Oxfam report shows the world’s richest get richer

Oxfam’s annual report, this year entitled “Public Good or Private Wealth,” has calculated that last year a mere 26 people owned more than the 3.8 billion people who make up the poorest half of humanity.

Based on data sets provided by Swiss bank Credit Suisse and the famous Forbes List of billionaires, the UK-based non-profit organization claims that between March/June 2017 and March/June 2018 the wealth of the super-rich grew by $2.5 billion (€2.2 billion) per day on average, while the bottom half of the world’s population saw their wealth dwindle by $500 million daily over the same period.

“Our economy is broken, with hundreds of millions of people living in extreme poverty while huge rewards go to those at the very top,” Oxfam added in a dire note.

Since the 2008 financial crisis, the number of billionaires has doubled, according to the report, and the very rich along with corporations are paying lower taxes than they have in decades. At the same time, 3.4 billion people are living in poverty on less than $5.50 a day, and women are often hardest hit. Men hold 50 percent more of the world’s wealth than women, according to the report.

The report’s statistics are being released to coincide with the start of the World Economic Forum at Davos this week, the annual pilgrimage of international politicians and business leaders ― often very rich, mostly male ― to the Swiss Alpine town to talk about poverty.

Davos has received heavy criticism for being a talking shop of wealthy moguls, many of whom are accused of being the same people lobbying for lower corporate taxes and against regulations designed to improve labor conditions and ensure environmental protections.

While acknowledging the progress the world has made in recent decades in reducing the numbers of people living in extreme poverty, it cites evidence from the World Bank that the rate of reduction has slowed since 2013.

“Governments face a stark choice today — a choice between a life of dignity for all their citizens or continued extreme wealth for a tiny few,” Oxfam warned, and offered a series of interventionist policy prescriptions to help fight inequality.

Policymakers should take Oxfam’s findings and suggestions with a grain of salt, however, since even after repeated criticism year after year, the report remains methodologically sloppy. Their calculation of inequality is based on “net assets” in which the assets owned by individuals, such as property and shares, is subtracted by their debt liabilities, to calculate their position in the global wealth distribution. Income is excluded from the calculation.

One of the most intuitive problems with this is that the poorest people by this method are not those in developing countries living with little to nothing, but young professionals, who own no assets with a significant degree of student debt. It seems absurd to believe that a Harvard graduate in his first job, with a steady income, is somehow worse off than those living with little debt in sub-Saharan Africa or Southeast Asia, simply because he had to take out a loan for college.

Jamie White, research director at the UK think tank, Institute of Economic Affairs, says that what Oxfam got fundamentally wrong isn’t so much the inclusion of the debt; it’s the failure to recognize the asset that it funded.

“It’s true that a Harvard graduate, say from law school, has a high debt. But what Oxfam isn’t counting is the value from this degree,” he said.

Issues like these persist throughout Oxfam’s work. Individual data, for example, does not capture family assets nor the pension claims that one has. Last year, Oxfam tried to dismiss claims that pension funds act as institutional investors for the average person by claiming “even in countries where pension funds are significant institutional investors, in effect sharing the returns with pensioners, their share of these lucrative assets has been declining.”

This is contrasted with the evidence that pension funds and liabilities represent a growing share of the global economy. Pension funds are rapidly expanding around the world, with China having the fastest growth rate. Ignoring this distorts the findings on the real ownership structures of capital assets.

It is clear that the Oxfam report is not of the high academic caliber worthy of the sort of media attention it generates. The organization’s notion that global wealth is a collective pool to which people around the world contribute, and from which the rich take the lion’s share, depriving others, is preposterous.

Research into the likes of Google and Facebook shows that most inequality is not between bosses and their employees, but between those that work at superstar companies with smaller labor forces and everyone else.

That is why Jamie White argues that rather than increasing the scope of regulations that allows for special interests to capture policy, the focus should be on increasing competition and reducing barriers to market entry. A more competitive market economy would increase prosperity and combat cronyism in a much more effective manner than the suggestions proposed by Oxfam.