Oxfam is a leftist organization, and people who read its reports should be aware that its aim is to attack capitalism, claiming that capitalism leads to increasing inequalities. Oxfam recently published a report which claims that the 62 richest people in the world possess as much wealth as half the global population. Mainstream newspapers of the left and the centre-left, like the Guardian, the New York Times etc, rushed to publish the report without bothering to check its logic and methodology.
Oxfam took some data from Credit Suisse and Forbes and used them in a convenient way to reach the desired conclusions. First of all, Oxfam used the net wealth, which means that it subtracted debts from assets. For example, if I have a house and a car worth 200.000 euros, and I owe the bank 300.000 euros, Oxfam counted my wealth at -100.000 euros.
That means that in Oxfam’s tables some businessmen that went bust, and owe millions of euros, or Harvard graduates who owe the banks hundreds of thousands for their tuition fees, appear to be poorer than the Chinese workers who do not have any debts but find it very difficult to survive. The problem is that the poor Chinese workers can not borrow any money even if they want to.
Below you can see the Oxfam table. At the left edge you can see the poorest 1% of the global population, and at the right edge you can see the richest 1% of the population.
You can see that according to Oxfam, in the 1% of the poorest people of the world, approximately 8% are Americans and approximately 15% are Europeans, and amazingly there are no Chinese. As I said before, according to Oxfam’s table a Chinese worker who does not have any debts, and who can barely sustain himself, is richer than a Harvard graduate who has accumulated a debt of 200.000 euros during his studies. To summarize, according to Oxfam, approximately a quarter of the poorest 1% of global population are Americans and European, but there are no Chinese in this 1% (see left edge of the above table).
Moreover, Oxfam’s report mentions that income inequality, which is actually what matters, has decreased.
Also, a survey that examines inequality based on wealth, and not on income, must always take into account that people who have debts in excess of their assets (negative wealth), can always choose to abandon their debts and assets and move to the zero asset – zero debt point i.e. zero wealth point. For example, if I take a loan of 300.000 euros and buy a house, and at some point I believe that the prospects of the housing markets are not good, I can decide to go bankrupt, and abandon my house to the bank. I would be moving towards the zero asset – zero debt point. Therefore, Oxfam has no right to include me with a negative wealth in its survey. I must be included at a wealth of zero, because I have the option to move at this point any time I want.
Similarly, the person with the deposits of 300.000, from whom I borrowed to buy the house, should not be included with assets of 300.000 euros, because there is a risk that I might decide to abandon the house, which means the house would lose some of its value, and that person would not be able to get back his full 300.000 euros. Either because there would be a “haircut” on deposits, or because the government would impose new taxes in order to save the banks.
As we witnessed after the house bubble burst, the amounts that can be lost by depositors one way (haircut) or the other (taxes) are very big, and therefore it is very unrealistic to include me, i.e. the borrower, with a negative wealth, and the lender, i.e. the depositor, whose money I used, with the full amount of my loan. I should be included in the data with zero instead of negative wealth. And the depositor should be included at a discounted wealth, i.e. lower than the 300.000 euros that he lent me to buy the house, in order to take into account the possibility that I will abandon the house in order to move myself to the zero asset – zero debt point, which would in turn cause a reduction in the value of the house. If the price of the house went up I would not have a motive to abandon it. Even if I did not want it anymore, I would prefer to sell it, in order to pay my debt and keep the rest for myself as a profit.
Moreover, as you can see at the Oxfam table, a very large part of the richest and poorest people are from socialist countries i.e. China, Iran, Cuba, and other socialist countries of Africa, Latin American or Asia. And if that wasn’t unfair enough, all the monarchies are also included i.e. Saudi Arabia, Qatar, the United Arab Emirates etc. But what’s the point for a leftist organization to use data from socialist countries and monarchies in order to criticize capitalism and claim that capitalism leads to inequality? Only data from rich and poor people from capitalist countries should be used.
Actually the greatest inequalities are always found in socialist countries. The thing is that in these countries most people are very poor, and there is a sense of equality, in the sense that everybody is poor. But that’s an illusion, and the only reason this illusion exists is because the extremely rich political elite is very small to be noticed.
Actually my definition of capitalism does not include countries where the energy sector, the banking sector, the construction sector and the media are mainly controlled by the state, as it is the case with Southern Europe, or countries where these sectors are heavily regulated by the government, as it is the case with most countries of the so-called capitalist world. Capitalism does not refer to an economy where the supermarkets, the gas stations and the clothing stores are private. Capitalism refers to an economy where the important sectors of the economy are private and not heavily regulated i.e. the energy sector, the banking sector, the construction sector and the media. The problem is that if my definition of capitalism is used there will not be any capitalist countries left.
Anyway, socialist surveys attacking capitalism for creating inequality should at least have the descency of not taking into account pure socialist countries like China, Iran, Cuba etc, or monarchies like Saudi Arabia and Qatar. I understand that socialist countries which “wear” a coating of capitalism, like the Southern European ones, must be included in the data.
For a critique to the Oxfam report also see:
“Oxfam’s misleading wealth statistics”, January 2016
“Oxfam’s Misleading Inequality Numbers”, January 2016
“The Myth of Economic Monopoly”
“The Socialist Myth of Economic Bubbles”