By Jenesa Jeram*
The numbers are also woefully flawed.
The statistic comes from a recently released report by Oxfam (with the wealth statistics generated by Credit Suisse), ominously titled An Economy for the 1%. As the name suggests, the report argues the wealth of the world’s 1% is earned at the expense of the poor.
As The New Zealand Initiative has argued previously, the changes in the wealth of the bottom 50 percent of the global population are rather counter-intuitive in the Oxfam report.
According to one of the graphs in the report, the wealth of the world’s poorest is volatile, roughly doubling between 2004 and 2006, and reaching an all-time peak during the global financial crisis. Should we then conclude that recessions are good for the poor? Even if the changes in wealth did intuitively correspond with events (they don’t), it would still be hard to believe average wealth could fluctuate so dramatically when spread across a large population.
The reason for such counter-intuitive fluctuations have to do with the unit total wealth is measured in: as total wealth evaluated at current exchange rates. The peaks in total wealth show when the US dollar is low relative to its trading partners, and vice versa: the troughs are where the US dollar is high. Oxfam hasn’t really graphed changes in the wealth of the world’s poorest, what is has tracked is fluctuations in the value of the US dollar.
The method of using the Forbes Rich List to measure the richest in the world is also fraught with difficulty. The wealth of the upper echelons increases year on year (it is a ranking list after all), as could probably be expected over the long run for a stable economy. But what also changes year on year is the people who make the Forbes list: the top 62 this year may not be the same as the top 62 next year.
Finally, the report uses a measure of net wealth as an illustration of global wealth. Global net wealth is calculated as the present value of assets minus debt. What does that mean in practice? It means households with large amounts of debt – think mortgages and student loans, as well as differences based on age demographics.
Using this measure of wealth, virtually no one in China is poor, while around 20 percent of the world’s poor are in Europe. This is not an indicator of standards of living, but levels of household debt. And remember, debt is not always a bad thing. It plays a part in consumption smoothing – where consumption and savings tend to average out over a longer period of time. The Adam Smith Institute points out that debt can even be a sign of prosperity as loans are often only offered to those with reasonable financial prospects for paying them back.
But apart from the questionable methodology, one of the most grating things about the Oxfam report is the insistence that the current economic system is not working.
The report claims “power and privilege is being used to skew the economic system to increase the gap between the richest and the rest”, and that “if growth had been pro-poor, with the incomes of the bottom 40 percent growing by 2 percentage points faster than the average, poverty could be at half the level it is today".
Such views on growth go against more recent evidence that growth is in fact still good for the poor.
A study published in 2016 by Dollar, Kleineberg and Kraay has looked at the world’s poorest two quintiles, and whether specifically “pro poor” policies could do more to benefit the poor than economic growth alone. The short story? Promoting economic growth does much more to improve the incomes of the poorest and increase shared prosperity than specific macroeconomic policies. Their conclusion, not to mention title of the report, Growth still is good for the poor shows the direct effects of economic growth.
Focussing specifically on macroeconomic policies, as well as common determinants of inequality (as considered by the broader literature, the study finds the relationship between the income growth of the poorest quintiles and average income growth is strongly equiproportionate (equal in proportion). Growth in incomes –for the average and poorest – are attributable to economic growth in general, rather than specific targeted policies. Where there are trade-offs between pro-poor policies and economic growth, the authors conclude countries are better to stick with policies that are pro-growth.
While it is hardly a new or innovative conclusion, the “still matters” part of Dollar, Kleineberg and Kraay’s report is rather important. When vastly different factions from Oxfam, to political parties, to the Pope are questioning the shared benefits of economic growth, studies like this remain relevant. Oxfam’s claims about global wealth inequality are misleading, but its claims about the economic system could be even more insidious.
As The New Zealand Initiative has argued time and time again, growth is good.
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*Jenesa Jeram is a Research Assistant at The New Zealand Initiative. This article is the Initiative's weekly column for interest.co.nz.
20 Comments
'But apart from the questionable methodology, one of the most grating things about the Oxfam report is the insistence that the current economic system is not working']
As opposed to the benefactors of the status quo - that insist that it is working . cos you know - it just is.
The NZ institutes' views are as predictable as any other conflicted lobby group - myopic.
and closer to home ...
http://www.radionz.co.nz/programmes/first-person/story/201776580/first-…
Nice link - I'm so glad John Campbell is back in front of the Camera. I'll be tuning into his new online checkpoint program regularly.
Prior to joining the Initiative, Jenesa completed a research and policy internship with Maxim Institute. She has a Bachelor of Arts with first class Honours from the University of Otago, majoring in Politics, Philosophy and Economics.
Jenesa, your so-called analysis (or the so-called analysis of NZI) is best described as hogwash.
From the website:
'Economic growth is important because wealth helps New Zealand to afford better health care, improved education, a cleaner environment, and better opportunities for our children, all of which have brought us longer life expectancy, better health, and greater human flourishing.'
In the real world, after decades of economic growth, health care is less available than at any time since the 1940s and the general health of the populace has never been worse; the education system has never delivered a lower quality 'product'; and the environment has never been as polluted as now. Indeed, the atmosphere is now so polluted with carbon dioxide (as a consequence of all that past economic growth) that an Abrupt Climate Change event is underway. CO2 will break through 450ppm (supposedly the maximum safe level) within 15 years, and the planet will become largely uninhabitable for humans shortly after as a direct consequence of decades of obsession with economic growth.
Of course, the heart of the problem is the phony GDP index, which assigns positive values to activities which generate negative results. Hence, GDP = Global Destruction Process. .
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The statistic comes from a recently released report by Oxfam (with the wealth statistics generated by Credit Suisse), ominously titled An Economy for the 1%. As the name suggests, the report argues the wealth of the world’s 1% is earned at the expense of the poor.
No, the concentration of wealth for a few is earned at the expense of the developed nations middle class - effectively creating bigger "debt slaves", whose offspring will become more impoverished (i.e., poorer) with each passing generation.
As to whether "growth" associated with 20th century gloablisation has across-the-board lifted the poor in the highly populated and undeveloped (i.e., third world) nations (thus spreading the 'wealth effect', so to speak) - that is highly debatable as so many of these nations are in crippling civil unrest and conflict. I suspect we have more failed states going into the 21st century than we did in the 20th - hence any newly generated assets (i.e., new homes, schools, infrastructure built during the 20th century) has little to no value where security is threatened.
Growth might be good - but wealth accumulation/concentration of wealth is not.
"In 1820, the vast majority of people lived in extreme poverty and only a tiny elite enjoyed higher standards of living. Economic growth over the last 200 years completely transformed our world, and poverty fell continuously over the last two centuries. This is even more remarkable when we consider that the population increased 7-fold over the same time (which in itself is a consequence of increasing living standards and decreasing mortality – especially of infants and children – around the world). In a world without economic growth, an increase in the population would result in less and less income for everyone, and a 7-fold increase would have surely resulted in a world in which everyone is extremely poor. Yet, the exact opposite happened. In a time of unprecedented population growth we managed to lift more and more people out of poverty! Even in 1981 more than 50% of the world population lived in absolute poverty – this is now down to about 14%. This is still a large number of people, but the change is happening incredibly fast. For our present world, the data tells us that poverty is now falling more quickly than ever before in world history. The first of the Millenium Development Goals set by the UN was to halve the population living in absolute poverty between 1990 and 2015. Rapid economic growth meant that this goal – arguably the most important – was achieved (5 years ahead of time) in 2010."
http://ourworldindata.org/data/growth-and-distribution-of-prosperity/wo…
I agree with both Oxfam and you. Both are I think correct, both are being exploited.
In terms of growth and now riots I suggest its hunger yet food is available its just that it is too expensive for too many to buy. This is one of the effects of over-population and the inability of Govns to feed its ppl. Just look at Syria with Climate change and peak oil as a text book example. Now sure we could spread the wealth about but all that does is can kick the problem down the road to the next decade or next generation. What its doesnt address is peak oil, climate change and environmental degradation all made worse by too many humans on the planet. Consider that the global fish stocks have 1/2'd since the 1970s. yet we expect 2 billion more in the same time frame. Do you really think there will be any fish left to feed them, and probably in a decade or 2 what then?
I dont know about you but the fish in the NZ shops is expensive and much of it not worth buying. Why, because the good stuff is now air shipped overseas as they will pay anything. Same happened with milk products, we were expected to pay the global price for cheese etc, result the sales dropped for these.
"failed states" yes indeed....in fact I expect many too fail.
"new homes, schools" yes you can just look at the severe impacts on the EU from just Syria collapsing.
No growth is not good on a finite planet.
The thing is with the the likes of the oxfam report and more importantly this critique is always looking sound and multiple supporting evidence.
Inequality certainly seems on data to be getting worse in most of if all countries and for some like the USA significantly worse,
So lets look at increasing in-equality in the USA,
http://prospect.org/article/rich-right-and-facts-deconstructing-inequal…
So looking further at the NZI's comments it lacks accurate references to specific graphs. Great if you want to avoid criticism.
let look at some of the graphs,
"Figure: In the United States, pay rises for CEOs are far outstripping increases for average workers"
or productivity, where most of not all of the gains have gone "As jobs and productivity in the Chinese garment sector grows, real wages fail to keep up.
Now the latter while a bit of a cherry pick is symptomatic of similar data on whos gaining from the productivity gains throughout the world.
Really, simply all Jenesa has done is cherry pick a few points in a vague manner in order to dis the entire report. The report on the other hand would seem to have multiple different supporting trends to back it up.
I guess Oxfam's stats tell a lot of the truth but they don't appear to be adjusted for age demographics.
Consider this; the younger you are the poorer you are, I suspect the average net worth of everyone under the age of 30 in NZ is about nil, as they have been spending, not earning.
So countries with a young demographic will appear even poorer than they are, the old demographic (should) may be wealthier.
Older societies will tend to be wealthier, as the people have been working for 40 years.
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