Economic Theory

Practical solutions to poverty (and inequality) – and why Oxfam refuses to consider them

In response to an article for The Tablet on Oxfam’s wealth inequality figures, Mr Fuentes-Nieva, Head of Research at Oxfam, makes some counterpoints in a letter to The Tablet (also repeated in a letter to The Economist). His main points are as follows:

1.   “Mr Booth’s suggestion that our figures are meaningless because they include indebted graduates is also nonsense. If you remove all those with negative wealth from the figures – which incidentally were taken from Credit Suisse’s respected World Wealth Databook – then there is only a negligible fall in the 1 per cent’s share of global wealth from 48.1 to 47.9 per cent.”

2.    “Rather than desperately search for reasons to deny reality or bemoan the fact that Oxfam is tackling the problems affecting poor people today instead of those of the 1970s, we would urge Mr Booth to join us in looking for solutions to inequality.”

It is easy for Mr Fuentes-Nieva to dismiss as “nonsense” serious criticisms of the Oxfam wealth figures. However, such criticisms come from many quarters and should not be dismissed lightly.

Indebted graduates are, of course, just one example of the problems with the Oxfam/Credit Suisse wealth data that could be raised. But this is a particular example of a general problem. The fact that somebody who has zero net wealth comes in the third quartile of the world’s wealth distribution ought to suggest something amiss. Furthermore, half the world’s population is under the age of 30. In no country – developed or undeveloped – do young people hold significant amounts of assets. People tend to borrow when they are young and save in middle-age in order to pay for old age. Thirdly, the wealth figures exclude entitlement to state pensions. It is such entitlements that lead low- and middle-income Swedes, for example, to have low levels of private saving. In turn, this leads Sweden to have one of the highest levels of wealth inequality in the Western world, despite having a very even income distribution. Indeed, Oxfam proposes the expansion of such state pension schemes. The very policies they support would widen inequality according to their own measures!

In sum, wealth, sensibly measured, is certainly not unimportant but the overwhelming fact of our age is the reduction in world income inequality.

Mr Fuentes-Nieva urges me to look for solutions to inequality. I prefer to look for solutions to poverty. Even a cursory glance at the IEA website would show Mr Fuentes-Nieva that we take a strong interest in the issue. Indeed, perhaps Oxfam – and, for that matter the Catholic Social Action Network – would do well to consider the radical liberalisation of land-use planning as a policy that would reduce poverty (perhaps halving rents), reduce inequality in income net of housing costs (because the least well-off spend more on rents as a proportion of income) and reduce wealth inequality (because it would reduce inflated house values). This policy would do more than any other to help the poor whilst reducing inequality. Nothing like this is even considered in any of Oxfam’s reports on inequality as far as I can see. No doubt such a policy would simply be dismissed as “market fundamentalism” by Oxfam and thereby not worthy of consideration.

Similarly, the IEA has proposed policies to allow the least well off to build up assets for their future pensions. Whether this is a good policy or not, it would certainly reduce Oxfam’s net wealth inequality figures probably more than any other single practical policy. Indeed, this leaves Oxfam with an interesting dilemma. If the policy is a good one, why do they not embrace it? If they think it is a bad policy even though it would have a greater impact on their net wealth figures than any other conceivable policy, then surely even Oxfam ought to question their numbers.

Oxfam is supposed to help the poor. It should consider all possible policies that might help the poor, not just those that fit their prior political beliefs. With regard to Mr Fuentes-Nieva’s point that “Mr Booth [should] join us in looking for solutions to inequality” – the problem is that Oxfam are only looking for particular solutions to inequality.

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.

1 thought on “Practical solutions to poverty (and inequality) – and why Oxfam refuses to consider them”

  1. Posted 21/02/2015 at 23:37 | Permalink

    ” No doubt such a policy would simply be dismissed as “market fundamentalism”” Lol!

    So, if the government only got out of the way, the price of land in Mayfair would fall to what it cost to produce? ie Zero.

    Land is not the economic equivalent of a can of baked beans, and the rent of property where people want to live will not half, no matter how many houses are built. Due to the scaling effects of agglomeration, in London and the SE they will go up.

    But no matter. In the UK we believe in giving people a choice. So, instead of getting rid of planning regulations which according to Booth is the reason for affordability issues, why don’t we ask freeholders to pay for the value they get from them. ie a land tax.

    That way, NIMBYS will be able to put a cost on whether to block new development or not.

    This is how the market is supposed to work. Funny how a functioning market in housing is in fact the very last thing the IEA appears to want.

Comments are closed.