Concentration of wealth in Europe.

Philanthropy or an undermining of democracy?
Dr. Martin Schütz, group leader for monetary analyses at the National Bank of Austria in Vienna

A complex debate of issues relating to the concentration of wealth was the subject of a talk given by Dr. Martin Schütz, the group leader for monetary analyses at the Economics Department of the National Bank of Austria. The lecture, which indeed also reflected Schütz’s personal opinion, was organized as part of the MCI Alumni & Friends lecture series.

Dr. Schütz opens his talk by giving insights into the current situation of Austria: Austria may be a wealthy country with comparatively high earned income. But despite this fact the so-called Gini coefficient, i.e. a value which represents a nation’s income distribution on a scale of 0 to 1 (0 = maximal equality; 1 = maximal inequality), currently amounts to 0,76. This high value expresses a clear inequality in the distribution of Austria’s wealth. Social changes induced by the industrialization and the relatively low number of land owners have considerably facilitated this development. More recently also heritages, which affect capital gains more strongly than increases in earned income, have come to play a role in upholding the prevalent inequality.

In Austria the bottom 50 percent of households own four percent of gross financial assets, while the top five percent own over 45 percent. This directly relates to the global situation: The 62 wealthiest persons world-wide own just as much as the entire bottom half of the world’s population. In this context Schütz refers to the work of economist Thomas Piketty, who has demonstrated that the income gap increases as returns on investment remain above the level of economic growth for an extended period of time.

Of course wealth implicates charisma and, if it has reached a certain level, also creative power, as Schütz explains. Wealthy people very often justify the amount of their assets by pointing to their commitment to charity. However in the long run, this seemingly philanthropic attitude undermines democracy. After all, the wealthy are in the position to choose which projects and actions they would like to fund. The concentration of wealth thus weakens society (see Christine Legarde 2013), creates educational disadvantages that restrain the growth of the gross domestic product (see OECD), and violates principles of justice by ignoring actual achievements as the basis of valuation. It additionally causes abuse of power since the wealthy and the poor of a society express different interests and politics has a strong tendency to protect the wealthy and their wealth rather than the poor.

Prof. Dr. Bernd Ebersberger, who is responsible for the area of Research, Innovation, and Entrepreneurship at MCI, moderates the animated discussion which follows the lecture.