Global poverty and rich-world inequality are separate issues, writes Tim Harford
‘The richest 85 people on the globe – who between them control as much wealth as the poorest half of the global population put together – could squeeze on to a single double-decker.’ theguardian.com, January 20
A single double-decker bus? Is that different from a double single-decker?
Oh, don’t be unkind. This snippet comes from The Guardian, which credits global development charity Oxfam, which in turn cites a report from the bank Credit Suisse – and I should probably make clear that neither Oxfam nor Credit Suisse have anything to say about buses. I think that’s what we in the trade call a “scoop of interpretation”.
A striking image, though.
Yes, but a distorted one. In the same vein, here’s a surreal image of my own: my toddler controls more wealth than the poorest one and a half billion people on the planet.
Does he have a rich uncle?
No, but he has no debts. That puts his wealth at zero. The poorest people have more debts than assets; their wealth is less than zero. It’s difficult to know exactly how many people are in that boat – understandably, the data are patchy. Still, James Davies, Anthony Shorrocks and Rodrigo Lluberas, academics who worked on the Credit Suisse report, have suggested elsewhere that the poorest 10 per cent have significant net debt.
This sounds like your usual sophistry.
The sophistry isn’t mine. Oxfam and The Guardian are clearly very keen to draw attention to how rich the very rich are. But something has gone awry when the same reasoning leads you to conclude that my son is richer than the poorest 1.5bn put together. On this measure, he’s also richer than an indebted graduate of Harvard Business School. As Credit Suisse points out, “human capital” or earning power isn’t included in the analysis.
OK, so the single double-decker story is daft. But it points to an important truth: economic inequality is growing sharply.
That’s where Oxfam’s interest in all this is curious. The thrust of Oxfam’s argument is that in a lot of countries, the gap between the incomes of the rich and poor is widening, which is true. They say this is both caused by and causes rent-seeking behaviour – elites shaping the rules to suit themselves. This is very plausible. If you want to make a lot of money in the world, it helps to have a friendly government give you a monopoly.
So Oxfam is right!
Except it’s not clear this is a pressing global development issue. Looking at the world as a whole, income inequality does not seem to be rising and is perhaps even falling a little. Exact details depend on how you measure things but the basic story is that some middle-income or poor countries with large populations – Brazil, India and China, but also the likes of Turkey, Indonesia and Nigeria – have been growing faster than rich countries. This offsets the effect of increasing inequality within countries.
So it’s possible for inequality to be increasing in every country in the world and yet global inequality to be falling.
Not only is it possible, it’s actually not far from the truth. Which is why it’s so baffling that Oxfam has jumped in here feet-first. There are two big trends. One is that there’s a lot of good news in the world of economic development. Poverty rates have fallen and indicators such as infant mortality have been moving in the right direction. The other trend is this sharp rise in the income share of the rich, particularly in the US, the UK and other anglophone countries. It’s misleading to present this as evidence that the plight of the world’s poorest is getting worse.
So what should be done?
Oxfam thinks the answer is for the super-rich to promise to be good: no tax havens, no lobbying, support universal healthcare, support progressive taxation.
What about philanthropy?
That puzzled me, too.
And what would you do about rising inequality in rich countries?
I think something needs to change but I am at a loss as to what. Universal high-quality education seems to have played an important role in limiting inequality in Scandinavia. But that pushes the problem down the line: how do we get universal high-quality education?
So increasing inequality is real and you don’t know what do to about it.
Quite so; sorry. Maybe Oxfam’s suggestion of asking the plutocrats to play nicely isn’t such a bad idea.
Also published at ft.com.