The planet’s richest 1% have stolen all the money. That’s pretty much the bottom line suggested in a new report on inequality from Oxfam, the international anti-poverty organization. (And just in time for Davos!) First, Oxfam says, almost half of the world’s wealth is now owned by just 1% of the population. Second, the richest 85 people in the world own the same amount of wealth as the bottom 50% of the world’s population.
Before even addressing causality, Oxfam presents this data as prima facie evidence that global capitalism is broken: “This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems.” Then the group posits a mechanism: “When wealth captures government policymaking, the rules bend to favor the rich, often to the detriment of everyone else. The impact of political capture is striking.”
Oxfam’s analysis is problematic.
First, does Oxfam’s simplistic narrative of crony capitalism tell the economic story of the past three decades better than the 80% decline in extreme poverty? And why exactly are there 250 million fewer extremely poor people in the world today? As economist Deirdre McCloskey puts it, “The Big Economic Story of our own times is that the Chinese in 1978 and then the Indians in 1991 adopted liberal ideas in the economy … And then China and India exploded in economic growth.” [See below chart from Mark Perry].
Second, while high-end inequality has risen within many nations, inequality between nations has undergone an “unprecedented decline in the last decade,” according to “The world distribution of income and its inequality 1970-2009″ by economist Paolo Liberati. And when you combine inequality measures, “the world distribution of income forty years ago does not appear fundamentally changed in most recent times.” [See chart below].
Third, high-end income inequality in the United States seems more a result of globalization and technology than cronyism, though the latter is probably a factor. What’s more, the evidence linking inequality to anemic economic growth, job creation and mobility is weak. Finally, income inequality and wealth inequality are not the same thing. Economist Edward Wolff: “[US wealth] inequality in 1983 was quite close to its level in 1962. Then, after rising steeply between 1983 and 1989, it remained virtually unchanged from 1989 to 2007.”
Finally, the Oxfam policy agenda is heavy on wealth redistribution rather than wealth creation. And certainly in some nations a vastly stronger safety net is needed, along greatly expanded opportunities for women. But Oxfam offers little on increasing economic freedom and promoting free enterprise as poverty-reduction measures. Also, from the US perspective, the Oxfam report is likely to be used as another bit of political ammo in the upcoming midterm elections.