The Power of Social Capital in Reducing Financial Inequality

Abstract

In Capital in the 21st Century, Thomas Piketty (2014) reveals the growing divergence in per capita GDP between Europe-America and Asia-Africa from 1700 to the 1990s when both regions began to converge. While there was gradual reduction in inequality between the richest and poorest regions in the past 20 years, the gap between the two has actually widened from about 50 percent of the world average per capita GDP in 1700 to more than threefold in 2012. Based on Piketty’s estimates, the highest global wealth holders have experienced an average real growth rate of 6.4 percent to 6.8 percent per year compared to 2.1 percent for the average world wealth per adult from 1987 to 2013. The world capital/income ratio has been rising since 1950 and is projected to reach 700 percent by the end of the twenty-first century. In its September 13, 2014, issue, The Economist highlights the aberration of “the glorious fifteen” years (2000–2014) of remarkable pace of catch-up by developing economies. Since 2008, growth rates in emerging economies have slipped back toward those in developed economies, and convergence with rich-economy incomes would only be possible in another 115 years (excluding China) or 300 years according to growth projections of the World Bank and the International Monetary Fund respectively.¹