Ever since the 1970s, the gap between the wealthy and everyone else has been rising rapidly, in the process, reversing a century of progress towards wealthy equality.

For example, the Centre for Social Justice has found that the UK is on course for a Victorian-era style wealth gap, with 13.4 million people in a situation where they are blighted by family fragility, crime, stagnant wages, poor housing, and chronic ill health.

But it's not just the UK where this is happening, it is everywhere.

I've talked before about why this is happening, and how health problems like rising obesity, and mental health issues, added to relationship instability, are combining to make it harder for people to climb the class ladder i.e. to climb class levels you need good health and a stable supportive environment.

However, in this post what I want to talk about is why especially the top 1 percent are leaving everyone so rapidly behind.

After all, the top 1 percent are accounting for evermore of the wealth of the top 10 percent, and those in the top 10 percent don't suffer from the above problems.

The question is, what is going on, why are even high earners struggling to keep up with the top 1 percent?

To answer that we have to first look at the roots of wealth inequality.

The roots of wealth inequality

Agriculture, ever heard of it? Its dawn approximately 10,000 years ago is the root of wealth inequality.

That does not mean that pre-agriculture hunter-gatherer societies were better on the equality front.

For example, though the Gini coefficient is estimated to have been low for such societies — around 17 (0 equals absolute equality, 100 absolute inequality) — this is because such societies had few objects to carry around, and no land ownership (the Gini coefficient uses asset ownership to judge equality).

That means we don't know whether our preagricultural ancestors were any better than us on the equality scales, mainly because we have no information available to compare.

All we can say is that they didn't suffer from wealth inequality problems because they didn't have enough assets for it to exist.

But then agriculture happened, and everything changed mainly because land ownership became a thing.

Since then, what you own has affected your social status, and your social status has more than anything affected how society treats you, along with your prospects.

This has of course been a problem mainly because ever since the dawn of agriculture, the average Gini coefficient has been between 35 and 46.

In terms of why historically it has been so high. It's for the simple reason that a minority has frequently managed to gain control of the majority of the land.

That means historically the few have managed to, for the most part, gain the upper hand over the majority when it comes to asset ownership rights.

But then, how have they managed to do this?

The UK, who, thanks to its long recorded history, provide the perfect answer.

The history of wealth inequality in the UK

In 1290, wealth inequality in England and Wales was about the same as the average for the Roman Empire, with the Gini coefficient estimated to have been somewhere between 35 and 40 — so around the lower half of the historical norm.

But then something happened, and over the next few centuries, wealth inequality in England and Wales rose so much that by 1688, the Gini coefficient had risen to somewhere between 45 and 55 — well above the historical norm.

The reason this happened is simple, the aristocracy managed to gradually through a mixture of threats of violence and actual violence gain control of ever more land, until eventually, they pretty much had it all.

As the vast majority of the wealth in England and Wales during these centuries was largely derided from land ownership, this inevitably created mass wealth inequality.

That means the main reason the Gini coefficient has historically been so high has been due to the few building up armies, and then using those armies to ensure that they have all the power. The UK is a prime example of this.

But then in the year 1760, something happened in the UK and the Gini coefficient started rising even further, but then out of the blue, in the year 1800, it started coming down just as fast, as the graph below shows:

You will also note that in the US, wealth inequality started rising rapidly right from its outset, peaking in 1875, before starting to fall, with it plummeting from about 1925.

That means clearly something happened that allowed first, those living in the UK, and then second, those living in the US, to start clawing back some of the wealth and power from those at the top, the question is, what?

The Industrial Revolution was key to bringing down wealth inequality

In 1760, off the back of the invention of the steam engine, the industrial revolution in the United Kingdom was born.

This immediately led to an explosion in wealth inequality as those with the land wealth i.e. the aristocracy, took advantage of the industrialisation process.

But this explosion did not last for long, and this is for several reasons.

The first is the fact that the stability of the environment people were living in, along with people's health and access to resources, all began to increase on a comparative level with the most powerful.

This is because healthcare advances, added to the fact people started moving into cities which allowed them to pool their voices in ever larger numbers, created the first ever true people's power revolution.

When added to the increasing need of central governments for a steady flow of income tax, the perfect recipe for closing the wealth gap was created.

So, from the year 1800, off the back of technological advancements, centralising governments, and rising people power, the everyday person started closing the health gap, the stability gap, and the access to resources gap on the wealthy, which allowed them to start closing the wealth gap.

But here is the question, if they were closing the wealth gap, that surely means that they were taking from the rich, right?

Well yes, that is exactly what was happening.

To explain, historically, like said, the majority of wealth has been derived from land ownership, so tangible wealth. With this in mind, I wish to share the following graph showing UK property ownership rates:

As you can see from the graph, the rise in property ownership coincides perfectly with the sharp fall in wealth inequality that took place in the UK between 1900 and 1970.

So, as more people gradually became property owners, the amount of wealth controlled by those at the top and those at the bottom narrowed.

But then, in the 1970s, the rise in property ownership plateaued.

Considering that it only plateaued, which means it didn't go into reverse, this immediately begs the question of why wealth inequality has not also plateaued.

The devil is in the detail, and the key detail in this case, is that there is an entirely new asset class which is rendering land ownership second fiddle.

Property is no longer the most valuable asset to hold — something else is

Historically, like said, the majority of wealth has always been derived from land ownership. Even when it came down to minerals, it was in the land.

For example, Rockefeller and his mega oil fortune were built on him owning the right land, so the land with the oil in it.

You can still get rich that way, but not as rich as if you own something else, and that something else is patents.

Yep.

As valuable as land still is, the most valuable assets are now no longer linked to land ownership, but to intangibles, namely brand names, recipes, and, even more so, designs for technologies.

For example, how much is the Apple brand worth? How much is the Coca-Cola recipe worth? How much is the Nvidia GPU design worth? How much is the Google search algorithm worth?

I'm sure everyone knows the answers, and with this in mind, here is another question. How much can Apple, Coca-Cola, Nvidia and Google, along with all those like them, leverage their intangible worth, to not only hire the most innovative workers but to purchase the most innovative designs?

Exactly.

And if they can do this, just how big are they going to become, especially if they sell to a market that is 8 billion in size — and still growing.

Yep, 8 billion in size — and still growing.

Think about that.

Prior to the 1980s, this was simply unprecedented, it just couldn't happen.

Yet now, for these companies, it is the norm. The reason it is the norm is down to the fact that technological advances have made it possible to build everything in one place, and then sell it from that one place to the world.

That means that productivity advancements added to transport advancements, have made it much more efficient to do everything in one place, or a few places, but not in every place.

This really really really matters for understanding rising wealth inequality.

To explain, because it is so profitable to set up in one place as you can now sell to the entire world from one place, whenever a business that can sell to the world sets up in one place, the talent of the world has to come to them, and why, because they are the centre.

Now here's the thing, if all the talent has to come to them, the centre will be flooded with talent, but nowhere else will have that talent.

Not just because all the talent has flooded to the centre, but because there is no need for that talent elsewhere.

In a way, it's a bit like a national football team. There may be a lot of talented footballers in a country, but the national team only needs 25 players, 11 of whom will be outfield players, meaning the rest are surplus to requirements, no matter how good they are.

This creates real problems when it comes to the wage markets.

For example, take an employee at Apple. A person who works in the design department for Apple has through his or her efforts the power to create something with a reach of 8 billion.

However, a person working in an Apple shop whose job it is to sell iPhones has only a tiny reach, maybe a hundred people a day at most.

If you consider the potential for wage differences based on these scenarios, who do you think is going to get paid the most money?

Exactly.

And to really put this into perspective, Apple generated $394 billion in revenue in 2022, and yet it had a workforce of only 164,000 full-time employees.

That means each employee was worth $2.4 million in yearly revenue.

Even crazier, Apple made $99.8 billion in net income in 2022, which means each employee was worth $0.6 million in yearly profit.

What person ever in a people-facing job, could have any hope of being worth that much income and profit on a yearly basis?

This is a real problem when it comes to the employment market, mainly because it means we don't need many people in the most profitable industries, meaning their wages will be relatively high.

But because we need lots of people in the not-so-profitable industries, so the people facing industries, their wages will be by comparison very low.

Inevitably, this is creating inflated prices in the centre where these businesses operate, and deflated wages everywhere else. The perfect recipe for wealth inequality i.e. because all the wealth ends up in one place.

And just to show that this is really happening, take a look at these two graphs which compare household wealth versus GDP (the first is the UK, the second the US):

As you can see, from about the 1980s onwards, both in the UK and the US, household wealth has doubled compared to GDP.

This may seem like a good thing, but it's not.

That's because what these graphs actually show is that asset values have rocketed when compared to incomes, and where have they rocketed?

Perhaps this graph depicting household health for the different UK regions best shows it:

Yep, they've rocketed in the central locations, so the places these super productive businesses operate from.

And this is happening everywhere across the developed world, which means, the reason the wealth of the top 1 percent is rocketing so much, is that we have created a cabal of industries that are so productive compared to all the others, that they account for the vast majority of the wealth creation, and so own the majority of the wealth.

To put it more bluntly, just like the British aristocracy owning all the land created massive wealth inequality, the centre housing all the most valuable wealth creators is creating massive wealth inequality, and why? Because it's allowing the top 1 percent to control everything.

Final words

Technological advancements have created a world where the central places control the majority of the most valuable assets because only a few are needed to manage those assets.

The price of this is the same as the price of when the British aristocracy gained control of all the land, you either own the most valuable assets, or you're poor.

If we are to change this, we have to find a way to give the everyday person the power to challenge the centre.

Until we do that, the power of the 1 percent will continue rising, no matter what other problems we fix.

That's all from me, thanks for reading! If you enjoyed this, you may also enjoy the following:

Further reading:

Unequal English Wealth since 1670

Trends in income and wealth inequality

Economic Inequality — Our World in Data

How has income inequality within countries evolved over the past century?

The top 1% of American earners now own more wealth than the entire middle class

A Guide to Statistics on Historical Trends in Income Inequality

Trends in inequalities in income, wealth and, to a limited extent, consumption in the United Kingdom

How America's 1% came to dominate equity ownership

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