Why Oxfam focuses on global wealth not income inequality
The IEA write:
Oxfam began as the Oxford Committee for Famine Relief. It still does valuable disaster relief work today, but it often functions like a political campaign group. Each year it releases a report on inequality just before the World Economic Forum in Davos. This purports to show the failure of the global economic system.
The conventional view of capitalism—shared by people from across the political mainstream such as Ed Miliband and Theresa May, despite their differences—is that it generates a lot of wealth, but distributes it unevenly. Oxfam’s figures are supposed to illustrate this: the latest numbers show that eight billionaires own 0.25 per cent of the world’s net wealth, as much as the 3.6 billion who make up the poorest half (in terms of net wealth) of the world’s population. Those at the bottom of the net wealth distribution include, for example, recent Harvard graduates with high levels of student debt and yet huge earning potential: they are supposed to be amongst the poorest people in the world according to Oxfam.
Focusing just on wealth instead of income and income potential is silly. As IEA say it shows a lawyer who has just graduated from Harvard as poorer than a subsistance farmer in Nigeria.
What is important for people is their income, which finances their lifestyle. There is good data available on incomes, which Oxfam could use if they wanted to talk about inequality. But that would not suit Oxfam’s narrative. Global income inequality is falling, as the poor have gained disproportionately from globalisation.
Oxfam, is basically a socialist campaigning organisation that also does some disaster and poverty relief.
It is against capitalist concepts such as free trade. When it turns out free trade has lifted hundreds of millions out of poverty and massively decreased global income inequality, they then change their focus to wealth inequality rather than income inequality.
Oxfam highlights how the eight richest people who top their list are mostly Americans, with four of them being tech billionaires. But tech billionaires are a paradigmatic example of entrepreneurs who earned their fortunes by creating products that benefited everyone. Facebook has enabled us to keep in contact with old friends and relatives in a way that was impossible before. Thanks to Amazon, we can purchase even rare, out-of-print books that would only otherwise have been hard to track, and get them delivered tomorrow. In America, fortunes mostly reflect exceptional contributions to society—not the exploitation of others.
The old left view of wealth is that rich people get their wealth by stealing it or exploiting it from poor people. This was somewhat true in 1880 but not very true today.
Globalisation has helped such tech billionaires to become much richer than they could have in times when markets were protected. But, this reflects the fact that their products are used worldwide, and that they help pull people out of poverty. For example, over 60 per cent of Kenyans use mobile phones to make payments. Mobiles are used by farmers to compare and check prices so that they are not exploited by local monopolies. Globalisation in general, and mobile phone technology in particular, are major contributors to the huge recent improvements in living standards in poor countries. Worldwide, there are 1.6 billion Facebook users – you are probably one of them. But, the founder of Facebook did not get rich by making others poorer. Trade is a process of mutual enrichment. Facebook has made a lot of people better off. However, Mark Zuckerberg is much better off because he benefits from the fact that so many people are using Facebook. Meanwhile, there will be many, many more entrepreneurs who have tried and failed – entrepreneurship is a risky business.
Well said.
This year they highlighted Vietnam as a case of deprivation, and it is true that Vietnam is still a very poor country. But it started from a very low base: they only began to move towards capitalism in 1986. Since then, their income per capita has increased from $100 per annum to $2,000, and it continues to grow at high rates, mirroring the much-acclaimed success of China and, to a lesser extent, India.
$2,000 per year is very little, but a lot better than $100 a year.
China’s real national income per head was $193 in 1980. Today, it stands at $6,807 per head (IFAD, 2014, p.5). This is not due to redistribution, it is due to trade and the liberalisation of some markets.
And the success of special economic zones where basically a full capitalist economy was allowed.
Globally, extreme poverty has fallen from 44 per cent in 1980 to around 10 per cent today. The literacy rate has risen from 56 per cent to 85 per cent over the same period.
Great achievements.
The world could do much better still, but not by hiking wealth taxes and closing down ‘tax havens’, but by improving the basic institutional framework (property rights, the rule of law, impartial courts) that we know allows countries to grow out of poverty.
Oxfam’s policies are about hurting the rich, not helping the poor.
Kenya and South Korea were about equally rich – or rather, equally poor – in 1960. Kenya has seen some significant improvements in very recent years, and is one of the better-off countries in East Africa. But incomes in South Korea have grown more than fifteen-fold, and are now almost on a par with Western Europe. It was sound institutions, the freedom to establish businesses and to engage in mutually enriching trade that lead to the elimination of poverty, higher literacy rates and better health.
One of many examples.
However, increases in income translate into increases in wealth only over a very long time, because most people immediately consume the bulk of what they earn. And it is the growth in incomes that really matters. Redistributing wealth would be a poor policy choice. Let us suppose that we went even further than Oxfam would like, expropriated the wealth of the world’s eight richest people, and distributed it evenly among the world’s population and over their lifespans. Depending on how you calculate it, you would end up giving everybody a pay rise of between 65p and £1 per year – or about 0.03 per cent for your average Kenyan. And, at the same time, you would have destroyed the system by which entrepreneurial-led innovation promotes economic growth and which has enriched previously destitute countries in a way that Oxfam could never have imagined back in 1980.
Yep.
It is not redistribution, but mutually enriching trade and economic growth which is the hope for the world’s poor today – just as it was in the past. To put it another way, we should stop focusing on the rich as if they were the problem, and, instead, focus on policies to reduce poverty.
Absolutely.