The mega-rich have pulled away from the rest of society. Inequality has widened dramatically. And without dramatic government intervention in the form of higher taxes society will eventually be torn apart. There are a whole series of assumptions that the liberal-left, along with much of the media, take as so obviously true that they hardly even need to be debated. There is just one problem, however. As Daniel Waldenström makes clear in this excellent and timely new book, they happen not to be true. In reality, we have, as the title pithily suggests, be getting both richer and more equal – and with a few minor, pro-market reforms we could carry on doing so.
Waldenström is not exactly a household name. As Professor of Economics at the Research Institute of Industrial Economics in Stockholm he has however established himself as an expert on the long term trends in capital, wealth distribution and equality measured over many decades. Indeed, his research was drawn upon by the French economist Thomas Piketty for his best-selling, and very influential, Capital In The Twenty-First Century. And yet, Waldenström draws very different conclusions from Piketty. ‘In this book, I build…a new analysis of the history of wealth and inequality in the West,’ he writes. ‘The data shows that we are both richer and more equal today than in the past, and the accumulation of housing wealth and pension savings among the middle classes emerge as the main factors behind this development.’
The facts, at least as set out here, are very different from the conventional narrative. Digging into 130 years of dense data, Waldenström argues that not only is the world far richer than it was 100 years ago – which admittedly is not going to prove very controversial – but also that ‘the value of assets owned by households after adjusting for hikes in consumer prices has increased many times over’. Perhaps more controversially, at least to anyone under the intellectual spell of Piketty and his many followers, he goes on to argue that ‘the twentieth century ushered in a democratization of wealth’, explaining that while in the 19th century wealth mainly consisted of agricultural and corporate assets concentrated in the hand of a tiny elite, over the last hundred years it shifted to property and pensions savings ‘contributing to a more equal distribution’. Finally and perhaps most importantly of all, Waldenström argues that ‘wealth has become notably less concentrated over the last 100 years,’ a process that he describes as ‘the great wealth equalisation’.
Those claims are backed up with robust statistical evidence surveying all the main assets. In a nutshell, however, Waldström’s key finding is that the spread of home ownership, and of pensions, means that wealth has been very widely distributed at least among the middle classes. Even taking into account offshore wealth, a favourite bugbear of the Piketty crowd, ‘modifies the details, but not the overarching narrative of a decreasing concentration of wealth’. The mainstream critique of capitalism – that it leads to rampant and accelerating inequality – turns out to be completely false. Modern economies have been getting steadily richer and more equal. ‘Over the past 130 years, wealth per capita in Western societies has escalated almost tenfold in real terms,’ the book states. ‘Since 1980 alone, it has multiplied by factors of more than two and three. The accumulation of wealth in the bottom groups outpaced that of the top groups in the postwar era, especially in Europe and, for some periods, also in the US.’
The strength of the book is the mass of detail. For anyone who wants to get into the thickets of why the claims that we are becoming less and less equal are completely unfounded, the statistics, tables, charts and growth are all here. In fairness, that is its weakness as well. Waldenström is not an exciting writer, preferring to meet the claims of his opponents with some detailed footnotes instead of a barbed retort or a rhetorical flourish. It is not going to change many minds for the simple reason that, unfortunately, not many people, especially if they are convinced anti-capitalists, will want to wade through a mass of statistical analysis. Waldenström is preaching to a narrow, specialist audience. That said, he has done the hard work that perhaps others can popularise.
That said, this is important work. The widespread assumption, pushed by the left, that inequality has been getting worse and worse, has led to demands for wealth taxes, global levels on offshore assets, as well as global corporation taxes. If the data is wrong, and Waldenström convincingly shows that it is, then so are the policy recommendations. Instead, we should be looking at what most of the developed world got right over the last 150 years, and how we can continue to become both ‘richer and more equal’. It is not that hard to figure out. First, argues Walderström, we should encourage individual home ownership. It is typically the single biggest driver of equalizing wealth distribution, and, unfortunately, in countries such as the UK, it has been going backwards. We need to get that rising again. Next, we should switch to ‘funded pension schemes’ over ‘pay as you go’ retirement systems, as that way people are building up stocks of assets over their working lives, and that will generate substantial wealth, as well as spreading it amongst the population. We should try to reduce the taxes on income, since it reduces the ability of people on average incomes to invest in their home and their pension, the two key assets that are likely to increase their wealth over time. Finally, we should tax the income earned on capital, not wealth itself, as attempts to impose wealth taxes have time and time again. If we stick to those simple principles, then we should continue to become both richer and more equal just as we have for the last century – no matter how hard the left might try to pretend otherwise.
‘Richer and More Equal: A New History of Wealth in the West’ by Daniel Waldenström was published in 2024 by Polity (ISBN: 978-1-03-207336-1). 256pp.
Matthew Lynn is an author, journalist and entrepreneur. He writes for The Daily Telegraph, The Spectator and Money Week, is the author of the Death Force thrillers, and is the founder of Lume Books.