The Oxfam Statistic is Only a Starting Point

A recent analysis by Oxfam, an international organization aimed at reducing poverty levels throughout the developing world, has calculated that the 85 wealthiest individuals own as much wealth as the 3.5 billion poorest individuals. The report has understandably met with shock, outrage, and widespread indignation in an era in which “income inequality” appears more and more as an issue in political and economic debate, and media outlets have seized on the statistic as a headline and a story in and of itself.

Oxfam said the world’s richest 85 people boast a collective worth of $1.7trn (£1trn). Top of the pile is Carlos Slim Helu, the Mexican telecommunications mogul, whose family’s net wealth is estimated by Forbes business magazine at $73bn. He is followed by Bill Gates, the Microsoft founder and philanthropist, whose worth is put at $67bn and is one of 31 Americans on the list.

Other well known names include the business magnate Warren Buffett, whose estimated worth is $53.5bn, and Larry Page, the co-founder of Google, with $23bn.

So far, responses to those wielding this one particular statistic from the Oxfam report as an indictment of global capitalism have been predictable. One of the first observations I saw floating around Twitter and the blogosphere was that the names of the very wealthiest people, by and large, do not include those of the “bankster” types ever in the crosshairs of the Occupy movement. Instead, the list includes names like Carlos Slim, Bill Gates, Larry Page, Sergey Brin, Larry Ellison, and Jeff Bezos, many of whom started off in middle class families with unremarkable net worth and later earned their wealth through a collection of technological innovations which have undoubtedly improved life for many of the world’s people, including many of its poorest. A great many responses have also noted that many of the wealthy people on this list are also quite philanthropic: and Slim recently made headlines for his second $74 million donation to the Broad Institute of Harvard and MIT for developing approaches in genomic medicine (especially by including studies that take into account backgrounds of non-European descent).

A second, more nuanced response holds that, in spite of these generous donations, it is still the case that the greatest contributions of people like Slim, Gates, and others have made have come in the form of the enterprises they founded and pursued, and which serve as the sources of their wealth. Although the following phrase might be disputed by a handful of thinkers (Thomas Pynchon comes to mind), the technological developments of the past 20 years seem to hold an abundance of promise as especially powerful tools for democracy in global politics and economics, as well as informal (and, eventually, formal) education. In certain cases, such as the Arab Spring, social networking sites like Facebook and Twitter, which earned their founders billions, that resulted in the overthrow of an economically repressive regime. The benefits accruing to all members of society as a result of a healthy, profit-driven free market, this response holds, may be harder to assess than merely comparing incomes side-by-side, but that does not mean that they do not exist.

Although many of those who are concerned over this particular Oxfam statistic aren’t advocating for a total redistribution of wealth, an extremely simplified example involving such an approach may help illustrate the above point. Consider that if we divided Bill Gates’ total net worth, which the report quotes at $67 billion, evenly across the world’s poorest 3.5 billion people, we would come out with a paltry $19.14 per person. It is hard to argue that the worldwide benefits of the personal computing revolution are worth less than an extra $20, especially when we consider how personal computing has allowed us to save time, money, and other resources by streamlining communications, resource allocations, and production. It’s also worth noting that these innovations have also empowered millions of individuals to look up poverty-related issues themselves, to raise awareness, to crowdsource funding, and to help deliver aid to certain peoples in need. Again, it seems difficult to argue that, from a bird’s eye view, Bill Gates and his role in the personal computing revolution haven’t made nearly every single person in the world more than twenty dollars better off.

A recent post over at Cafe Hayek makes a similar point: the technological innovations that we enjoy as a result of the efforts of these individuals have improved our lives to the extent that almost all Americans today enjoy commonalities that just 50 years ago were luxuries reserved only for the wealthiest among us. The entire post is well worth reading, but I’ll list just a couple of them here:

- In 1965, Howard Hughes could afford to equip his house with a large screen, a state-of-the-art projector, an impressive sound system, and a film library filled with thousands of movies, documentaries, and television shows, so that he had a virtual movie theater in his home.  No ordinary American back then could do so.  Today, nearly every ordinary American can buy a large-screen hi-def television, a surround-sound speaker system, and a Netflix subscription so that, as a result, today’s ordinary American has an in-home theater experience very much like that which only the Howard Hugheses of 1965 could enjoy.

- In 1965, Howard Hughes could afford to staff his kitchen with chefs from Thailand, Korea, Japan, Vietnam, Ethiopia, Afghanistan, Morocco, Lebanon, India – and from the bayous of Louisiana.  No (or only the rare) ordinary American in 1965 had the daily option of choosing to dine on Thai or Korean or Vietnamese or Ethiopian or Afghan or Moroccan or Lebanese or Indian or Cajun cuisine. Perhaps a New Yorker in 1965 could have scoured that city and found one or two each of these restaurants.  Today, of course, such restaurants are common even in communities much, much smaller than New York and Los Angeles.

- In 1965, Howard Hughes could easily afford to equip each member of his family with an automobile of his or her own.  In 1965, ordinary Americans still had “ the family car.”  Unlike in 1965 for ordinary Americans, today it’s not unusual for a middle-class American household to have one car each for every person in that household who is at least 17 years old.

In fact, “income” and “wealth” are generally crude ways of comparing the consumption power of members of large populations, and this finally brings me to the series of points that I’d like to make in response to that one particular statistic from the Oxfam report. (Wealth, for instance, includes all sorts of things, like owning businesses and investments, that typically only relate to people with higher incomes who are capable of saving and thus using their savings to then generate higher returns, so comparisons of wealth would likely be expected to show even more dramatic disparity than comparisons of income). Although there is no doubt the difference in wealth between Bill Gates and large swaths of Africa is vast no matter which way you cut it, there is reason to believe that side-by-side income or wealth comparisons are not particularly informative when assessing groups that aren’t as radically opposed as the very wealthiest and very poorest. This has led some economists to advocate alternative methods of measuring inequality (see here, here, and here ). Other parts of the Oxfam report from which that one specific statistic is taken demonstrate that, by wealth and income, inequality has been on the rise, but economists who view consumption power as a more accurate measure of well-being say we have reason to believe that things have been getting better rather than worse over the past few decades.

Those posts are well worth reading, especially if income inequality is an issue that interests you (in either direction, to be honest), but I have more I’d like to discuss here and simply do not have the time or space to recap them. I am, however, going to lift a bit out of the one from Scott Sumner to illustrate a point that I’m about to make. Before reading ahead to the quote, though, humor me and try to guess the answer to the following question: what are the two poorest towns in America, and why is it that they’re so poor?

Remember, if you cheat, you’re only cheating yourself! Okay, now read ahead.

The second poorest town in America is Athens, Ohio, which is full of middle class college students with low incomes. Are they really poor?  That’s a judgment call.  But I’d guess that their lifetime incomes are quite respectable.

The first poorest town in America is almost entirely composed of Hasidic Jews, which ( ) are choosing to live a rather non-materialistic lifestyle.

I’m not sure if that landed for everyone else, but I was stunned to read it. It does, though, illustrate a point that I try to make often on this blog: when we try to buttress our policy recommendations with population statistics and aggregate numbers, it is crucial to know what exactly those numbers are measuring and how we should interpret them. In the case of the Oxfam report, I wouldn’t deny that global poverty is still a massive problem, but I’d strongly recommend treating the statistic at the center of that report with some care. It strikes me as a broad stroke that is interesting and gives us some basic information about a disparity that exists within the world, but it may also lead us to draw conclusions that the numbers can’t necessarily fully back up.

To try and flesh out my point, I’m going to go back and revisit a claim I made in passing a little earlier in this post. I mentioned that using wealth or income instead of consumption as a measurement of disparity probably won’t make much of a difference when you’re looking at the world’s 85 richest and 3.5 billion poorest people, since you are restricting analysis to the extremes and outliers of the population of the earth. Although the wealth of the top 85 is certainly staggering when you see it put in that way, it’s also probably the case that many of the 3.5 billion at the bottom have no income whatsoever, and may even register a negative wealth due to debt, so this is a bit like saying the top 85 professional basketball players get more playing time than the 3.5 billion worst players in the world. Now, I understand that poverty is a far more serious problem than riding the bench for your basketball team, but my point is that the statistic is so broad and general that it doesn’t tell us a whole bunch. (As an aside, I stole this idea from somebody on Twitter, but I cannot for the life of me find the tweet or remember who it was. If it was you, or if you know who it was, let me know in the comments section so I can give credit where credit is due!)

At this point, a critic might say something like this: “Excuse me, Mr. Economics,” to which I’d reply, “Mr. Economics is my father; please, call me Hamsterdam.” And my critic would say “Excuse me, Hamsterdam, but you’re simply begging the question. You’re saying that this Oxfam stat doesn’t tell us much besides a blanket disparity, but the whole point is that there’s a blanket disparity. The fact that 85 people have as much as 3.5 billion is the problem .”

I think this is too simple. It’s certainly the case that such a stark disparity, even when we account for the rising power of consumption that I linked to earlier in the post, is capable of creating many problems itself, but we can also look at poverty in a number of ways. One of those ways, which I think is most common, is to view it as a problem. A different way, one which I suspect may be ultimately more informative and helpful in the end, is to view it as a symptom of a larger problem, or a larger set of problems . The broad statistics such as the one at the center of the Oxfam coverage seem generally less helpful in this sense.

To go back to my NBA analogy, one of the problems with looking at playing time across so broad a population is that the overwhelming majority of the people included in the statistic are not even playing in the same game. Well, at the risk of beating the metaphor to death, I’d say that it also applies to this second criticism, and that comparing the wealthiest 85 people to the poorest 3.5 billion is clearly apples-to-oranges. There are so many variables in play here–and so little information aside from the one statistic–that it is impossible to draw meaningful conclusions aside from shock and disappointment at global poverty. But I am going to pick just one variable that is obviously at play, and use that to see if we might find ways of thinking more constructively about problems such as this one.

The most obvious variable in play, and probably the one that is least likely to be disputed across people of different dispositions, is country. The passage that I quoted at the opening of this blog post pointed out that 31 of the 85 wealthiest people are Americans, and this is certainly no accident. As an article over at the Atlantic notes, it doesn’t make a ton of sense to compare the wealth of one set of countries with that of another.

I’m confident that wealth inequality is a problem. But the chasm in investment wealth between rural Mozambique and Manhattan’s financial district isn’t necessarily the problem that the international development is or should be focused on. As Bill and Melinda Gates wrote in their annual letter , “the world is better than it has ever been.” Cities like Mexico City, Nairobi, and Shanghai have been transformed in the last generation from dens of poverty to thriving international markets.

To get a little deeper into this idea, one of the most important things to understand about cross-country comparisons is that it can be tricky to look at the differences between areas with different social and political institutions. Furthermore, although we should try to glean as much as we can from what has made Americans relatively wealthy, and what has helped Mexico City, Nairobi, and Shanghai to become wealthier in recent years, it’s also not always the case that institutions successful in one time or place will be equally successful in other times and places. It’s tempting to conclude that North Korea probably contributes almost all of its population to the bottom 3.5 billion statistic, and that it has everything to do with the country’s repressive regime and nothing to do with the zero-sum economics of Gates growing richer at anyone else’s expense. But it may also be the case that a liberalized set of institutions might not help North Korean poverty that much for other reasons (there may exist resource constraints or other factors that would keep the country impoverished, even with a set of institutions that have promoted explosions in growth elsewhere). Jonathan Finegold articulates all of this quite nicely in an especially insightful blog post from earlier this week:

Is economic growth as easy as embracing inclusive politics? The Leeson–Allen narrative warns us against settling for the easy answer. Oftentimes, institutional sets are not directly comparable. Suppose, for the sake of argument, that North and South Korea have two different sets of exogenous constraints. If this is the case, then it’s much harder to argue that the South’s political institutions are responsible for the income disparity. Replacing the North Korean state with that of the South may lead to another sub-optimal outcome, and not to the growth that Acemoglu and Robinson predict.

I’m not going as far as to argue that, given North Korean constraints, the current state is optimal. In fact, I think the opposite is true. Still, the optimal set of political institutions in North Korea could be very different to those of South Korea. This means that South Korea tells us very little about North Korea, and that direct comparison of institutions is misleading.

(For those interested in anarchist political philosophy, Peter Leeson, the same Leeson who is mentioned by Finegold above, talks here about why Somalia arguments against anarchy suffer from the same set of shortcomings–they often compare government in a developed country with anarchy in an undeveloped one, rather than comparing apples to apples).

Now, as Finegold points out in the above excerpt, it definitely seems unobjectional that the North Korean regime is largely responsible for its citizens’ poverty, and, although I am by this point hopelessly off topic from where this particular post originally began, the point I have been building up to is that the broad Oxfam statistic that has been generating all of these headlines implies hundreds if not thousands of cross-cultural, societal, and national comparisons. This in and of itself does not make it bad, useless, or somehow disingenuous, but it certainly undermines it as self-evident proof for whichever policy recommendation a writer might prefer, free-market or otherwise. In order to draw any meaningful conclusion about the state of global poverty, we would need to consult further information with more detailed metrics and comparisons, and take into account an entire host of considerations that are not reflected by that particular statistic. To argue over whether or not the 85 rich people quoted by one passage of the report “deserve” their wealth, though interesting from a philosophical perspective, does seem like a bit of a distraction when it comes to advancing policy proposals and recommendations.

A few final notes: throughout this post, I’ve consistently been referring to a single statistic from the Oxfam report, but the report does go into further detail in certain places. I have chosen to dwell on that statistic because, in contrast to the report itself, I have seen it used to buttress calls for higher taxation and redistribution of wealth, as well as, on the flip side, to make the same kind of justifications that I rehashed at the outset of this post. Although my personal position on this is probably not difficult to suss out for any reader of this blog, the point that I have been trying to make overall is that dwelling on that statistic seems a lot like missing the trees for the forest. This post should be taken as a mere caution against seizing on a vague statistic for what it appears to show, and certainly not as condemnation of Oxfam or concerns over global poverty and general inequality.

The fact that global poverty is still such a problem suggests that the answer to it is neither simple nor abundantly obvious. The Oxfam report, rather than a weapon with which to back ourselves up and blunt our intellectual opponents, should be used as a starting place for further conversation.

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