Tracking Trillions Show Us The Money

The mega-rich in Germany are three times wealthier than previously thought, according to a new study. Yet researchers admit it's difficult to get clear data on the country's secretive billionaires.
Johanna Quandt, BMW family matriarch, may be Germany's richest person. She's not saying.

The super-wealthy are hard to pin down in Germany, with different magazines delivering wildly differing rankings.

According to Forbes, the U.S. business biweekly, the Albrechts are the richest. Theo Albrecht Jr. and his family, who control the Aldi Nord no-frills supermarkets have total wealth of €16 billion, Forbes estimates.

However, the German edition of Switzerland’s Bilanz magazine says Wolfgang Porsche and his family have the most – €24 billion, according to their figures.

Then you have Johanna Quandt and her family, who own substantial parts of BMW, the chemical firm Altana and SGL Carbon. The German business monthly, Manager Magazin, estimates their total wealth at €31 billion.

With the help of the Forbes list, two scientists from the German Institute for Economic Research (DIW), have made their own calculations about how wealth is distributed in Germany.

Their stunning conclusion is that the richest 1 percent is three times wealthier than researchers thought before.

Instead of possessing €1.1 trillion, they in fact have up to €3.5 trillion, or nearly $4 trillion, according to the study.

The new estimates provide ammunition for critics who want to abolish tax exemptions or demand the introduction of a wealth tax.

Germany’s top 1 percent now owns one-third of all private wealth in the nation, the researchers estimate. Their share of riches is up from previous estimates of one-fifth. That would mean the concentration of wealth is much more extreme in Germany than assumed – and puts it on similar footing with the United States.

The new figures were released last week as the federal government considers changes to the inheritance tax laws that allow billions to build up in the hands of very few.

The Federal Constitutional Court has questioned special rules relating to individuals who inherit companies, which make it possible to pass on vast sums of money completely free of tax.

The new estimates provide ammunition for critics who want to abolish such exemptions or demand the introduction of a wealth tax.

The research institute study makes one thing clear: It is difficult to penetrate the mists surrounding great wealth. There are no official statistics and no land registry office covering all possessions and their owners.

Considering that the distribution of wealth is one of today's most important topics, data on the super-rich is based on surveys, projections and estimates.

Up to now, wealth in Germany was mostly measured by DIW surveys of about 25,000 citizens in 15,000 households.

It asks, for example: “How much would you get for your house, including land, if you sold it today?” Or: “What would you estimate is the current buy-back value of your life insurance?” Or: “How high do you estimate the current value of your company?”

Many people either refuse to answer these questions, do so incompletely or make contradictory statements  – and the mega-rich don’t take part in the survey at all.

In the most recent survey, conducted in 2012, the wealthiest participant claimed to have assets valued at €46 million.

The research institute experts then tried to draw conclusions from this data. In simplified form, it works like this: If 50 of the households surveyed claim to have assets of €1 million, that corresponds to 190,000 households, projected over the whole population. That is how researchers had come to the conclusion that the richest 1 percent of all households must have assets amounting to €1.1 trillion.

But their survey did not come to any conclusions about how many people are possibly worth much more than €46 million. The wealth of the mega-rich is simply not included and cannot be deduced from collected data.

We need better data sources. All we really know today is that we know nothing. Christian Westermeier, German Institute for Economic Research

Germany’s federal bank, the Bundesbank, had the same problem when it launched its own series of surveys in 2010. It found that the wealthiest participant had more than €70 million, and according to that, the richest 1 percent was worth €1.9 trillion – almost double what the DIW previously estimated.

Now the institute’s researchers are getting some help from the Forbes list of billionaires. In 2012, the Forbes ranking included 55 Germans and their respective assets, as estimated by the magazine.

For the purpose of their calculations, the research institute assumed that big fortunes are distributed according to a particular pattern – the so-called “Pareto Distribution,” named after the Italian economist Vilfredo Pareto. According to his formula, the bigger fortunes are, the more rare they become. Using the Forbes data, the researchers made assumptions about the distribution of wealth in Germany.

They then combined that with the known DIW survey and came up with their new estimate – that the richest 1 percent is worth up to €3.5 trillion.

But the authors noted that their findings are based “on many assumptions, resulting in a high level of uncertainty.”

The Forbes list itself is by no means a safe source of data.

How the magazine comes up with its estimates is unclear. When U.S. Internal Revenue Service experts once compared the tax data of deceased individuals with the Forbes ranking, it concluded that the magazine had overestimated fortunes by 50 percent.

One reason apparently is that an individual’s debts are hard for outside observers to calculate – and such liabilities can considerably reduce net assets.

So the basis of the new DIW survey is tenuous, and the authors emphasize that.

“The overall tenor of our survey should be that we need better data sources,” said institute researcher Christian Westermeier. ”All we really know today is that we know nothing.”

To remedy that, the economist believes Germany should reintroduce a wealth tax. “I personally don’t think we need more taxes,” said Mr. Westermeier. “But we could levy a tax rate of 0 percent. Then, at last, all fortunes would be systematically included.”

 

This article first appeared in Die Zeit newspaper. To contact the author: [email protected]