Trade, Development, and Immigration

Oxfam’s figures are as meaningless as its extrapolations are misleading

In recent months the global elite, including the Catholic head of the Bank of England Mark Carney, have joined Pope Francis in expressing concern about inequality. The issue was also discussed at Davos last week. Within this debate on inequality, statistical gymnastics are becoming more sophisticated and thus obscuring important issues such as how to improve the position of the world’s poorest people.

For example, last week Oxfam published a report arguing that inequality is rising. ‘The combined wealth of the richest 1 per cent will overtake that of the other 99 per cent of people next year unless the current trend is checked.’ What did not make the front pages was the fact that the share of wealth held by the richest 1 per cent is lower than it was 15 years ago and that Oxfam’s numbers for next year are an extrapolation of trends in asset prices caused largely by quantitative easing and unlikely to be repeated.

Indeed, Oxfam’s figures are as meaningless as its extrapolations are misleading. The inequality figures are based on what is known as ‘net wealth’ – total wealth minus debts. On this measure, for example, a US Harvard MBA graduate just joining a hedge fund is likely to have negative net wealth. Thus, on the basis of Oxfam’s figures, the world’s least wealthy 10 per cent contains almost no Chinese; North America, on the other hand, with all those potentially rich young people borrowing to buy houses and study for MBAs, has 8 per cent of the world’s very poorest people; and a subsistence farmer in Africa earning a dollar a day would find himself amongst the world’s richest 70 per cent and quite possibly further up Oxfam’s net wealth distribution than most British graduates.

Meaningless figures deflect attention from serious issues. There is much good news when it comes to poverty reduction, and all Catholics should want the poor to become better off (spiritually and materially). The proportion of very poor people in the world has fallen more rapidly than at any other time in history. Pope Francis’ claim that: ‘While the income of a minority is increasing exponentially, that of the majority is crumbling’ is, fortunately, demonstrably and objectively untrue. These improvements in the position of the poor happen when there is peace within countries, good governance, the protection of property, openness to trade and good conditions for business to establish. There is much to be done and much to be debated about how to improve matters. Oxfam’s presentation of statistics does not help clarify these debates.

What really matters is how people become rich – are people enriching themselves through enterprise whilst helping to make others better off too, or are they enriching themselves at the expense of others through corruption and cronyism? It should be noted too that, in a free and justly ordered society, all will benefit even if outcomes are more unequal. This is not ‘trickle-down’ economics but the outcome of enterprise. In Mao’s China, tens of millions were starving in a shared equality of misery. Today, hundreds of millions of Chinese are more prosperous than in the 1970s.

In fact, we are beginning to look more and more like ‘one world’ – the slogan of Oxfam and other campaign groups when I was at university. If you look at the distribution of world incomes in 1970, it very clearly showed two worlds. The vast majority of people in poor countries earned much, much less than anybody in rich countries. If you look at the same graph today, the poor countries are catching up (rapidly). Oxfam admit this. They now argue ‘it is inequality within countries that matters most to people’. This change of focus is a regrettable one for Catholics who think of solidarity in worldwide terms.

This article was originally published in The Tablet.

Academic and Research Director, IEA

Philip Booth is Senior Academic Fellow at the Institute of Economic Affairs. He is also Director of the Vinson Centre and Professor of Economics at the University of Buckingham and Professor of Finance, Public Policy and Ethics at St. Mary’s University, Twickenham. He also holds the position of (interim) Director of Catholic Mission at St. Mary’s having previously been Director of Research and Public Engagement and Dean of the Faculty of Education, Humanities and Social Sciences. From 2002-2016, Philip was Academic and Research Director (previously, Editorial and Programme Director) at the IEA. From 2002-2015 he was Professor of Insurance and Risk Management at Cass Business School. He is a Senior Research Fellow in the Centre for Federal Studies at the University of Kent and Adjunct Professor in the School of Law, University of Notre Dame, Australia. Previously, Philip Booth worked for the Bank of England as an adviser on financial stability issues and he was also Associate Dean of Cass Business School and held various other academic positions at City University. He has written widely, including a number of books, on investment, finance, social insurance and pensions as well as on the relationship between Catholic social teaching and economics. He is Deputy Editor of Economic Affairs. Philip is a Fellow of the Royal Statistical Society, a Fellow of the Institute of Actuaries and an honorary member of the Society of Actuaries of Poland. He has previously worked in the investment department of Axa Equity and Law and was been involved in a number of projects to help develop actuarial professions and actuarial, finance and investment professional teaching programmes in Central and Eastern Europe. Philip has a BA in Economics from the University of Durham and a PhD from City University.

2 thoughts on “Oxfam’s figures are as meaningless as its extrapolations are misleading”

  1. Posted 29/01/2015 at 16:29 | Permalink

    Assuming the people speaking for Oxfam aren’t fools, one has to question their good faith in continuing to use misleading statistics. I have noticed in debates during recent months a strong reluctance on the part of ‘opponents’ to recognise that easily the most effective way to help the poor is economic growth. Those who prefer to press for redistribution instead (whether of income or wealth) would appear to be keener on hurting the ‘rich’ than on helping the ‘poor’. This is a pity, as there seems to be no good reason to adopt an adversarial stance if we all genuinely want to help the poor.

  2. Posted 02/10/2015 at 11:52 | Permalink

    Funny how the money gubbers say “no no no” to fact, and then expecte us to just ignore the facts, and beleive their bullshit, while we see them gobbling up the wealth on the planet.

    I know the banks own most of the 43,000 transnational corproations.

    I know the banks own all the debt on the planet,

    I know the banks own our politicos, sciecne said. I know, I know, you will say “no no no” and that MIT must be wrong. And the numbers must be fudged…

    And I know that the useful idiots, usually just greedy little chimps, will say no no no all day long. As they feed on the leavings of the rich.

    I have no need to question Oxfam, because I do not see any BIAS to affect credibility. Anyone writing from an economics perspective is definitely BIASED. And what Ofam says, is mirrored a thousand times by a quick google search, and by what I see out on the street.

    Inequality is an obscenity. technological unemployment will kill the need for money, so it will kill the need for inequality.

    And people like you, are finished. And we only need to wait for it. As the greed of people like you, ends the paradigm that supports people like you.

    babble on. You should know that we dont eat babble in lieu of evidence of fact.

    Oh and BTW, I left some grammar and spelling errors for you to complain about, so you didnt have to look totally without argument.

    You are a greedy little chimp, and a liar.

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