Why Oxfam Is Getting It Wrong About Poverty

As it’s Davos time, Oxfam has issued its traditional demand for a handout. Their wealth report this year informs us that a mere eight people have more wealth than the bottom 50 per cent of the world’s population. This is entirely true of course. But Oxfam’s solution is that we should take it from the rich and give it to the poor. Which is entirely wrong.

Our essential economic problem is that there are not enough rich people. Nor is their extreme wealth a problem. Our problem is poverty, not inequality.

The result of which is this:

This depicts the greatest reduction in human poverty in the history of our species. The secret of this socio-economic system being that what we consume is value and the system which produces value is the capitalist/free market hybrid. Even Karl Marx got that one right.

What we need is for more value to be created in order that more value can be consumed. William Nordhaus has explained why it’s capitalism that does it:

The result is that entrepreneurs get to keep some 3 per cent of the value of their creations. The other 97 per cent of the value flows to us consumers out here. Value is what we consume; value is what GDP is, what income and wealth are. And the vast majority of, near all in fact, the wealth and income created by this capitalist exploitation flows to us.

Sam Walton’s heirs have some $100 billion between them, vast piles of cash. But that is a one off sum; they’ve got that wealth the once and the once only. Out here, we consumers are getting over $250 billion a year of value from that same creation, Walmart. Over the past couple of decades we’ve had $5 trillion and they’ve had $100 billion. Surely the bargain of the century?

Which is why Oxfam is so wrong here in its basic analysis. We want that last 10 per cent of humanity to rise up out of absolute poverty. We’d even like that all seven billion could share the same sort of standard of living that we’ve got. Which means that a lot more value must be created somewhere, by someone.

I’m not talking about whether the rich deserve their spoils. We are not talking rights or morality here, just pure pragmatism. The reason we’re cool with the Walmart heirs having $100 billion is because we’ve had $5 trillion out of the arrangement. And we’d like the next person who has an idea to make us $5 trillion richer to think that their kids, or even they themselves, might be allowed to keep some fraction of it.

Seriously, who cares if they get three per cent of what we do?