareholders through stock buybacks and dividends instead of using them to increase worker pay. This stark reality underscores the issue of economic inequality, which also undermines our democratic form of government.

Demographically, American baby boomers, who make up 20% of the country’s population, own 52% of its net wealth, worth $76trn. The implications of this concentration of wealth are profound.

Concentration of Wealth by Race/Ethnicity

The concentration of wealth in the United States is heavily skewed toward white households, with Black and Hispanic households holding significantly less wealth. These disparities are rooted in historical inequities and continue to be perpetuated by systemic barriers in areas such as homeownership, education, and access to financial markets. Addressing these disparities requires comprehensive policy interventions aimed at promoting economic equity and opportunity for all racial and ethnic groups.

Overall Wealth Distribution

White households hold a disproportionately large share of the nation’s wealth. As of the fourth quarter of 2023, white households, which represented 66.3% of all households, owned 84.5% of total family wealth. In contrast, Black families, accounting for 11.5% of households, owned only 3.4% of total family wealth, and Hispanic families, representing 9.5% of households, owned 2.3% of total family wealth.

In 2022, white households had $124.5 trillion in assets, while Black households had under $8 trillion, Hispanic households had $5.5 trillion, and all other racial groups combined had roughly $15.7 trillion.

Median and Mean Wealth

The median wealth of white families was significantly higher than that of Black and Hispanic families. In 2019, the median wealth for white families was $188,200, compared to $24,100 for Black families and $36,100 for Hispanic families

By 2022, the median wealth of African Americans was $44,900, which was 15.8% of the median wealth of white households ($285,000). The median wealth of Latino/Hispanic households was $61,600, or 21.6% of the median wealth of white households

Wealth Accumulation and Asset Types

White and other race demographics had the highest proportion of assets in stocks and mutual fund shares, at 22.6% and 18.7% on average, respectively. In contrast, Black and Hispanic demographics had only 4.5% and 2.8% of their assets in stocks and mutual fund shares, respectively.

Hispanics had the highest proportion of their assets in real estate, at 49%, while Black people had the highest proportion of assets in retirement accounts, at 35.2%.

Homeownership and Wealth

Homeownership is a critical factor in wealth accumulation. In 2022, 75% of white families owned a home compared to 45% of Black families, reflecting a 30% gap.

In 2019, the median home equity for homeowners was $130,000, and the median household retirement account balance was $69,900.

Intergenerational Wealth Transfers

Intergenerational transfers also influence wealth disparities. Bequests and inter vivos transfers (gifts) play a significant role in wealth accumulation, with estimates suggesting they account for at least half of aggregate wealth.

Persistent and Growing Gaps

Despite overall increases in wealth across all groups, the racial wealth gap has persisted and, in some cases, widened. For example, between 2019 and 2022, the median wealth gap between Black and white families increased, with Black households holding only $15 for every $100 held by white households. This persistent gap underscores the long-term effects of historical and systemic inequities.

Concentration of Wealth: Impact on the Environment

The concentration of wealth significantly impacts the environment through increased carbon emissions, overconsumption, environmental inequality, and weakened environmental policies. Addressing these issues requires comprehensive policy interventions that target the high-emission activities of the wealthy and promote more equitable and sustainable consumption patterns.

Increased Carbon Emissions

High Emissions from the Wealthy: The wealthiest individuals and households are responsible for a disproportionate share of carbon emissions. For instance, the richest 1% of the global population was responsible for 16% of global emissions in 2019, which is equivalent to the emissions of the poorest 66% of humanity. The top 10% of earners in the United States are responsible for 40% of the nation’s carbon emissions.

Investment-Driven Emissions: Wealthy individuals often have significant investments in high-emission industries such as fossil fuels, which further amplifies their carbon footprint. For example, billionaire investments in polluting industries account for up to 70% of their emissions.

Overconsumption and Resource Depletion

Excessive Consumption: Wealth concentration leads to overconsumption, where the affluent consume far more resources than necessary. This overconsumption is a major driver of environmental degradation, including deforestation, water scarcity, and biodiversity loss.

Luxury Lifestyles: The affluent often engage in luxury consumption with a high environmental cost, such as owning multiple homes, private jets, and yachts. These activities contribute significantly to greenhouse gas emissions and resource depletion.

Environmental Inequality

Disproportionate Impact on People with Low Income: The environmental damage caused by the wealthy disproportionately affects low-income communities. These communities often bear the brunt of pollution and climate change impacts, such as extreme weather events, while having the least resources to adapt or recover.

Global Disparities: Wealthier nations and individuals contribute more to global emissions, while poorer nations and communities suffer the most from the resulting environmental degradation. For example, high-income countries are responsible for a significant portion of global CO2 emissions, while low-income countries contribute minimally but face severe climate impacts. The richest 1% emit as much planet-heating pollution as two-thirds of humanity.

Weaker Environmental Policies

Political Influence: Wealth concentration can lead to weaker environmental regulations as the wealthy use their influence to protect their interests. This often results in policies that favor economic growth over environmental protection, exacerbating environmental degradation.

Regressive Tax Policies: Current carbon tax policies often disproportionately affect lower-income individuals while allowing the wealthy to continue high-emission activities. There is a call for more progressive taxation that targets high-emission investments and activities of the wealthy.

Potential for Positive Change

Policy Interventions: Addressing wealth inequality through progressive policies can have positive environmental outcomes. For example, redistributive carbon taxes and wealth taxes on high emitters can reduce emissions and fund sustainable development initiatives.

Sustainable Consumption: Encouraging the wealthy to adopt more sustainable consumption patterns and invest in green technologies can significantly reduce their environmental impact. This includes reducing luxury consumption and investing in renewable energy and sustainable practices.

Concentration of Wealth: Impact on Democracy

The concentration of wealth significantly impacts democracy by eroding political trust, amplifying the political influence of the wealthy, undermining political equality, and threatening the stability and legitimacy of democratic institutions. Addressing these issues requires comprehensive reforms to reduce economic inequality and ensure a more equitable distribution of political power.

Erosion of Political Trust

Income Inequality and Trust: Economic inequality undermines political trust by making citizens feel that the political system fails to meet their needs. This is particularly evident when inequality is perceived as a failure of the political system to deliver fair outcomes.

Evaluation of Democratic Processes: Citizens’ trust in political institutions is influenced by their evaluation of how well the system meets their demands. When economic inequality is high, citizens, regardless of their political orientation, tend to lose trust in democratic institutions.

Political Influence and Campaign Contributions

Campaign Finance: Wealthy individuals and corporations disproportionately influence political processes through campaign contributions. This influence often leads to policies favoring the affluent, creating a feedback loop that perpetuates economic and political inequality, creating an oligarchy.

Policy Influence: Empirical evidence shows that public policy in the United States is more responsive to the preferences of the wealthy than to those of the general population. This results in a political system that increasingly caters to the interests of the affluent, further entrenching inequality.

Undermining Political Equality

Disparities in Political Participation: Wealth concentration leads to unequal political participation. The affluent are more likely to vote, donate to campaigns, and have direct contact with government officials, which amplifies their political influence.

Voter Suppression: Economic and racial inequalities interact to suppress voter turnout among lower-income and minority groups, further skewing political power towards the wealthy.

Impact on Democratic Stability

Democratic Legitimacy: High levels of economic inequality can erode the legitimacy of democratic institutions. When citizens perceive that the system is rigged in favor of the wealthy, they are more likely to lose faith in democracy and support populist or authoritarian alternatives.

Historical and Global Contexts: The relationship between wealth concentration and democracy is not unique to the United States. Similar patterns are observed in other democracies, where rising inequality correlates with declining support for democratic norms and institutions.

Feedback Loop of Inequality

Self-Reinforcing Cycle: Economic inequality leads to political inequality, resulting in policies that further exacerbate economic inequality. This vicious cycle creates a self-reinforcing system where wealth and political power become increasingly concentrated in the hands of a few.

Concentration of Wealth: Role of Corporate Governance

Addressing the self-reinforcing cycle of wealth inequality through corporate governance requires a multifaceted approach that could include shifting to stakeholder governance, reforming executive compensation, promoting employee ownership, enhancing transparency and accountability, supporting inclusive business practices, and encouraging long-term investment. These reforms could help redistribute power and wealth more equitably, ensuring that the benefits of economic activities are shared more broadly across society.

Shift from Shareholder Primacy to Stakeholder Governance

Stakeholder Approach: Moving away from the traditional shareholder primacy model, which prioritizes maximizing shareholder value, to a stakeholder governance model can help address inequality. This approach considers the interests of all stakeholders, including employees, customers, suppliers, and the community. By doing so, corporations can ensure that the benefits of economic activities are more broadly distributed. We are up against a sustainability imperative, but the legal system makes movement in this direction difficult.

Employee Representation: Incorporating employee representation on corporate boards can give workers a voice in decision-making processes, leading to more equitable outcomes. This can help balance the power dynamics within corporations and ensure that employees’ interests are considered alongside those of shareholders.

Reforming Executive Compensation

IconikappCapping CEO Pay: Implementing policies to cap excessive CEO and executive compensation can reduce the disparity between top executives and average workers. This can be achieved through tax penalties on excessive CEO-to-worker pay ratios or by linking executive pay to broader performance metrics, including social and environmental criteria. I generally set a cap of 200 times the median employee pay using iconikapp.com.

Performance-Based Pay: Aligning executive compensation with long-term performance and sustainability goals, rather than short-term financial metrics, can help mitigate the focus on immediate profits and encourage more responsible corporate behavior. Of course, the more complex the pay package, the fewer will understand the algorithms behind it.

Promoting Employee Ownership

Employee Stock Ownership Plans (ESOPs): Encouraging or mandating employee ownership through ESOPs can help distribute wealth more evenly within corporations. Employee ownership can increase workers’ stake in the company’s success and provide them with a share of the profits, thereby reducing wealth concentration at the top. It can also give them a voice to elect directors if they coordinate their votes.

Profit-Sharing Programs: Implementing profit-sharing programs where employees receive a portion of the company’s profits can also help reduce income inequality and ensure that workers benefit from the company’s success but may not have any additional voice or efficacy.

Enhancing Transparency and Accountability

Disclosure Requirements: Strengthening disclosure requirements for corporate practices related to inequality, such as pay ratios, tax practices, and environmental impacts, can increase transparency and hold corporations accountable for their contributions to inequality.

Regulatory Oversight: Enhancing regulatory oversight to ensure that corporate boards adhere to fair labor practices, pay equitable wages, and avoid exploitative practices can help mitigate the negative impacts of corporate behavior on inequality. This is difficult since corporations have almost all the lobbyists and make substantial political contributions.

Supporting Inclusive Business Practices

Inclusive Hiring and Promotion: Promoting diversity and inclusion in hiring and promotion practices can help address systemic inequalities within corporations. Ensuring that underrepresented groups have equal opportunities for advancement can reduce disparities in income and wealth.

Living Wages and Benefits: Ensuring all employees are paid a living wage and have access to essential benefits such as healthcare and retirement plans can help reduce economic insecurity and promote more equitable wealth distribution.

Encouraging Long-Term Investment

Sustainable Investment: Encouraging corporations to focus on long-term, sustainable investments rather than short-term profits can help create more stable and equitable economic growth. This includes investing in employee development, community programs, and environmentally sustainable practices.

Tax Incentives for Equitable Practices: Providing tax incentives for corporations that adopt equitable practices, such as profit-sharing, employee ownership, and sustainable investments, can encourage more companies to follow suit.

Concentration of Wealth: My Two Cents

The above is just the tip of the iceberg of impacts and possible solutions. I like Joe Bidden’s embrace of bottom-up, middle-out growth, which both grows the economy and is more equitable than trickle-down. To save democracy, employees need to have a voice at work. His administration will be the most transformative since FDR if he gets a second term. However, looking for a savior in politics or business leads further down the path toward wealth inequality and autocracy. We all need to participate if we are to transform our society.

I favor ESOPs or other ownership mechanisms on top of a living wage and retirement plan for most Americans. Employee owners should be able to organize through unions and through the power of their shareholder votes. They should be able to coordinate with others who value worker empowerment, a more equitable society, a salubrious environment, etc. I try to work with organizations like the AFL-CIO, SEIU, Shareholder Commons, As You Sow, Interfaith Center for Corporate Responsibility, Shareholder Rights Group, Sierra Club, Ceres, etc. Please share your strategies.

These are just a few thoughts on Memorial Day morning before I go out to do yard work and think about Kelvin Yamada, who recently passed away and spent his career helping others.

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