26/1/2016 Davos: Oxfam is ignoring the fact that the world's poor are getting richer

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Davos: Oxfam is ignoring the fact that the world's
poor are getting richer
By Ben Southwood
January 25, 2016 15:54 GMT

Every year before the World Economic Forum Oxfam releases its measure of wealth
inequality as a counterpoint to the gathering of political bigwigs, billionaires, top
journalists and economists in Davos. Every year, it is widely covered across every form
of media. And every year it suffers from three crucial problems: statistical niggles; a
misleading message; and a questionable conclusion.

Oxfam compiles its figures from two fairly credible sources, merged together: Forbes's
top 500 rich list, and Credit Suisse's household wealth survey. It looks at the net wealth
position of households across the world: their measured assets set against their
measured liabilities. For many uses—such as totting up the total assets of an entire
nation—net wealth is appropriate. But for this particular use, it has a number of quirks.

Oxfam says that the top 62 wealthiest have as much as the bottom-half put together, but
they don't mention that anyone has as much as the bottom 2bn put together—unless
they are a negative trillionaire—because those people have negative wealth and when
you add up negative numbers they get smaller. In fact, the poorest person in the world,
whatever their negative net wealth, has more than the next 2bn richer than him put
together by Oxfam's figures.

It also fails to consider human capital. Now this may not be a huge issue in many
countries, but in the West, one of the main things someone 'owns' is their talents and
abilities, enhanced by education. When you have just graduated from Harvard, you may
owe $200,000 in student debts, but you have something worth much more—not
considered in the figures—that will enable you to earn far in excess of that debt over
your lifetime. In rich countries, highly and over-indebted households tend to be young
and middle class, according to the OECD. This is why the USA accounts for more of the
world's poorest tenth than China, a country with vastly poorer living standards.

However, these statistical issues, like the fact that Oxfam uses market exchange rates
and hence allows forex movements to drive much of the year-on-year changes, are really
minor niggles. Fixing them, or trying to get around them, would not change the Oxfam
picture radically on their own terms. The crucial issue is that Oxfam's data tells the

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26/1/2016 Davos: Oxfam is ignoring the fact that the world's poor are getting richer

wrong story: the world's poor are getting richer.

Extreme poverty is falling: at purchasing power parity, the proportion of the world
surviving on less than $2/day has fallen from 69.6% in 1981 to 43% in 2008. Even
excluding China, it's fallen from 59.3% to 47%. And even focusing on just Sub-Saharan
Africa it has fallen, though much less impressively, from 72.2% to 69.2%. The number on
$1/day or less has seen similar falls, despite a Sub-Saharan African population
explosion which shows no signs of stopping.

One way of visualising this is imagining the world as one hundred people, numbered
from 1, the poorest, to 100, the richest, and look at how their incomes changed in real
terms between 1988 and 2011. Numbers 5 to 75—all in the developing world—would
have seen their incomes rise by around a half, with some in the middle enjoying a
doubling. By contrast, the top fifth—the developed world—enjoyed meagre gains, except
of course for the 1%, who've had a roaring time. But this top 60m or 70m are the upper
middle classes of rich countries, not billionaire plutocrats.

But Oxfam might respond that they agree with everything I've said: if only wealth was
distributed more equally, then things would improve even more for the world's poor.
Their paper argues that global wealth inequality leads to institutional problems and
corruption that mean less wealth is actually created, especially for the poor.

This is the third problem. They give far too little attention to a plausible mechanism by
which the riches of Bill Gates, Warren Buffett, or the Waltons, could make the world's
poor poorer (or less rich than they could have been). Even assuming none of these
people gave away any of their money to good causes, most of them got rich by bettering
the lives of millions with improved products and most of them stay rich by investing their
money: putting it into projects which raise society's productivity and hence living
standards.

And in practice we don't see much evidence of Western billionaires meddling in poor
countries' institutions or damaging their human capital. The example Oxfam focuses on
in its report—pharmaceutical lobbying—looks at lobbying in the US and EU, rather than
activities affecting developing countries. And there is no reason, in the first place, to
believe that firms with wealthier owners do more lobbying. If Oxfam wanted to identify a
link between wealth and policy they ought to follow political activities by the wealthy
themselves, not firms they have stakes in. However, the results in the empirical
academic literature tend to find little link between money and political outcomes.

While we might lament that solving developing world poverty seems such a slow and
difficult task, we shouldn't omit the fact that we're going in the right direction. Oxfam's

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26/1/2016 Davos: Oxfam is ignoring the fact that the world's poor are getting richer

data is misleading, beset with statistical niggles, and comes with the wrong conclusion.
Let's hope the bigwigs at Davos don't take it too seriously.

Ben Southwood is Head of Research at the Adam Smith Institute

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Michelle Owen 9 hours ago

Actually any money donated to the "poor" is usually grabbed by those in power in their own
countries and all such charity does is subsidize corrupt politicians and warlords in the third
world. White man rips off black man = racist. Black man rips of anybody =smart man ..this
... more

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