It’s January, so it’s time for the world’s rich and famous to gather for their annual hand-wringing session at the luxurious skiing resort town of Davos, Switzerland. To pique their guilt, highly paid researchers for the multinational Oxfam produced an annual report decrying the economic state of the world.
Their goal? Creating “5 shocking facts about extreme global inequality and how to even it up in Davos”. For the second January in a row, Winnie Byanyima, executive director of Oxfam International, appeared in these pages as part of the organisation’s PR campaign. She starts with a patent falsehood: “Just a handful of men control the wealth of the world. Billions of us take what we can of what’s left of the cake – and it’s getting smaller.”
No, it’s not getting smaller. Global economic growth was negative only once in the last 50 years, in 2008, so the cake is consistently getting bigger. Besides, economics is not a zero-sum game. We’re not all competing for a slice of an existing cake. Private individuals all compete to make that cake bigger by creating new wealth.
Oxfam does not understand this basic principle of economics. Its “even it up” rhetoric is classical Marxism, casting economics as a struggle between rich and poor which can only have one winner, and in which the ideal would be to take from everyone according to their ability, and give to everyone according to their need.
The most interesting part of the Oxfam report, which almost nobody will read, is the methodology note. I was startled to discover that I fall in the bottom 10% of the global population, by wealth, because I have more debt than assets. Stunningly, Oxfam doesn’t measure income at all.
The report performs some amazing sophistry in an attempt to justify this, but it cannot escape the absurdity that more than half of all the net debt among the bottom 10% of the world’s poorest people is held by citizens of Europe.
The report doesn’t bother to consider income, nor does it count government assets that give these people access to free medical care, free public transport, free education, subsidised housing and unemployment benefits. Such benefits in Europe vastly exceed the resources available to the average citizens of a developing country. To call these people poor is a slap in the face of people living in genuine poverty.
By Oxfam’s idiotic standards, people who have neither debt nor assets are all richer than me, whether or not they have any income. People who cannot qualify for as much debt as I have are also richer. An unemployed township dweller? Richer than me. A subsistence farmer in rural Africa? Much richer than me, since I own neither land nor cattle. A single mother with a cleaning job, three overdue retail accounts and four kids to feed? Yep, she’d be richer than me, according to Oxfam’s absurd numbers.
Oxfam’s perverse report considers high-income individuals with no assets poor, and low-income individuals with a patch of land or a Mandela house richer than them. In short, Oxfam’s statistics are completely unable to describe actual wealth, and therefore they are unable to describe inequality. This flaw fatally undermines the entire report.
Demonstrating the arbitrary nature of its data, the January 2014 edition of Oxfam’s inequality report attributed $1.7-trillion in wealth to the bottom 50% of the world’s population. This year’s edition cut that to a mere $409-billion. It calls this number “lower than previously estimated”, because of “new data sources from China and India”, which show “more debt in the very poorest group and fewer assets in the 30-50% percentiles of the global population”. All this really proves is that the estimations are cherry-picked, unable to account for actual welfare, and ultimately worthless.
Apparently, the biggest “risk factor” for being poor is being young. Oxfam accurately describes this finding as “not unexpected”. It would be interesting to know just how much wealth inequality is attributable to age alone. After all, almost all young people start off earning very little, increasing both their income and their wealth over the course of their lives. No measure of inequality (or, for that matter, of poverty) takes this simple fact into account.
According to Byanyima, the number of people living in poverty in Africa has increased by 50-million since 1990. What she doesn’t bother to mention is that the population almost doubled from 630,000 in 1990 to 1.2-billion in 2015. In sub-Saharan Africa, which is the poorest-performing region in the world, the poverty rate declined from 54.3% in 1990 to 41% in 2013. This is, of course, much too high, but it does not support Byanyima’s implied claim that poverty is getting worse in Africa. And it certainly does not support the idea that the poor are worse of because of the wealth of the rich.
Astonishly, Oxfam’s dystopian view of the world economy does not ignore the fact that poverty as measured by income (as opposed to assets and liabilities) has been falling sharply, worldwide. It admits in its note on methology that in 1990, 35% of the global population lived below the extreme poverty line, while in 2015 this number fell below 10%. Morever, the incomes of the poorest 10% has grown. Oxfam’s beef is that in absolute dollar terms the incomes of the richest 1% grew by much more.
That stands to reason, of course. Measuring in absolute dollar terms is a pretty daft way to assess wealth growth. If I invested R100, and made R1,000 profit, I’d be over the moon. If I invested R1,000,000 and made only R1,000, I’d be devastated.
Imagine an elastic band, representing the spectrum from absolute poverty to Bill Gates. One end is anchored at zero, but when you pull on the other end, everyone gets richer. Although everyone gets richer by the same percentage, inequality increases. This, Oxfam would have us believe, is bad.
Worse, their inequality argument isn’t even valid. Although the difference between the richest and poorest continues to grow, especially when you do something monumentally stupid like measure wealth in terms of assets and liabilities, or in absolute dollar terms, in reality income inequality has been declining over time.
Witness this animation, from the wonderful resource, Our World In Data:
Incomes are growing in all parts of the world, global poverty is declining rapidly, and the poorest countries are growing the fastest, but still, Oxfam whines about a handful of rich people.
To illustrate the illogical conclusions of Oxfam’s twisted facts and ideological rhetoric, let’s quote Byanyima again: “Rampant inequality breeds discontent, frustration, fear, and anger – as we saw last year when citizens around the world expressed themselves at the ballot box. In the United States, billionaire Donald Trump won the election…”
Well, if poor people are cross with billionaires, it would make sense that they would… no, wait. This doesn’t make any sense at all. Why did poor people elect a billionaire when they’re upset with billionaires?
“And here in South Africa,” she writes, “one of the most unequal countries in the world, the African National Congress, the party of Nelson Mandela, was handed its worst defeat since the end of apartheid and lost control of Pretoria, Cape Town and Johannesburg.”
So because of inequality, people kicked out the party which promised socialism and wealth redistribution, in favour of the party that claims to prefer free-market capitalism? Why would they do that when “extreme capitalism” is the evil bogeyman in Oxfam’s view?
“The super-rich will amass ever more staggering amounts of wealth at the expense of the rest,” says Byanyima. Uh, no. Again, economics is not a zero-sum game. When two people enter willingly into a transaction, both benefit, each by their own subjective measure. The result of the rich getting richer is that the rest also get richer, more literate, better fed, and less likely to die. Here’s a picture, created by the classical liberal author and historian, Johan Norberg:
Quipped Norberg on Twitter: “If we don’t end neoliberalism, we’ll see more of what happened in the last 25 years, warns Oxfam.”
Oxfam actually acknowledges this very graph in a blog post by Deborah Hardoon, the author of its inquality report. She responds by speculating that if action had been taken to reduce the gap between rich and poor, even fewer people would be living in poverty. This sounds like a trivial truism, but it’s even worse, since there is no evidence beyond the simplistic arithmetic of redistribution to suggest this would happen in the real world.
She adds: “It is true that there has been great progress in reducing poverty in recent years – which is great news – but now experts like the World Bank are warning that this progress is under threat because of extreme inequality. The World Bank stated quite clearly in their most recent report that we can’t end poverty if we don’t end the inequality crisis.”
Actually, the World Bank was not quite that clear. It wrote: “Reducing high inequality may be a necessary component to reaching the world’s goal of ending extreme poverty by 2030.” And, as we’ve seen, reducing high inequality is, in fact, happening, as extreme poverty continues to decline.
One of Oxfam’s five shocking facts is: “Seven out of 10 people live in a country that has seen a rise in inequality in the last 30 years.”
This sounds like an outright lie, but remember that Oxfam does not rely on income inequality data, but on inequality in net worth, which is a preposterous measure. Which may explain why the World Bank report which Hardoon quotes with such approval says: “In 60 out of the 83 countries [72%] covered by the new report to track shared prosperity, average incomes went up for people living in the bottom 40% of their countries between 2008 and 2013, despite the financial crisis. Importantly, these countries represent 67% of the world’s population.”
But hey, they didn’t invest in stock markets, so it doesn’t matter. Rising incomes, remember, aren’t what matters, in Oxfam’s selective view of the world.
Oxfam also does not credit free market capitalism with lifting millions out of poverty, especially in China and India. It says doing so would “ignore the crucial role played by governments to improve health, education and jobs in these countries”. But crediting the recent actions of governments in the East ignores the fact that the rapid decline in poverty worldwide predates major government welfare programmes by decades, and in the West by centuries. It perfectly coincides with the introduction of pro-market and free trade reforms.
Hardoon also has a glib answer to the criticism that it is hypocritical for its executives to earn fat-cat salaries: “Oxfam is a confederation of 19 member organisations. The salary that each Oxfam pays to its own Executive Director differs – reflecting the size of the organisation as well as national market realities. In each case, the salary paid is entirely consistent with the individuals’ responsibility for running an organisation that is part of a major international humanitarian and development campaigning NGO.”
Of course, Oxfam is perfectly entitled to pay market rates for top-level managers. They’re a scarce commodity. But when private companies subject to the same market realities use the same rationale, Oxfam paints them as greedy profiteers oppressing the poor. That’s hypocritical. Just as hypocritical as living in the lap of luxury in Europe, telling the poor that rich people are the problem.
Despite being dishonest about the facts and clueless about economics, this isn’t to say the Oxfam report does not highlight important problems with the global economy. In particular, it notes that many of the world’s rich accumulated their wealth through cronyism and corruption. It even mentions the Gupta family’s relationship to South African president Jacob Zuma as an example.
Yet without a trace of irony, it proposes that governments be given even greater powers to tax people, award contracts, and redistribute wealth, as if that very power is not the very thing that enables cronyism and corruption in the first place.
What Oxfam gets wrong is that the enemy of the poor is not the rich. The enemy of us all, rich and poor, is those who exploit government’s ability to impose laws and regulations for their own gain, at the expense of others.
In a free market, no company can make you buy their product. No rich person can legally get richer unless someone else is willing to trade with them for mutual benefit. In a free market, using force or fraud to get rich is illegal.
By contrast, governments do have the power to control what you buy or sell, or to expropriate what you earn and own. Many people, rich and poor, depend on the government’s monopoly on force for their income or wealth. They seek to influence government contracts, and lobby for regulations that benefit them and harm their competitors. These people are the parasites that suck the wealth from productive people. They are the enemy, and you’re not going to fight that enemy by increasing the size and power of government.
Promoting measures to reduce the size and scope of government, to limit corruption, and fight cronyism, would be a great project for the World Economic Forum. Listening to Oxfam, however, would do nothing to combat the unholy relationship between big government and big business, and only create more victims among both the rich and the poor.
Oxfam’s problem is that by any measure of human welfare you care to think of, things are getting better, for most people, in most parts of the world. Whether you measure income, life expectancy, literacy, leisure time, child mortality, threats from violence, education, health, or human rights, we’ve never had it better than we do today. And by most of these measures, inequality between rich and poor has actually declined dramatically over the decades, as more poor people become literate, for example, or gain access to inexpensive but life-saving medication.
The only exceptions to the rule are countries with weak market and trade institutions, countries with socialist or cronyist governments, or countries that are at war.
That the poor are just jealous of the rich – or, to quote Byanyima exactly, discontented, frustrated, fearful, and angry because of inequality – is an insult to poor people who work hard to improve their own living standards without stealing from their neighbours or relying on handouts from the state. Worse, it gives political cover to the socialists, kleptocrats and warmongers who seek the power to expropriate people’s wealth for themselves or to redistribute them to their cronies.
It also blatantly ignores the poor themselves, who according to the Oxford Poverty and Development Initiative do not describe their problems in terms of inequality, or even just poverty. “Participatory exercises reveal that poor people describe ill-being to include poor health, nutrition, lack of adequate sanitation and clean water, social exclusion, low education, bad housing conditions, violence, shame, disempowerment and much more.”
This is why South Africa launched a multidimensional poverty index using census data in 2014. It found that if you expanded measures of welfare beyond mere poverty, to include indicators of health, education, living standards and economic activity (unemployment), you get a far more accurate measure of well-being, which also corresponds to how poor people themselves describe their conditions.
The multidimensional poverty index is a function of both the number of people who experience deprivation, and the intensity of the poverty experienced. Between 2001 and 2011, the index more than halved, from 0.08 to 0.03, in large part because the number of people in multidimensional poverty declined from 17.9% to 8.0%. The greatest contributor to this index is not wealth, nor income, nor inequality, but unemployment. It hardly seems reasonable to rail against those who became rich by founding companies that happen to employ people, as Oxfam does.
But saying things have been getting better under the last 10, 30, 50 or 200 years of free markets and global trade would not do. It wouldn’t guilt-trip rich people into donating money to Oxfam. So Oxfam report writers find themselves in a quandary. They cannot be honest, because that would hurt Oxfam and their own pockets. This is why they have to rely on deceptive measures of wealth to construct a false argument about inequality that implies most of us are motivated by jealousy of the rich.
Instead of donating to Oxfam to pay people fat-cat salaries it claims are justified by the very same markets it rails against, I have an excellent solution. Since I find myself mired in the bottom 10% of poor people by Oxfam’s measures, you could cut out the middleman and donate directly to me. At least I know some real economics. DM
"We must have a pie. Stress cannot exist in the presence of a pie." ~ David Mamet