Allianz wealth report

Allianz has released the seventh annual edition of its "Global Wealth Report" (GWR), which attempts the difficult task of measuring the financial value of assets owned by savers, as well as total debts owed by debtors, in more than 50 countries.

According to GWR, the estimated monetary value of global financial assets increased by 4.9 percent in 2015, slightly faster than global GDP growth. In the previous three years, financial assets grew at nearly twice that pace, averaging nine percent annual growth.

Assets are only one side of the balance sheet. Liabilities - i.e. debt - are the other side. It's an accounting truism that every asset is matched by a liability. One person's debt is another's collectable.

"At 4.5 percent, the liabilities of households grew in 2015 at the same rate as they had in 2014," according to an Allianz media release accompanying the publication of GWR 2016. "All in all, [global] household debt came to 38.6 trillion euros ($43.1 trillion) at the end of the year [2015], a good quarter higher than the value prior to the outbreak of the major financial crisis [of 2007-8]."

The two sides of any balance sheet

The rules of financial accounting specify that total credits must match total liabilities on bank balance sheets. In essence, this means that if one person is debt-free and has money in the bank of $1 million, then some others must have net financial debts to the banks of $1 million. Total credits and total debts have to balance out. It's a zero-sum game.

That means rising financial accumulation by some people implies rising household debt burdening other people.

Globally, total debt growth picked up most strongly in Asia. In what might be taken as a warning signal, GWR showed that overall private debt ratios in some countries, including South Korea and Malaysia - i.e. the ratios of total household liabilities compared to GDP - have risen to levels last seen in the US, Ireland or Spain at the height of their housing bubbles just prior to the crash of 2007-8.

In North America and Europe, in contrast, net liabilities increased only at a modest rate in recent years. Debt growth lagged behind the rate of GDP growth for six years running. Households in industrialised countries in the West continue to be cautious about borrowing.

"The majority of households [in the West] act in an economically very sensible manner - defying the intentions of central bankers who are trying to pump up demand via aggressive rate cuts. Following the excesses of the financial crisis, however, households view trimming debt as more important," according to Michael Heise, Allianz's chief economist.

The trouble is that money saved in savings accounts or in other financial instruments doesn't necessarily get spent on savings or on building new assets like factories or subways. Often, it just sits idle, creating no demand and no jobs. And that's bad for the economy.

Regional divergence

"Viewed globally, the middle wealth class has grown considerably in recent years, with the number of [middle-class] people more than doubling to over one billion; the [middle class's] share of the overall population has climbed from 10 percent to around 20 percent," Heise said in an interview published on the company's website.

The proportion of global assets held by the middle class has also grown, rising to about 18 percent at the end of 2015, almost three times the figure at the start of the millennium, Heise said. So the global middle class has not only been getting bigger in terms of the number of people it encompasses, it has also been getting richer.

"Although the vast majority of the five billion people living in the countries included in our analysis still belong to the low-wealth class, its share has fallen from 80 percent in 2000, to 69 percent today," Heise said. "This is because in recent years, more and more people – almost 600 million in total – have moved up to the middle wealth class."

Inequality rising in industrial countries

But global averages can be deceptive: The numbers showing a rising middle class are mainly driven by statistics from emerging markets, first and foremost China.

In many industrial countries, a very different story emerges: "The middle class is shrinking, i.e. the story is one of the gradual emaciation of the middle class, which is participating less and less in overall wealth. Significantly, this trend applies mainly to the euro crisis countries - Italy, Ireland, Greece - and the traditional industrialized nations - the US, Japan, the UK," Heise said.

The economist attributed the cause in part to monetary policy: "One side effect of ultra-loose monetary policy is ever-rising asset prices such as stocks. But investments in equities tend to be held primarily by already wealthy households. The average [non-wealthy] saver depends more on duller savings instruments, such as bank deposits – which are interest bearing. But interest rates were more or less abolished after the financial crisis. The result is growing wealth inequality."

What can be done?

Allianz is a financial services company, whose main mission is to preserve and increase the wealth of its shareholders and those who entrust it with money to invest and manage. Others are more concerned with questions of whether increasing wealth concentrations are harmful, and if so, what can be done.

One expert who studies these questions is Sam Pizzigati, an associate fellow with the Inequality team at the Institute for Policy Studies (IPS), a think-tank based in Washington DC.

"The Federal Reserve bank of St. Louis recently published a study showing that since 1970, worker productivity has increased much faster than workers' pay in the US," Pizzigati told DW. "The money not going to workers is going to top corporate executives and shareholders instead. That's a major cause of growing inequality."

Pizzigati said that a good way to begin to fight that trend would be to tie the incomes and wealth of those at the top of the economic pyramid to those in the middle or bottom, by setting a limit on the ratio of top executives' total compensation compared to that of average workers. CEO pay has risen 90 times faster than typical workers' pay since 1978.

He also said that studies have shown societies that are more equal have higher levels of social trust, less crime, and better quality of life - even for the majority of relatively wealthy people - than very unequal societies.

"Very unequal societies tend to develop low-trust 'guard cultures'," Pizzigati said. "The wealthy have to pay guards to protect their persons and property, raising the cost of doing business as well as everyone's level of stress. That harms health and well-being in all socioeconomic classes."