The more assets you have, the more you can leverage them to generate even more assets.
Assets aren’t just cars and money: They’re the primary resources that people can leverage to generate income. Ownership or access to assets — such as equity shares, certain types of land, education, and social connections — is what gives people the foundation to generate an income and therefore create more wealth. For example, if you inherit financial capital, you can invest the money in the stock market, buy a home, and pay for good education, thus leveraging your inherited asset to generate more wealth and a higher income. If you have access to health insurance, you are able to take care of your physical and mental self, which makes it easier for you to work and earn money. If you own a house or an apartment, you can put it on Airbnb and earn extra income, or sell it. The more assets you have, the more you can leverage them to generate even more assets, and the more income you can eventually bring in.
Money in particular is a kind of asset that gives people access to other assets, such as a good education, better health care, and crime-free neighborhoods to live in. But ownership of financial assets has become highly polarized: A recent study by the International Monetary Fund concluded that the share of national income paid to workers has been falling since the 1980s. Wages simply haven’t kept pace with gains in productivity, and a greater amount of income is being earned through equity ownership and financial investments. In today’s world, returns are going to investors and shareholders, not to workers.
Economists are starting to take notice. “Policy discussions about rising global inequality should focus on how to equalize the distribution of primary assets, including human capital, financial capital, and bargaining power, rather than merely discussing the ex-post redistribution through taxes and transfers,” says French economist Thomas Pikkety and colleagues.
In other words, we need to start thinking about wealth in terms of assets, not income.
A brief history of assets in America
We used to think of wealth in this way — and in many respects, we still do. Throughout most of our economic history, asset ownership was at the heart of wealth. Feudal lords who inherited land and serfs put their plots — and indentured laborers — to work to grow crops and provide services. In this way, they leveraged land and free labor to ensure economic prosperity; without them, they could not generate their wealth.
At the founding of the United States of America, land was a core asset needed for economic security, but with the dawn of the industrial revolution, agricultural land was no longer key to economic viability for many. In Citizen’s Share: Putting Ownership Back into the Democracy, the authors describe how a different kind of asset — jobs with guaranteed wages and all the ensuing benefits, such as pensions, equity participation, guaranteed vacations, and health insurance — became a primary way to ensure economic wellbeing. In the 1950s, a factory job at General Motors virtually assured you a middle-class lifestyle, including good wages that made it possible to buy a decent house, retirement benefits, access to health insurance, and opportunities for career advancement.
In 2017, the assets we value have changed once more, but the mentality has not. Today, we are in the midst of an economic transition reminiscent of the country’s shift from an agrarian to industrial economy: It’s now on-demand. Instead of 9-to-5 jobs, people earn a wage through performing individual tasks, often assigned to them by algorithms instead of human managers, just like Uber’s algorithms seamlessly matches those who need rides with available drivers.
As a result, fewer people are engaged in formal, full-time employment at companies that offer good wages and benefits like those enjoyed by General Motors workers decades ago. Instead, we see a growing number of people working as freelancers or in seasonal, temporary, and other types of nontraditional jobs. While exact estimates of this new economy’s size vary, a recent study by Intuit projects that close to 9 million Americans will be regularly working in the on-demand economy by 2020, nearly tripling the 3.2 million workers in 2015. Meanwhile, a McKinsey survey found that up to 162 million people in Europe and the US engage in some form of independent work, which is 20 to 30% of the working-age population. And this number is likely to grow in the next 10 years.
People working as contractors for Uber, Upwork, and Taskrabbit may like the flexibility of such arrangements, but they are no longer stakeholders in the enterprises for which they work. They may like to have control over their time and being their own bosses, but they lack the stability, social protections, and benefits workers in other eras previously enjoyed: the assets that gave them security over the long run.
The new assets are digital
While assets such as homes, land, capital, and health care are still important for economic wellbeing, we are now creating new asset classes. Data, artificial-intelligence tools, and online reputations are quickly becoming our doors to wealth generation. Many of the most successful and rapidly growing companies are already capitalizing on such assets to grow their profits and increase returns to investors and shareholders; Facebook, Google, Amazon, and many other tech companies’ business models are based on taking our data, aggregating it, and selling it to advertisers for billions of dollars. These companies are leveraging an asset — our data — to make money. (And as they say, data is the new oil.)