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.

The irrelevance of Oxfam’s figures

Indeed, it is worth thinking a little more about what Oxfam’s figures mean (if anything). A lot of people in the world have little or no net wealth. There can be several reasons for this. If you are reading this as a 6th-form student, chances are that you will not have any net wealth to speak of, and nor will most of your peers. People accumulate wealth over the course of their life cycle, and even the better-off in this country do not tend to accumulate significant net wealth before their 30s. So if you consider that the global median age is about 28 years, it is hardly surprising that a huge proportion of the world’s population does not own any wealth. Basically, Oxfam is just adding up a lot of zeros.

In the developed world, many older people receive their pension from the state (alongside free services). That is a source of income, but it does not technically constitute wealth. Many pensioners receiving state pensions neither have nor need other forms of wealth. This is one of the reasons why Sweden, with its generous state pensions, has a high level of wealth inequality: most Swedes just do not need to save.

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.

The rich get rich by only by making the poor better off

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.

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.

Globalisation and poverty

And it is this tendency of many countries towards embracing market institutions—a development which is by no means complete—that Oxfam fails to mention in their annual screed. 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. China and India are still very poor by Western standards, but a report focused on how capitalism was failing them would rightly have been deemed ludicrous—it is obvious that they have done a lot better since abandoning full state control of their economy, even if, again, there is still a long way to go. 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.

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. 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.

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.

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. Of course you could follow more moderate policies and just expropriate these people partially, say, via a 10 per cent wealth tax. This would cause less damage, but the amount you can redistribute becomes even smaller.

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.

 

This article was first published in EA magazine

Philip Booth is professor of finance, public policy and ethics at St Mary’s University, Twickenham and senior academic fellow at the Institute of Economic Affairs. Philip was formerly the IEA's Academic and Research Director between 2002-2016.


Head of Research, Adam Smith Institute

Ben is Head of Research at the Adam Smith Institute, overseeing the ASI’s research papers and strategy. His intellectual interests include monetary regimes, nature vs. nurture in individual differences, sport economics, prediction markets, and quantitative approaches to social phenomena in general.

4 thoughts on “Oxfam is more interested in eradicating wealth than in eradicating poverty”

  1. Posted 06/05/2017 at 17:34 | Permalink

    Nice article. I agree that Oxfam is obsessed with inequality, when they should actually be worrying about poverty. But do you think there should be no redistribution at all? Let’s take the case of my country- India. While the public systems of health and education are not the best, do you suggest we completely get rid of them? That will cause of lot welfare loss, even if we assume that by some form of magic, political parties agree to do that.

  2. Posted 08/05/2017 at 17:04 | Permalink

    no, not necessarily. The point about redistribution is that it is a trade off – poor people might get richer and rich people poorer (there are various other arguments that can be discussed about whether that is a good thing). What I am really arguing about here is the problem of seeing inequality in and of itself as desirable (and Oxfam are doing that to such an extent that they are obscuring material facts in the debate)

  3. Posted 09/05/2017 at 04:39 | Permalink

    I fully understand that there is a difference between wealth inequality and income inequality.

    I also fully understand that there is a relationship between rising income and rising wealth, and that it takes time for wealth to increase in line with income.

    I also fully understand that to rob the rich to pay the poor in the simplistic example given – i.e. to take the wealth of the 8 richest men and redistribute it to the world’s poorest – would be (a) unjust (b) ineffective at poverty alleviation – a double injustice.

    So, I’m in agreement with that much of this article.

    However, where I differ with the writer is on the importance of sensibly limiting personal wealth and ensuring that we constrain the wealth of individuals. This is a philosophical point of difference between your way of thinking and mine, and it’s an important one. Allowing no limits on personal or corporate wealth has the effect of allowing a very small number of players to corner the market in the sense that they have enormous concentration of capital and the power to monopolize and dominate areas of the economy to the extent that others are pretty much forever excluded from participation in those areas.

    Giants like Oracle, Microsoft, Apple, Facebook and the like wield enormous power to control and even limit innovation in their industry sector through e.g. aggressive acquisition of competition. Further, industry giants like this have exponentially greater ability to expand their wealth and dominance by virtue of their enormous reserves of capital. They have exponentially greater ability to avoid their civic duty (pay taxes) because of access to expensive legal services setup to accomplish just that. Time and time again, we find that corporations take advantage of this and exploit every opportunity to evade taxes, underpay their workers, offshore their workers to regions which are less well regulated the better to exploit them, relocate their earnings to tax havens … etc etc.

    Corporations and wealthy individuals alike are beholden to one overriding principle: profit. Hence, considerations of the impact of their behavior on externalities (i.e. the consumers who use their products, the staff they employ, the environment in which they operate) are always going to be a secondary concern. Where necessary, they will use their financial power to crush opposition from environmentalists, consumer agencies or trade unions who oppose their activity.

    So, the naivete of those who subscribe to the idea that free markets are going to lead to an egalitarian paradise strike me as just as foolish (actually, more foolish) as collectivist Marxist visions of utopia.

    Hence, the argument against extreme inequality is not based on the belief that re-apportioning the wealth of the super-rich to the world’s poorest is a solution to poverty. This is a straw man, and a very flimsy one at that.

    The argument against extreme inequality is the power imbalance that it introduces, and the impacts it has on the vast majority for the benefit of the very few.

    Such a rich trove of evidence to choose from! Where do I start?

    http://www.rollingstone.com/politics/news/inside-the-koch-brothers-toxic-empire-20140924

    http://www.minyanville.com/businessmarkets/articles/walmart-retail-target-abuse-employees-health/10/9/2009/id/24585?page=full

    https://corporatewatch.org/company-profiles/bayer-ag-corporate-crimes

    http://www.newyorker.com/humor/borowitz-report/abuse-of-power-by-gigantic-corporation-comes-as-total-surprise

  4. Posted 09/05/2017 at 11:01 | Permalink

    I don’t understand from where you get the idea that I subscribe to an egalitarian paradise, I neither believe that nor infer it. Nevertheless, the concerns in your comment are not unreasonable. Indeed, it was the iea that brought public choice economics to the UK about 40 odd years ago – it is interesting that, after 30 years of traducing the discipline, the left now use public choice arguments as if they are an argument against those who believe in free markets (by the way, I don’t mean you, but, for example, Stiglitz and Piketty). If we take these winner-takes-all type markets (which are the ones people are concerned about these days and which often arise because of technology), what can we actually do about it? Firstly, it is worth noting that these companies produce huge benefits. Their founders are only rich because they have huge numbers of customers. But, I guess you appreciate that. A more rational tax system would help (I have written about that elsewhere). Competition policy can be used at times, but I think this is a very clumsy tool. We should make sure that intellectual property rules don’t entrench such companies. I suspect that, like most large companies that were once thought to be potential perpetual monopolies, creative destruction will blow them away in time. If it doesn’t then I might need a better answer.

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