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01 / 05
Oxfam’s Questionable Income Inequality Numbers

Blog Post | Income & Inequality

Oxfam’s Questionable Income Inequality Numbers

Oxfam’s imagination knows no bounds when it comes to reporting that the rich are getting richer and the poor are getting poorer.

Year after year, the anti-capitalist organization Oxfam publishes a report to coincide with the World Economic Summit in Davos, Switzerland. And year after year, claims from these reports are blindly regurgitated by media outlets worldwide. The message is the same every year, but Oxfam always repackages it using every marketing and public relations (PR) trick in the book. What is the message? The rich are getting richer, and the poor are getting poorer. Although the second part of the sentence is untrue, Oxfam’s imagination knows no bounds when it comes to making it appear to be true.

This year, Oxfam compared the wealth of the planet’s five richest men, which has doubled, with that of the five billion “poorest,” which has fallen. Why five billion? With eight billion people living in the world, one wonders whether as many as five billion people actually live in poverty. No. According to the 2023 Global Multidimensional Poverty Index, the figure is 1.1 billion. According to World Bank data, and depending on which definition of poverty you use, the figure is 659 million (extreme poverty) or 1.8 billion.

I don’t know of any definition that classifies five billion people in the world as poor. So how did Oxfam come up with that number? Quite simply: two “fives” fit together: the five richest and the five billion poorest.

There is another more important reason: the number of people living in extreme poverty has been falling almost continuously for years; the decline was only interrupted by the COVID-19 crisis. Before capitalism emerged, most of the global population was living in extreme poverty. In 1820, the rate was 90 percent; today, it has fallen below 9 percent. Most remarkably, over the past few decades, the decline in poverty has accelerated more rapidly than in any phase of human history. In 1981, the rate was 42.7 percent; in 2000, it had fallen to 27.8 percent; today, it is 8.5 percent!

But that doesn’t fit with Oxfam’s thesis. So, Oxfam arbitrarily increased the number of poor people to five billion so that the findings fit its thesis.

And to ensure that the increase in wealth of the super-rich is particularly strong, Oxfam chose March 2020 as the point of comparison for its latest report. Why 2020 and not 2022 or any other year? Because, in March 2020, the wealth of the super-rich fell sharply due to the pandemic stock market crash, so the increase is particularly drastic in comparison.

With all this sleight of hand, Oxfam arrives at its message this year that the wealth of the five richest has more than doubled, while the world’s five billion “poorest” have lost $20 billion during the same period.

If the Figures Don’t Fit the Message, Change the Methodology

The so-called study changes its figures and methodology every year and always in such a way that it achieves the greatest PR impact. For example, in 2017, Oxfam announced that the eight richest men were worth more than the poorest half of the global population. This has been repeated hundreds of thousands of times in “news” articles all over the world. A great PR success! If you do an online search for “eight men own the same amount of wealth as half the world,” you will get millions of hits.

In 2016, Oxfam attracted widespread attention with a report claiming that the wealth of the world’s 62 richest people was equivalent to that of the poorer half of the world’s population. To make the message that inequality is rising at breakneck speed particularly clear, Oxfam simply changed the methodology behind its calculations from one year to the next. If Oxfam had used the same method in 2016 as it did in 2017, then 9 people, not 62, would have owned more wealth than the poorer half of the world.

The calculation was questionable because the “poorer half of the world” included a surprising number of people in the developed world—including, for example, in the United States—who had taken out loans to buy a house or finance their studies. At the time, the London School of Economics criticized Oxfam, saying that it was misleading at best to count an average university graduate with debts of around £50,000 as one of the poorest people in the world. Especially as this totally ignores their future income potential. According to Oxfam’s calculation, a German pensioner who had just taken out a small loan to buy a car was poorer than a farmer in Burundi.

Normally, numbers are used to clarify the facts of a matter. But not at Oxfam, where numbers are used to obscure facts.

BusinessMirror | Poverty Rates

PHL Could Hit Single-Digit Poverty Years Ahead of Schedule

“Better labor market conditions and slower inflation in the country could turn the administration’s single-digit poverty incidence aspirations into a reality two years ahead of schedule.

This was according to the latest Macro Poverty Outlook for the Philippines, released by the World Bank on Monday. It estimated that poverty incidence in the country could decrease to 9.3 percent in 2026 from 12.2 percent this year and 17.8 percent in 2021.”

From BusinessMirror.

Blog Post | Economic Growth

Measuring Freedom and Flourishing | Podcast Highlights

Chelsea Follett interviews Leandro Prados de la Escosura about the long term trends in wellbeing, inequality, and freedom.

Listen to the podcast or read the full transcript here.

Let’s discuss your latest book, Human Development and the Path to Freedom.

I have spent many years working on economic performance in the long run, and while I don’t have anything against GDP, I was always uneasy with the idea of using GDP per head as a shortcut for wellbeing. GDP is a good indicator of output but a very deficient indicator of wellbeing.

Most economists say, “This is true, but it’s highly correlated with non-economic dimensions of wellbeing.” There is also a tendency to produce a dashboard of indicators, basically GDP and some additional measures that create a more nuanced picture.

I was unhappy with that. Then I realized that, since the beginning of modern national accounts in the 1950s, there have been attempts to produce alternative measures. More than 30 years ago, the United Nations Development Programme produced the Human Development Index. I was very interested, but at the same time, I was frustrated when I saw that countries with no freedom at all ranked very highly in the index.

For example, in the first report in 1990, they had a retrospect going back to 1975, and I found that Spain, under Franco’s dictatorship, ranked very highly in human development. How come? It wasn’t satisfactory to rank a nasty dictatorship so highly. And then I read the literature accompanying the report and found this very candid assertion: “The purpose of human development is to increase people’s range of choices. If they are not free to make those choices, the entire process becomes a mockery.”

This is an important philosophical point: Human development is not just about living longer or having a higher material standard of living. You can get that in a high-security prison in Norway. Choosing between alternative ways of life is what makes the difference.

To make a long story short, they have tried time and again to introduce freedom, but they never managed to do so because of strong political opposition from country members of the program. So, as an independent scholar, I thought, “Look, nobody is going to read it, but I have the freedom to introduce the freedom dimension.”

Tell me about what you found.

Perhaps what makes sense is to compare what I found to what you would get on the basis of per capita income. If you look at the average increase from 1870 to 2020, the growth in income and wellbeing is very similar.

But if you look closer, you realize there are large differences across different periods. During first globalization before 1913 and between 1970 and 2000, they are relatively close. During the last two decades, the difference is huge in favor of material living standards measured by per capita income. The first part of the 20th century is just the opposite.

What next? Well, try to provide an explanation.

I went in two steps. One was asking, “Why has this growth in human wellbeing happened? What is the intuition?” The intuition is that if you get richer, you’re going to become better fed, healthier, better educated, and freer. But you can also have different levels of wellbeing at the same income level, and the most important finding from a historical perspective is that at any point of income, you have higher wellbeing today than in the past.

If you compare 1870 to 1913, you see that for most of the income levels, you get the same association between health and income, but at high levels of income, you get higher levels of health. Improvements in health techniques and medical knowledge were restricted to the most advanced countries. But if you look at the 1950s, at any income level, you get higher levels of health than in 1913 or 1870. You also find this for education and freedom. If you move to 2000, there is another upward shift.

Of course, there are reversals. There have been four moments in time in which the progression, the positive progression of human development stopped or declined. One was the Great Depression. The second one was during Mao’s Great Leap Forward. Then there were the oil shocks in the early ’70s, but the most damaging one has been COVID. COVID is the first period in which wellbeing measured in terms of augmented human development has declined

However, over the long run, for any income level, whether you are rich or poor, nowadays you have higher wellbeing than in the past.

Those findings are fascinating. What would you say is the biggest implication of your work?

The first thing is that wellbeing, broadly defined, has expanded worldwide more steadily than per capita income.

Secondly, the phases in which we conventionally associate improvements in wellbeing are not necessarily the same as those in which actual wellbeing improved. For instance, there was an important improvement in the so-called interwar period, even though economic growth stagnated. In 20th-century India, before independence, there was a stagnation in real average income but a remarkable improvement in health. This was because of the discovery of the germ theory of disease, which brought simple hygienic practices like washing your hands before eating and not sleeping near animals.

We also tend to forget that the association between wellbeing and income is not fixed. There are movements along the function: if you are richer, other things being equal, you’re going to be healthier, more educated, and freer. But this is not the whole story. There are also upward and downward shifts.

For instance, you could say that in terms of freedom in 2020, we are worse off than we were 20 years ago. This doesn’t mean that people were richer 20 years ago—we’re richer now—but at the same income level, 20 years ago, people were freer than we are today.

So, it’s a nuanced picture. Overall, things are improving, but there are also worrying declines in freedom.

Exactly.

Can you talk about inequality?

In 1870, in the case of wellbeing, inequality was high, and it increased up to the end of the century, then went down. Then, because of World War I, it increased again. But from the late 1920s to the present, with the exception of a reversal because of World War II, there has been a steady decline in inequality of wellbeing.

In the case of per capita income, inequality increased until the end of the 20th century, around 1980, and only began declining after 1990.

Here, I’m referring to relative inequality. If we increase wealth by 10 percent everywhere, inequality in relative terms doesn’t change. Some people are a bit pickier and think, “If my income increases 10 percent and my income is 100, I get 110. If your income is 1000, you now get 1100.” This is absolute inequality.

Relative inequality in per capita income increased until 1980 and has declined since 1990. But absolute inequality in per capita income, the distance between rich and poor, continues growing.

Absolute inequality in wellbeing has declined since 1960. Today, it is similar to what you would find in 1938, 1913, or 1900, but higher than in 1870.

It’s also important to look at what happens to different parts of the distribution. Who are the winners and losers? Broadly speaking, the middle class of the world gained the most, and the lower classes and those at the top won relatively less. If you look at absolute gains, those who were at a higher level of wellbeing got more. But that changes for different dimensions. Those at the bottom, for example, were the main winners in terms of education, while those in the middle were the main winners in terms of health.

I know that your current focus is on freedom. Could you tell me a little bit about that?

I became interested in human development after reading Amartya Sen, who emphasizes what Isaiah Berlin would call positive freedom. Freedom to. But he also emphasizes negative freedom, the absence of coercion and interference. And I think this is interesting because many people think there is a trade-off between negative and positive freedom.

At the end of the day, everybody wants to have negative freedom, but there are those who think negative freedom has nothing to do with income, that would be Hayek, and those who think negative freedom can only be reached as a second stage once you provide for those who don’t have access. For some, positive freedom is a socialist lie to reduce negative freedom. For others, they are two faces of the same coin.

As an economic historian, I find this is an interesting topic for research. If you look at the world, and you can see this in the Human Freedom Index that Cato publishes, you see the countries at the top in terms of negative freedom are also at the top in terms of positive freedom. For instance, Denmark is at the top of the list in terms of economic freedom, but also in terms of education and health.

My question was, well, maybe this trade-off is only a short-run phenomenon. Maybe if you look at the long run, the trade-off doesn’t hold or only holds for a certain period. So why not construct two alternative sets of estimates, one for positive freedom and the other for negative freedom? And this is what I’m trying to do now.

My main discrepancy with the Fraser Institute economic freedom index is that I don’t take into account the size of government. I know this is a contentious issue. People say, “the larger the government, the less room for private initiative.” At a point in time, this is true. And if you look at similarly developed countries, this is true.

But if you take a cross-section at a point in time, you can see that there are countries in which the size of government is much, much smaller, that are not necessarily freer, in terms of absence of coercion and interference, than countries with larger governments. Look at, for instance, Latin American and Sub-Saharan African countries. Think of Somalia. Or think of my own country under Franco. It was a right-wing, but, in many aspects, very socialist dictatorship in which the government was everywhere. But the size of government was very small.

In 1980, do you know what percentage the income tax contributed to the revenues of the central government in Spain? Give me a figure. You would say 40 percent?

Sure, 40 percent.

2 percent.

Wow.

Nobody paid income tax. So, there was no redistribution.

My point is that the size of government matters less than the nature of government. Perhaps Denmark would have more economic freedom with a smaller government, but if you compare Denmark to other countries, you can see that even though the Danish government is larger, Denmark’s degree of economic freedom is higher. Why? Because the nature of government action is different. It doesn’t interfere as much as another government that is less intrusive in quantitative terms but more intrusive in qualitative terms.

So, if you are looking at a point in time, it makes sense to say, “mutatis mutandis, if a rich country nowadays has a smaller government, this country is going to be freer.” That is true. But the action of government varies from one case to another.

Get Leandro Prados de la Escosura’s book, Human Development and the Path to Freedom: 1870 to the Present, here.

The Human Progress Podcast | Ep. 48

Leandro Prados de la Escosura: Measuring Freedom and Flourishing

Leandro Prados de la Escosura, an emeritus professor of economic history at Carlos III University in Spain, joins Chelsea Follett to discuss long term trends in wellbeing, inequality, and freedom. To see the slides that accompany the interview, watch the video on YouTube.

Board of Governors of the Federal Reserve System | Economic Growth

Income Growth Over Five Generations of Americans

“We find that each of the past four generations of Americans was better off than the previous one, using a post-tax, post-transfer income measure constructed annually from 1963-2022 based on the Current Population Survey Annual Social and Economic Supplement.”

From Board of Governors of the Federal Reserve System.