Ever since the rise of the Occupy Movement, it’s become common to refer to the huge amount of the world’s wealth controlled by the so-called “one percent.” Earlier this year, a report by Oxfam International claimed that the world’s 62 wealthiest people control the same amount of wealth as half of its population. But despite all the talk of the global super-rich, there is little empirical research on who they are, where they live, and where their wealth actually comes from.
A new report from Caroline Freund and Sarah Oliver at the Peterson Institute for International Economics helps us better understand this population by developing a comprehensive database of the world’s billionaires, drawn from two decades of data from Forbes’s annual World’s Billionaires list. The report, which covers the years 1996-2015, divides the world into eight regional categories: Europe, Latin America, sub-Saharan Africa, the Middle East and North Africa, South and Central Asia, East Asia, and Anglo countries (which include the U.S., Canada, Australia, and New Zealand). It also groups industries into five broad sectors: resource-related, new, traded, non-traded, and financial. Even more interestingly, it compares the world’s self-made billionaires to those who have inherited their wealth.
Billionaire wealth has soared over the past couple of decades, as the chart below shows. The total wealth, or real net worth, of the world’s billionaires increased from roughly $1 trillion in the mid-1990s to around $3 trillion before the Great Recession, before falling back during the economic crisis and then surging again to $5 trillion by 2015.
A big new source of billionaire wealth has come from emerging economies (China in particular). Billionaire wealth in emerging economies increased from less than $500 billion in 1996 to roughly $2 trillion by 2015, compared to around $3 trillion for advanced nations in 2015, according to the report.
But perhaps the biggest shift over the past two decades has been the rise of self-made billionaires, especially in the United States and emerging economies. Self-made wealth accounted for nearly 70 percent of billionaire wealth in 2014, up significantly from 45 percent in 1996, as the chart below shows.
There is a staggering geographic divide in self-made versus inherited wealth across the world. American billionaires are far more likely to be self-made than their European counterparts, who are more likely to have inherited their wealth. As of 2014, more than half of European billionaires inherited their wealth, compared to just a third of billionaires in the U.S. European fortunes are also much more likely to date back over multiple generations, as the chart below shows. Over 20 percent of Europe’s inherited fortunes were four or more generations old, compared to less than 10 percent in the U.S.
This divide is also reflected in the fact that the companies to which European billionaires are attached are considerably older than their U.S. counterparts. The median age of these European corporations is 91, compared to 76 for their American peers. The overall median age of a European billionaire’s business is 61, compared to 42 for their American peers—a difference of nearly 20 years. In fact, the report finds “a notable absence of any businesses established [from 2008-2014] in creating extreme wealth in Europe.” Meanwhile, the median fortune in the U.S. remained fairly consistent from 2001 to 2014.
The chart below drills down further by showing the distribution of various types of self-made wealth stemming from company founders, financial wealth, and owners and executives compared to inherited wealth and wealth stemming from resources and political connections across the U.S., Europe, and other advanced economies.
The growth in self-made billionaire wealth in the United States comes from two sources: tech companies and, even more so, finance. The U.S. has a much greater number of self-made tech billionaires (56 billionaires, or 12 percent) compared to 17 billionaires, or just 5 percent, in Europe. But more than 40 percent of the growth in the U.S. billionaire population can be attributed to finance—particularly hedge funds—compared to 14 percent of the growth in Europe and 12 percent in other advanced countries.
This has important implications for conceptualizing economic inequality, and its potentially different causes in the U.S. and Europe. In his bestselling book Capital in the Twenty-First Century, the economist Thomas Piketty argues that rising wealth inequality stems from the basic fact that the rate of return on capital has outpaced the rate of economic growth (expressed in his now-famous formula, r>g). This may be the case in Europe, where inherited wealth is substantially more common, but it is less often the case in the U.S., where the preponderance of extreme wealth is self-made.