Oxfam’s latest global inequality report is confused

By totting up global wealth, Oxfam’s report on inequality tells us little about either global poverty or income growth

 
 
Author: Tom Bailey
February 23, 2016

In a now annual event, the charity-cum-political advocacy group Oxfam, released its report on global inequality. The latest version from January 2016 marshalled a number of statistics to make the case that the world is facing a crisis of economic inequality.

The report noted that the richest one percent of the global population have wealth equal to the remaining 99 percent combined, while within this one percent, the richest 62 people in the world own as much wealth as half of the world’s poorest.

When Oxfam’s definition of wealth is looked at however, the confused nature of the report becomes apparent. Oxfam defines wealth as assets minus debts. The results of this creates a distorted view of who is and who isn’t poor on a global scale.

Having zero assets or being in debt actually makes a person among the poorest in the world, while having meagre assets and no debts puts the person in a considerable position of wealth. A recent graduate from a top Ivy League school in the US, with his or her student loan debt, by this measure would be poorer than an Indian taxi driver, who’s only asset is his car, assuming he had no debts.

Likewise, an unfrugal European earning £100,000 a year, but who spends more than his or her wage through relying upon credit cards, is actually poorer than a Latin American farmer who owns his or her own small parcel of land. This makes no sense.

Having negative or zero wealth does not imply poverty or say much about living standards. Access to credit is often even an indicator of wealth. A third of all Americans have negative or zero wealth using Oxfam’s measure – yet it would be absurd to classify them as part of the global poor.

The richest one percent of the global population have wealth equal to the remaining 99 percent combined

Oxfam’s attempt to measure global wealth and poverty has a number of other pitfalls. The aversion to high levels of inequality is based on an understandable disgust at some people having billions of dollars in wealth, while others go hungry.

It is concerning that much of the world still languishes in poverty. Yet increasingly, less people do so. The most important economic story of recent times is the rise of the so-called ‘rest’. Yet Oxfam seems to minimise the real importance of this.

The past few decades have seen a dizzying amount of the world lifted out of poverty. And despite the best efforts of third-sector anti-poverty groups, this has largely been thanks to the efforts of economic growth. Global inequality – when measured in terms of income and consumption – is actually falling slightly, due to this.

When looked at in terms of people becoming richer and leaving poverty, without the distracting focus on global wealth inequality, much of the world is getting richer in terms of income. China’s rapid economic growth has lifted 500 million people out of poverty, while wages have grown.

The average Chinese person is insurmountably richer now than they were in the Mao era. Emerging market economies still have a long way to go in terms of abolishing poverty and raising incomes, but the Oxfam report, by muddling together global wealth, tells us little about this.

Having zero assets or being in debt actually makes a person among the poorest in the world, while having meagre assets and no debts puts the person in a considerable position of wealth

Furthermore, when looking at wage growth and global inequality, more problems with the report become apparent. It makes issue of US inequality rising due to stagnating incomes and rocketing executive pay growth.

Global inequality and stagnating incomes within mature economies are however, two separate issues. To muddle both, as the Oxfam report does, is cause for confusion. If Americans were to secure for themselves faster wage growth, this would actually exacerbate Oxfam-style measures of global inequality.

Higher paid workers would presumably use their increased income to pay down debts, save more, or purchase more assets –all of which would push them up the global inequality scale.

Or alternatively, if US workers were to spend their extra money on consumer items or services such as holidays or eating out, it would make no difference to the Oxfam’s wealth measure, as it would make no contribution to their wealth as measured by assets minus debts.

At the same, if Chinese workers – upon experiencing a wage increase – opted to buy certain consumer goods or services, instead of purchasing quantifiable assets or paying down debts, despite it clearly being an increase in prosperity, the Oxfam measure would not count it as an increase in wealth.

Global poverty is still a problem that must continue to be addressed through governments pursuing economic growth – and indeed, this has been happening at historic levels in the past few decades.

Likewise, there is a political case that can be made that within certain countries labour should receive a higher share of national income. The Oxfam report, by totting up ‘wealth’ does nothing to either illuminate or meaningfully address this.