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What Oxfam Gets Wrong About Poverty

Blog Post | Wealth & Poverty

What Oxfam Gets Wrong About Poverty

Oxfam pollutes the debate on poverty with phony statistics and false narratives.

Credit to Oxfam’s communications team. Each year, riding on the coattails of the jamboree in Davos, they manage to make a huge splash about global wealth inequality.

And every year, it is pointed that, as Tim Worstall explained on CapX last January, wealth is not some fixed pie. It is usually accumulated through entrepreneurial activity that fulfils wants and needs, enhancing global welfare. Sadly, most readers who pay only a passing interest in the story will miss this nuance and receive claims such as “82 per cent of all wealth created in the last year went to the top 1 per cent” with the shock they are designed to trigger.

Oxfam is, of course, a development charity. Their implicit message, amplified through major broadcasting outlets such as the BBC, is that the wealth of global rich causes the poverty of the poor. But where exactly is the evidence that more interventionist government is the way to reduce global poverty? In fact, recent economic history suggests the opposite: global poverty has plummeted as major countries have liberalised and ceased trying to “manage” their economies in the way Oxfam wants.

It would bad enough if Oxfam’s ideological bias was blinding the organisation to what works in the fight against poverty. But the charity also appears to be playing fast and loose with the facts. Take just one of the claims in their report, subsequently republished on the BBC website. Oxfam makes the astonishing claim that “two-thirds of billionaires’ wealth is the product of inheritance, monopoly and cronyism”. Given previous assessments by ForbesWealth-X and others have found that around 60 per cent of American billionaires are “self-made,” this seems a particularly striking statistic, in which monopolies and cronyism are doing a lot of heavy lifting.

Intrigued by this finding, Sam Dumitriu of the Adam Smith Institute sought out its source. He found that the methodology was devised in an Oxfam discussion paper called Extreme Wealth Is Not Merited by Didier Jacobs. Overall, that study concludes that 19 per cent of wealth arises from monopolies, with the rest of the 65 per cent coming from inheritance or cronyism. To calculate the share coming from inheritances, he used Forbes data, which chalks up all wealth for individuals who inherited fortunes as “inherited wealth”, regardless of whether that wealth has grown substantially since the inheritance. This figure, by definition, ignores any extra wealth generated by that inheritance and so is hardly representative of genuine passive inheritance.

The cronyism figure is more speculative still. It includes “wealth mainly acquired in a corruption-prone country and state-dependent industry (high presumption of cronyism)” or “wealth mainly acquired in the mining, oil and gas industry.” Again, while in many countries these industries do depend on state favours and are prone to crony capitalism, it seems a little much to suggest that all wealth in these industries in certain countries can be recorded as wealth driven by cronyism.

Oxfam’s real agenda becomes clear, though, when we look at their methodology for the monopoly portion of the claim. As Dumitru has described in detail, Jacobs first defines monopoly to include any industry with “network effects.” By construction then, firms such as Facebook and Google would be monopolists, even though their existence has been overwhelmingly beneficial for consumers. He then makes the same intellectual leap again, asserting that all wealth coming from the IT industry should be recorded as “monopoly”. Not content with this intellectual bankruptcy, this same blanket approach is applied to finance, health care, legal industries and wealth acquired as a CEO of a company, if the billionaire neither founded nor inherited the business.

To claim this is shoddy methodology which hugely overestimates wealth acquired by “bad” means is a spectacular understatement. Again and again, the mere possibility of cronyism or a theoretical argument for market failure in an industry is taken to prove that all billionaire wealth in that industry is ill-gained. That this kind of report is being taken seriously and propagated by our state broadcaster is a travesty.

We should not give Oxfam a free pass or refuse to criticise them for publishing and distributing such nonsense because they happen to be a charity or sometimes do some good. To do so would be like ignoring socialist failures because the revolutionaries had “good intentions”.

Oxfam increasingly pollutes our discourse with phony statistics and false narratives in a highly politicised way. These findings are being used to call for a policy shift — a turn away from market-based capitalism, which has lifted billions around the world out of poverty. No doubt there will be plenty of wanna-be world planners at Davos this week who will lap up the message — the Shadow Chancellor, John McDonnell, will be one of them. But Oxfam’s political agenda goes against the history of the economic development they purport to want.

Perhaps more importantly though, it’s based on very bad analysis. And it’s time our media held them to higher standards, rather than taking their politicised work at face value.

This first appeared in CapX.

Blog Post | Economic Growth

What 19 in 20 Americans Don’t Know About World Poverty

An overwhelming majority - 95 percent - of Americans are confused about the state of global poverty.

An overwhelming majority—95 percent—of Americans are confused about the state of global poverty. A survey from the late Hans Rosling’s web project Gapminder assessed the public’s knowledge on that subject. The survey asked twelve thousand people in fourteen countries if, over the last two decades, the proportion of the world’s population living in extreme poverty has a) almost doubled, b) stayed the same, or c) almost halved.

The correct answer, as frequent visitors of HumanProgress.org know, is c. Extreme poverty has halved. But a staggering 19 in 20 Americans got the answer wrong. In fact, most people in all fourteen countries surveyed got it wrong. How is it possible that so many people are unaware of the extraordinary and unprecedented decline in world poverty that has been achieved in the last twenty years?

In some cases, they’re following the headlines instead of the trend lines: people in the news know that pessimistic narratives attract more clicks than heartening long-term trends. As the saying goes, “If it bleeds, it leads.” And, of course, many in the media share the broader public’s ignorance of the progress that humanity has made in its fight against world poverty. We at HumanProgress.org will continue to do our part to correct mistaken perceptions about the state of humanity and advocate for a realistic, empirically-based view of the world.

Blog Post | Economic Growth

Extreme Poverty's End May Be in Sight

The total number of absolute poor decreased by more than 700 million between 1981 and 2008, even as the world population rose by 48 percent.

Ending extreme poverty may sound like a remote dream voiced by idealists and beauty pageant contestants, but that goal’s attainment is actually closer than you think. The share of people living in absolute poverty (i.e., living on less than $1 a day) has dwindled to around five percent of the world’s population. Much of this progress can be attributed to massive poverty reduction in China that elevated hundreds of millions of people out of destitution.

Not only has the share of the global population living on less than $1 a day fallen, but so has the total number of people living on less than $1 a day. This is incredible when one takes into account population growth.  Consider the graph below, showing the total number of absolute poor decrease by more than 700 million between 1981 and 2008, even as the world population rose by 48 percent (i.e., over 2 billion). Again, a large part of this improvement can be explained by China. Even if one excludes China, close to 200 million people escaped absolute poverty over this time period.

If one takes a slightly broader definition of extreme poverty and considers persons living on less than $1.25 a day, instead of on less than $1 per day, then the share of people living in extreme poverty appears larger. However, the overall trend is still one of dramatic decline. According to estimates by the Brookings Institution, the portion of the world population living on less than $1.25 a day will most likely fall to five percent by 2030.

The vast majority of this poverty reduction came about, not because of international aid programs, but rather because of economic development spurred by capitalism and globalization. Even Bono acknowledges this. (Please stay tuned to that video after Bono’s comments conclude to hear HumanProgress.org’s Editor, Marian L. Tupy, discuss the issue in more detail with John Stossel). Consider the graph below showing China’s economic freedom increasing as the percent of its population living on less than $1.25 a day decreases.

The end of extreme poverty is in sight, quite possibly within our lifetimes, thanks to the free market. To learn more about poverty’s decline, explore the data for yourself at HumanProgress.org, and check out Cato’s recent report on sustaining growth in Africa, the world’s poorest continent.

This post first appeared in Cato at Liberty on August 26, 2015.