Tuesday 17 January 2017 4:35 am

Oxfam is wrong to imply free markets make the rich richer at the poor’s expense

Every year Oxfam releases statistics comparing the wealth of the global poor and the global rich, showing a stunning, often widening, gap between the two.

They heavily imply that the poor are getting poorer while the rich are getting richer – but only half of this is correct. The lot of the world’s worst off is improving in leaps and bounds, and the world’s richest have largely made their money by benefiting others, as Oxfam’s own examples show.

I used to think that Oxfam’s inequality statistics were nonsense from the get-go, because of the way they are calculated. On the charity’s numbers, someone living in a rich country but with more debt than assets is poorer than a truly penniless person with no assets and no debts in a developing country because the former has negative wealth. But this criticism is mostly wrong. In fact, even if you count those with negative net wealth (like recent graduates of top universities) as having zero wealth, Oxfam’s numbers, derived from Credit Suisse statistics, show roughly the same picture.

No, the real problem with the stats is that they tell the wrong story, and focus us on the wrong things.

The examples in Oxfam’s own press release highlight why the charity is incorrect to claim that the global economic system, whatever its flaws, is failing to deliver the goods.

Read more: Wanted: A market breakthrough to solve poverty in rich countries

Oxfam points to Bill Gates, Mark Zuckerberg, and Jeff Bezos as examples of obscene, extreme wealth. It might have pointed to Steve Jobs too were he still alive. It’s true that, historically, wealth for the few has come at the expense of deprivation for the poor. But today’s entrepreneurs get rich by creating new products that make billions of people’s lives cheaper, more comfortable and more enjoyable. If Amazon founder Bezos had never existed, the top 30 odd billionaires would be poorer as a collective, but so would the rest of the world.

Indeed, it’s no coincidence that the number of Chinese, Indian, and Vietnamese billionaires continues to rise as those countries develop. It was bizarre for Oxfam to use Vietnam as a case study of deprivation, because although the country is still very poor relative to the West, its income per capita has risen from $100 in the 1980s, before the country opened up with neoliberal reforms, to around $2,000 now.

Read more: Vietnam's image is a generation out of date

Times of stability, peace, and growth typically lead to widening inequality, but they often see rapid improvements for the poor too, as they are doing now. The biggest falls in English inequality were the Black Death, and First and Second World Wars. We just saw UK inequality fall to a 30-year low, but this was driven by the recession hitting growth at the top, not a boost to growth at the bottom. Usually, economic growth is win-win.

Around the world deprivation for the poorest is falling. Forty-four per cent of the world lived on $1.90 a day or less in 1981 – 10.7 per cent do now. In 1980 only 56 per cent of the global population were literate, but around 85 per cent are now. Child mortality around the world is less than half of where it was then. And this growth has been concentrated in the middle and lower end of the world’s income distribution, as global inequality expert Branko Milanovic has shown. Indeed, this worry that global growth was going to the developing world while many in the West stagnated is cited as one of the causes of Brexit and Donald Trump!

More information is always welcome, but the story Oxfam is presenting is misleading. The broadly open, broadly market-based economic system we currently rely on has not wiped out poverty, but it is making a good start. Tweaking tax rates is one thing, but confiscating from the wealthy will put the tremendous gains we’ve seen at risk. We should worry about the bottom billion, not compare them to the top billionaires.