The Agenda

Scott Sumner on the Power of a Large Millionaires’ Bloc

Scott Sumner comments on an eye-catching finding

According to a study reported in the Financial Times, more than 15% of Singapore households are millionaires.  No other country comes close (#2 Switzerland has less than 10% millionaires.)  Singapore will soon have a million millionaires, out of a population totaling a mere 5 million.

He goes on to argue that the presence of a large number of millionaires will have salutary political consequences:

This will help Singapore politics in many ways. Singapore is an authoritarian government that is gradually allowing more democracy. In the recent election the opposition won about 40% of the vote, a new high. By the time they are able to take power, there will be such a large and politically influential block of millionaires than no government will be able to enact big government policies that hurt stock values and reduced capital formation. Nor will there be as much need for social insurance programs as in the West; most people will be able to take care of themselves. There will be a virtuous circle of rising wealth leading to more pro-market policies, which leads to further increases in wealth. 

It is worth noting that Singapore has a high Gini coefficient, and that it has attracted a large number of expatriate millionaires. A competitive tax system helps, as does the availability of low-cost, high-quality public services and an amenity-rich environment. To get a sense of how Singapore’s ruling party thinks about inequality, I’d recommend reading the words of Minister Mentor Lee Kuan Yew from the fall of 2009, as reported in the Straits Times. Suffice it to say, I find Lee’s views sober and well-informed.

Sumner contrasts Singapore’s success on this front with the relatively lackluster record of the United States:

About 4.5% of US households are millionaires. That number should be much higher, and would be higher with more pro-saving fiscal policies. The relatively low ratio in the US helps explain many of our political problems. The average 401k balance in America is pathetically low. Many low saving Americans need social insurance; others are resentful of the rich and support anti-market policies. Unless we are able change this dynamic we don’t have a bright future.

I’ll note, however, that the U.S. is a giant among pygmies on the list of countries ranked by proportion of millionaire households. Switzerland (9.9%) comes second after Singapore (15.5%). The next countries on the list are:

Qatar (8.9%), Hong Kong (8.7%), Kuwait (8.5%), UAE (5%), USA (4.5%), Taiwan (3.5%), Israel (3.4%), Belgium (3.1%), Japan (3%), Bahrain (2.6%), Ireland (2.3%), Netherlands (2.3%), United Kingdom (2.2%). 

For reference, here GDP per capita (PPP) for the countries above (IMF 2010):

Singapore ($56,522), Switzerland ($41,663), Qatar ($88,559), Hong Kong ($45,736), Kuwait ($37,849), UAE ($48,821), USA ($47,284), Taiwan ($35,227), Israel ($29,531), Belgium ($36,100), Japan ($33,805), Bahrain ($26,852), Ireland ($38,550), Netherlands ($40,765), United Kingdom ($34,920)

So the United States isn’t faring that poorly on this front relative to other countries in our weight class. It’s a safe bet that amenity-rich entrepot cities, like the metropolitan areas that include New York city, Los Angeles, and Silicon Valley, have a considerably higher proportion of millionaire households.

It is interesting to think through how proportion of millionaire households does and does not correlate with a high level of GDP per capita, e.g., Norway ($52,013) doesn’t appear in the top fifteen by proportion of millionaire households. But it does appear in the top 15, ranked at number 6, on the list of countries ranked by proportion of ultra-high-net-worth households (UNHWs), i.e., households with $100 million or more in assets under management. Canada doesn’t crack the millionaire households top 15. It does make the UNHW top fifteen while the USA does not. Kudos to the Boston Consulting Group for releasing such a fascinating report.

Yet Sumner is making a point about political economy, and I think his point is sound. A United States in which 15.5% of households had assets of a million dollars are more would have a different policy environment that would, one presumes, be friendlier to capital formation.

A progressive consumption tax and a Social Security reform that creates a flat benefit and a universal defined contribution retirement savings account are modest policies that could nudge us in the direction of a more millionaire-dense, and more broadly prosperous, society. 

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