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Implications of Picketty's Theory on Income and Wealth Inequality in Singapore

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31 October 2018

If Picketty is right with his thesis that lower economic growth leads to increasing wealth inequality because wages grow slower than investment incomes (i.e. g < r), then Singapore’s slowing growth associated with its matured economy has serious implications hereon on how equitable wealth distribution will be in the coming decades.


During the 1960s – 1990s when Singapore was experiencing high economic growth, people at all rungs benefited from the rise in national income (i.e. GDP) despite the unequal distribution in wages. At the same time, given the relatively underdeveloped capital markets then, overall households’ income was dominated by earnings from work. Wealth distribution in earlier Singapore was therefore likely to be more equitable and less unequal at that stage because g (i.e. earnings from work) was greater than r (i.e. earnings from investments).


Today, with a matured economy, growth has slowed to 1% – 2%. At the same time, Singapore has also evolved into a financial hub with well-developed capital markets providing a wide array of investment products generating a return to capital of at least 6% – 8% or even more in exceptionally good years. In other words, while wages (i.e. g) have stagnated, investment returns (i.e. r) have risen significantly.


Moreover, high income households generally have more savings to invest. They are also savvier in seeking out investment products that offer the highest return, while diversifying their risks. In contrast, households at the lower rungs not only have less to invest, most of their savings is in CPF, which generates a return that is lower than the 6% – 8%, or in illiquid asset, such as a HDB apartment, which not only does not generate any recurring passive income to supplement their lower wages but also results in household wealth being eroded as the lease of the flat runs down.


The combination of lower wages and lower returns from savings for households at the lower rungs compared to the higher wages and higher returns from investments for households at the upper rungs points to the unsavoury truth that wealth distribution may have gotten more unequal over the past decades.


According to a global wealth report released by Credit Suisse in October 2013, while the mean wealth per adult was US$281,764 in Singapore, median wealth was considerably lower at US$90,466. In other words, even though the average wealth per adult was US$281,764, 50% of the adults had wealth less than US$90,466. This sizable gap between the median and the mean was one of the biggest in the rich world. The top 1% of Singapore’s wealthiest held more than a quarter of the country’s wealth. While some 4.4% of Singapore adults had more than US$1 million in wealth, 20% had less than US$10,000. Of the other 215 countries surveyed, only Denmark and France had a wealth gap wider than that of Singapore.[1] This is quite astounding considering that the wealth inequality in Singapore is an outcome of accumulation that has taken place over only about five decades. In contrast, Denmark and France had a long aristocratic legacy of inter-generational wealth inheritance spanning centuries.


To make matters worse, as more unequal inter-generational transfers of wealth take place In Singapore over the coming decades, wealth inequality here can only deteriorate at an even faster rate. The playing field will increasingly tilt against young Singaporeans who are disadvantaged at birth by their parents’ lower education and income levels. With a growing role played by inherited dynastic wealth, Singapore is poised for a future dominated by inherited aristocracy and what Picketty called patrimonial capitalism.

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[1] Chan, R. (2014). “Income + Wealth inequality = More trouble for society.” Straits Times. 11 February 2014.

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