Do You Need Business Assets to Be Rich?

Abstract

The one percent are extremely powerful in the United States, and business assets are an important component of the wealth of these households. The authors show that business assets are an important component of the wealth portfolios of the one percent. In 1989, approximately 40 percent of households in the one percent had sufficient business assets to be in the one percent on the basis of those assets alone. By 2019, about 50 percent of households in the one percent had sufficient business assets to be in the one percent on the basis of those assets alone. For nearly 20 percent of households, business assets are necessary to be in the one percent. The findings suggest that business assets are critical to creating and maintaining wealth inequality in the United States and underscore the important role that starting and growing businesses can play in pushing households into top wealth positions.

The one percent—those at the top of the wealth distribution—have attracted increasing attention in recent years as inequality in the United States has grown. The one percent own enormous quantities of wealth, have organizational and political power, and even shape social and cultural norms (Gilens and Page 2014; Keister 2014; Page, Seawright, and Lacombe 2018). It follows that understanding who has access to top wealth positions is fundamental to understanding the distribution of resources and rewards. Researchers have shown that owning financial assets helps push households into the one percent (Piketty 2017; Piketty and Saez 2006), but the role of business assets in creating and maintaining a financial elite is understudied. Common wisdom suggests that owning a business, or some form of business assets, is necessary for being in the one percent, and lists such as the Forbes 400 provide anecdotal evidence that business assets are indeed a requirement. For example, when people think of wealthy people, they often think of business owners such as Jeff Bezos and Bill Gates. However, it is unclear whether this anecdotal understanding of how people get rich holds more broadly.

This visualization (Figure 1) addresses the question: are business assets necessary or sufficient to be in the one percent? In Figure 1, the blue bar chart indicates the one percent threshold, or the dollar amount needed to be in the top one percent of households by total assets and in 2019 dollars (e.g., business assets, financial assets, real estate, and other tangible assets). A household’s business assets are sufficient for membership in the one percent (solid orange line) if the total value of business assets exceeds the one percent threshold for the year in which the household was interviewed. A household’s business assets are necessary for membership in the one percent (dotted black line) if the household would not be in the one percent without its business assets. The sufficient and necessary categories are not mutually exclusive.

Figure 1.

The one percent own enormous quantities of wealth, including business assets. This figure uses Survey of Consumer Finances data (1989–2019) to show that business assets are sufficient to push about 40–50 percent of households across the one percent threshold: these households would be in the one percent with only their business assets. For about 20 percent of those in the one percent, business assets are necessary to make it into the top group: without their business assets, they would not be at the top of the wealth distribution. These patterns have been consistent for 30 years despite changes in the threshold for membership in the one percent.

Figure 1 shows that business assets are indeed an important component of the wealth portfolios of the one percent. In 1989, approximately 40 percent of households in the one percent (by total assets) had sufficient business assets (solid orange line) to be in the one percent on the basis of those assets alone. That is, even with no other assets, 40 percent of those in the one percent would have been in this elite group as a function of their business assets alone. By 2019, about 50 percent of households in the one percent had sufficient business assets to be in the one percent on the basis of those assets alone.

For nearly 20 percent of households, business assets are necessary (dotted black line) to be in the one percent. In other words, if these households did not own business assets, they would not be in the one percent. Importantly, these patterns have been relatively stable for nearly 30 years, despite important fluctuations over time in the one percent threshold (i.e., the dollar amount that determines who is in the one percent by total assets). As the figure shows, the one percent threshold has fluctuated significantly over time, while the percentage of households whose business assets are necessary and/or sufficient to be in the one percent has not changed nearly as much.

These patterns suggest that business assets are critical to creating and maintaining wealth inequality in the United States and underscore the important role starting and growing businesses can play in pushing households into top wealth positions. The findings also suggest that focusing only on financial asset ownership leaves out an important component of the wealth portfolio of the rich that explains their privilege.

Supplemental Material

sj-docx-1-srd-10.1177_23780231211031684 – Supplemental material for Do You Need Business Assets to Be Rich?

Supplemental material, sj-docx-1-srd-10.1177_23780231211031684 for Do You Need Business Assets to Be Rich? by Lisa A. Keister, Mingxiang Li and Hang Young Lee in Socius