Why Oxfam’s Effort To Pitch Billionaires Against The Poor Is Foolish Populism

Lies, damned lies and statistics is a well-worn phrase attributed to Benjamin Disraeli, twice British Prime Minister in the 19th century. Statements about growing inequality (1 per cent versus 99 per cent, Main Street Versus Wall Street), while not qualifying as lies, certainly have the quality of being close to distorted truths.

This is the case with Oxfam’s recent report that says that 1 per cent of India’s rich own 58 per cent of the country’s wealth, and that 57 Indian billionaires own as much as the bottom 70 per cent.

If Oxfam’s purpose in making such comparisons is to stoke populist anger and “soak-the-rich” sentiments in India, it has done an excellent job. But if its basic aim is to ensure removal of poverty, which is what this Oxford-headquartered confederation of charities claims as its goal, it has probably achieved the opposite. Governments go wrong not when they are trying to stoke growth and reduce poverty, but when they are made to think they need to soak the rich to prove their bonafides.

It is worth repeating a hundred times: it is growth that reduces poverty, not the redistribution of existing wealth. It is also growth that provides the tax revenues necessary to create social safety nets, not the abolition of the rich.

In any case, Oxfam is making a huge mistake in comparing the static wealth of the rich with the plight of the millions steeped in poverty.

First, it is wrong to presume that shareholding wealth – which constitute the bulk of billionaire wealth – equals discretionary wealth. In the case of first or second generation entrepreneurs, most of this wealth is locked in, and needed for control of their companies. Mukesh Ambani, for example, owns just over 46 per cent of Reliance Industries. His share of the shareholding is currently worth around $23 billion. But this is not money for jam. This shareholding is critical to his control of the company.

Ditto for two other billionaires, Sun Pharma’s Dilip Shanghvi and Wipro’s Azim Premji. Shanghvi owns 55 per cent of his global pharma company. His stake is worth around $12.6 billion at current rupee-dollar exchange rate. But again, this wealth represents control of the company he built, and not loose cash that can be used to benefit 70 per cent of India’s poor that Oxfam likes to talk about. In Premji’s case, his 75 per cent ownership of Wipro represents $12.9 billion of wealth, but his real wealth which he can dispose of without losing control, is about a third of this figure.

Separating the alleged billions owned by Ambani or Shanghvi or Premji means a loss of entrepreneurship from true wealth creators, who are instrumental in creating jobs. Of course, companies can be run by professionals, but this should happen in the second or third generation of entrepreneurship, where inheritors get to control unearned wealth. It makes no sense to dispossess wealth creators of their shareholdings when they are still creating wealth for everybody.

The second problem with Oxfam’s loose use of statistics is that it makes no differentiation between billions earned by creating real value, and billions earned from state or regulatory capture, where billions are accumulated through corruption and rent-seeking activities.

Ruchir Sharma, author of The Rise and Fall of Nations, defines good billionaires are those making their mark in competitive and clean industries like information technology, manufacturing, pharma, telecom, retail, e-commerce and entertainment. He notes that in India, between 2010 and 2015, good billionaires outnumbered the bad ones, with the former seeing fortunes rise by 22 per cent, accounting for 53 per cent of total billionaire wealth in the country.

As long as the percentage of good billionaires is rising, we should not worry about their billions.

Anecdotally, even so-called bad billionaires are turning good. The Ambanis, who made big money in the licence control raj days by allegedly tweaking policy to their advantage, today generate less revenues from the policy-dependent oil and gas exploration business, and more from refining, retail and telecoms. Mukesh Ambani is leading the transition. His brother Anil runs telecom and power companies, and barely makes enough profits to pay off his loan dues.

Good billionaires also tend to return to society what they gain in their wealth-creating days. Today’s big philanthropists are tech billionaires like Premji, Shiv Nadar, Narayana Murthy, Nandan Nilekani, et al.

The point is this: if we accept that good billionaires create jobs and wealth, and also ultimately share it with the society that enabled this wealth creation, it is foolish to talk of the number of billionaires as some kind of cancer that needs to be excised from the body politic.

The only good takeout from the Oxfam numbers is the need for some kind of redistributive taxation on inherited wealth. As its report notes at one point, “over the next 20 years, 500 people will hand over US$2.1 trillion to their heirs – a sum larger than the GDP of India, a country of 1.3 billion people.”

There is a case for taxing inherited wealth, unless the bulk of it is put in trusts that benefit society – as is the case with the Tata Trusts, or with the examples being set by many US billionaires like Bill Gates or Warren Buffett.

However, it would be unfair to compare the relative niggardly contributions of India’s billionaires to charity when their billions are less than a generation old.

Logically, India’s big businesses ought to have receded from active management over the generations, as their shareholding power is reduced by growth, new capital infusion, and share listings. But many of India’s big businesses have managed to evade this separation of ownership from management by fixing the political system and making deals with corrupt bank officials to ensure that even their equity contributions to new projects come out of inflated project costs and not their own resources. They have thus kept their wealth and eaten it too. They are the true parasites that need to be sidelined.

The real battle we have to fight is not against the billionaires and the rich, but against the corrupt system that enables them to stay rich and in control with minimal skin in the game.

Good billionaires create wealth and then share it at some point. Bad ones pinch what belongs to all of us. This is what needs emphasising, not the comparative wealth of the rich and poor.