Capital in the Twenty-First Century (112 page)

22
. The
Forbes
ranking uses an interesting criterion, but one that is hard to apply in any precise
way: it excludes “despots” and indeed anyone whose fortune depends on “their political
position” (like the Queen of England). But if an individual acquires his fortune before
coming to power, he remains in the ranking: for example, the Georgia oligarch Bidzina
Ivanishvili is still in the 2013 list, although he became prime minister in late 2012.
He is credited with a fortune of
$
5 billion, or one-quarter of his country’s GDP (between 5 percent and 10 percent of
Georgia’s national wealth).

23
. The total capital endowment of US universities is about 3 percent of GDP, and the
annual income on this capital is about 0.2 percent of GDP, which is a little over
10 percent of total US expenditure on higher education. But this share is as high
as 30 or 40 percent of the resources of the most richly endowed universities. Furthermore,
these capital endowments play a role in the governance of these institutions that
often outweighs their monetary importance. See the online technical appendix.

24
. The data used here come mainly from reports published by the National Association
of College and University Business Officers, as well as from financial reports published
by Harvard University, Yale University, Princeton University, and other institutions.
See the online technical appendix.

25
. For results by subperiod, see the online technical appendix, Supplemental Table
S12.2, available online.

26
. Note, however, that the main difference arises from the fact that most owners of
private wealth must pay significant taxes: the average real return before taxes was
around 5 percent in the United States in 1980–2010. See the online technical appendix.

27
. The numbers of universities in each category indicated in parentheses in
Table 12.2
are based on 2010 endowments, but so as not to bias the results, the returns were
calculated by ranking universities according to their endowment at the beginning of
each decade. All the detailed results are available in the online technical appendix.
See in particular Supplemental Table S12.2, available online.

28
. Real estate can be a very high yield investment if one identifies the right projects
around the world. In practice, these include business and commercial as well as residential
properties, often on a very large scale.

29
. This is confirmed by the fact that relative rankings do not change much over the
thirty-year period 1980–2010. The hierarchy of university endowments remains more
or less the same.

30
. To take Harvard University as an example, annual financial reports show that the
endowment yielded an average real return of about 10 percent from 1990 to 2010, whereas
new gifts added an average of about 2 percent a year to the endowment. Thus the total
real income (from return on the endowment plus gifts) amounted to 12 percent of the
endowment; a portion of this, amounting to 5 percent of the endowment, was used to
pay current university expenses, while the other 7 percent was added to the endowment.
This enabled the endowment to increase from
$
5 billion in 1990 to nearly
$
30 billion in 2010 while allowing the university to consume an annual flow of resources
2.5 times as great as it received in gifts.

31
. Note, however, that the historic rebound of asset prices appears to add no more
than a point of additional annual return, which is fairly small compared with the
level of return I have been discussing. See the online technical appendix.

32
. For example, because Bill Gates maintains effective control over the assets of the
Bill and Melinda Gates Foundation,
Forbes
chooses to count those assets as part of Gates’s personal fortune. Maintaining control
seems incompatible with the idea of a disinterested gift.

33
. According to Bernard Arnault, the principal stockholder in LVMH, the world leader
in luxury goods, the purpose of the Belgian foundation that holds his assets is neither
charitable nor fiscal. Rather, it is primarily an estate vehicle. “Among my five children
and two nephews, there is surely one who will prove capable of taking over after I
am gone,” he remarked. But he is afraid of disputes. By placing his assets in the
foundation, he forces his heirs to vote “indissociably,” which “ensures the survival
of the group if I should die and my heirs should be unable to agree.” See
Le Monde,
April 11, 2013.

34
. The work of Gabrielle Fack and Camille Landais, which is based on these types of
reforms in the United States and France, speaks eloquently to this point. See the
online technical appendix.

35
. For an incomplete estimate for the United States, see the online technical appendix.

36
. See
Chapter 5
.

37
. It was even worse in the nineteenth century, at least in the city, and especially
in Paris, where before World War I most buildings were not chopped up into apartments.
One therefore needed to be wealthy enough to buy an entire building.

38
. See
Chapter 5
.

39
. The nominal average return for 1998–2012 was only 5 percent a year. It is difficult
to compare these returns with those on university endowments, however, in part because
the period 1998–2012 was not as good as 1990–2010 or 1980–2010 (and unfortunately
the Norwegian fund’s statistics go back only as far as 1998), and because this relatively
low return was due in part to appreciation of the Norwegian krone.

40
. According to the census of 2010, the United Arab Emirates (of which Abu Dhabi is
the largest member state) have a native population of a little over 1 million (plus
7 million foreign workers). The native population of Kuwait is about the same size.
Qatar has about 300,000 nationals and 1.5 million foreigners. Saudi Arabia alone employs
nearly 10 million foreign workers (in addition to its native population of nearly
20 million).

41
. See the online technical appendix.

42
. One should also take into account public nonfinancial assets (public buildings,
school, hospitals, etc.) as well as financial assets not formally included in sovereign
wealth funds, and then subtract public debts. Net public wealth is currently less
than 3 percent of private wealth in the rich countries, on average (in some cases
net public wealth is negative), so this does not make much difference. See
Chapters 3
–
5
and the online technical appendix.

43
. If we exclude real estate and unlisted business assets, financial assets in the
narrow sense represented between a quarter and a third of global private wealth in
2010, that is, between a year and a year and a half of global GDP (and not four years).
The sovereign wealth funds thus own 5 percent of global financial assets. Here I refer
to net financial assets owned by households and governments. In view of the very substantial
cross-holdings of financial and nonfinancial corporations within and between countries,
gross financial assets amount to much more than three years of global GDP. See the
online technical appendix.

44
. The rent on natural resources had already exceeded 5 percent of global GDP from
the mid-1970s to the mid-1980s. See the online technical appendix.

45
. My hypotheses implicitly include the long-run savings rate in China (and elsewhere),
counting both public and private saving. We cannot predict the future relationship
between public property (notably in sovereign wealth funds) and private property in
China.

46
. In any case, this transparent process of rent transformation (from oil rent to a
diversified capital rent) illustrates the following point: capital has historically
taken a variety of forms (land, oil, financial assets, business capital, real estate,
etc.), but its underlying logic has not really changed, or at any rate has changed
much less than people sometimes think.

47
. In a pay-as-you-go, the contributions to the pension fund by active workers are
directly paid out to retirees without being invested. On these issues, see
Chapter 13
.

48
. Between one-quarter and one-half of European and US capital (or even more, depending
on various assumptions). See the online technical appendix.

49
. The divergence of the petroleum exporters can be seen as an oligarchic divergence,
moreover, because petroleum rents go to a small number of individuals, who may be
able to sustain a high level of accumulation through sovereign wealth funds.

50
. The GDP of the European Union was close to 15 trillion euros in 2012–2013, compared
with 10 trillion euros for China’s GDP at purchasing power parity (or 6 trillion at
current exchange rates, which may be better for comparing international financial
assets). See
Chapter 1
. China’s net foreign assets are growing rapidly, but not fast enough to overtake
the total private wealth of the rich countries. See the online technical appendix.

51
. See Aurélie Sotura, “Les étrangers font-ils monter les prix de l’immobilier? Estimation
à partir de la base de la chambre des Notaires de Paris, 1993–2008,” Paris, Ecoles
des Hautes Etudes en Sciences Social and Paris School of Economics, 2011.

52
. See in particular
Figure 5.7
.

53
. In
Figure 12.6
, the “wealthy countries” include Japan, Western Europe, and the United States. Adding
Canada and Oceania would change little. See the online technical appendix.

54
. See
Chapters 3
–
5
.

55
. Or 7–8 percent of total net financial assets worldwide (see above).

56
. See the online technical appendix for a discussion of the high estimate made in
2012 by James Henry for the Tax Justice Network, and the intermediate 2010 estimate
by Ronen Palan, Richard Murphy, and Christian Chavagneux.

57
. The data in
Figure 12.6
are from Gabriel Zucman, “The Missing Wealth of Nations: Are Europe and the U.S.
Net Debtors or Net Creditors?,”
Quarterly Journal of Economics
128, no. 3 (2013): 1321–64.

58
. According to an estimate by Roine and Waldenström, accounting for assets held abroad
(estimated from inconsistencies in the Swedish balance of payments) can, under certain
assumptions, lead to the conclusion that the top centile in Sweden is close to the
same level of wealth as the top centile in the United States (which probably should
also be increased). See the online technical appendix.

1
. As is customary, I take tax revenues to include all taxes, fees, social contributions,
and other payments that citizens must pay under penalty of law. The distinctions between
different types of payments, especially taxes and social insurance contributions,
are not always very clear and do not mean the same thing in different countries. For
the purpose of historical and international comparisons, it is important to consider
all sums paid to the government, whether the central government or states or cities
or other public agencies (such as social security, etc.). To simplify the discussion,
I will sometimes use the word “taxes,” but unless otherwise indicated I always include
other compulsory charges as well. See the online technical appendix.

2
. Military expenditures generally amount to at least 2–3 percent of national income
and can go much higher in a country that is unusually active militarily (like the
United States, which currently devotes more than 4 percent of its national income
to the military) or that feels its security and property threatened (Saudi Arabia
and the Gulf states spend more than 10 percent of national income on the military).

3
. Health and education budgets were generally below 1–2 percent of national income
in the nineteenth century. For a historical view of the slow development of social
spending since the eighteenth century and the acceleration in the twentieth century,
see P. Lindert,
Growing Public: Social Spending and Economic Growth since the Eighteenth Century
(Cambridge: Cambridge University Press, 2004).

4
. Note that the share of compulsory payments is expressed here as a proportion of
national income (which is generally around 90 percent of GDP after deduction of about
10 percent for depreciation of capital). This seems to me the right thing to do, in
that depreciation is not anyone’s income (see
Chapter 1
). If payments are expressed as a percentage of GDP, then the shares obtained are
by definition 10 percent smaller (for example, 45 percent of GDP instead of 50 percent
of national income).

5
. Gaps of a few points may be due to purely statistical differences, but gaps of 5–10
points are real and substantial indicators of the role played by the government in
each country.

6
. In Britain, taxes fell by several points in the 1980s, which marked the Thatcherite
phase of government disengagement, but then climbed again in 1990–2000, as new governments
reinvested in public services. In France, the state share rose somewhat later than
elsewhere, continued to rise strongly in 1970–1980, and did not begin to stabilize
until 1985–1990. See the online technical appendix.

7
. In order to focus on long-term trends, I have once again used decennial averages.
The annual series of tax rates often include all sorts of minor cyclical variations,
which are transitory and not very significant. See the online technical appendix.

8
. Japan is slightly above the United States (32–33 percent of national income). Canada,
Australia, and New Zealand are closer to Britain (35–40 percent).