NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

Oxfam stole the show before the globalists at Davos could even step on the world stage this week at the World Economic Forum.

Its new report (pdf) says that the world’s 85 richest people control as much wealth as the poorest 3.5 billion people. Yes, says Oxfam, a medium-sized classroom (or a double-decker bus) could easily accommodate the number of people whose net worth equals the entire bottom half of the world’s population.

From the report:

“Oxfam is concerned that, left unchecked, the effects are potentially immutable, and will lead to ‘opportunity capture’ — in which the lowest tax rates, the best education, and the best healthcare are claimed by the children of the rich. This creates dynamic and mutually reinforcing cycles of advantage that are transmitted across generations.”

And…

“This massive concentration of economic resources in the hands of fewer people presents a significant threat to inclusive political and economic systems. Instead of moving forward together, people are increasingly separated by economic and political power, inevitably heightening social tensions and increasing the risk of societal breakdown.”

The knee-jerk response, at least mine, was to shake my head in disbelief at this illustrative example of the growing global income inequality gap. But of course, there’s a lot more to this, and the rejoinders came fast and furious.

“First, does Oxfam’s simplistic narrative of crony capitalism tell the economic story of the past three decades better than the 80% decline in extreme poverty? And why exactly are there 250 million fewer extremely poor people in the world today?” wrote James Pethokoukis, the Money & Politics columnist-blogger for the conservative American Enterprise Institute, whose response was indicative of Oxfam critiques. “Second, while high-end inequality has risen within many nations, inequality between nations has undergone an “unprecedented decline in the last decade,” according to “The world distribution of income and its inequality 1970-2009″ by economist Paolo Liberati.”

Could both Oxfam’s conclusions and the pushback to it be right? The World Bank’s Branko Milanovic’s 2012 working paper would suggest so. Milanovic argued that despite a chasm of income inequality between the bottom and the top, when examining global living standards, inequality is indeed falling.

Milanovic articulates the two rivers of wealth and income that are converging here. True, declines in living standards brought on by stagnant wages in Western countries and wealth concentration are real, and concerning (as Google Chairman Eric Schmidt also pointed out from Davos). Also true, China and India’s income rise are pushing up the numbers on global income. (Incidentally, that’s not entirely a bad thing for developed countries, either. I’m looking forward to reading Charles Kenny’s thoughts on the subject in The Upside of Down: Why the Rise of the Rest is Good for the West).

But back to those minted 85 individuals. One of them is Bill Gates. And here’s what he said this week in a Wall Street Journal article, adapted from the foundation’s annual newsletter.

“Here’s our prediction: By 2035, there will be almost no poor countries left in the world. Yes, a few unhappy countries will be held back by war, political realities (such as North Korea) or geography (such as landlocked states in central Africa). But every country in South America, Asia and Central America (except perhaps Haiti) and most in coastal Africa will have become middle-income nations. More than 70% of countries will have a higher per-person income than China does today.”

In a separate essay, Gates notes:

As for the rest of the 85, Oxfam is urging them to use their companies to support a living wage, to actually pay their taxes instead of offshoring them in shelters, and basically to use their outsized political influence to support progressive taxation instead of narrow political favors.

Nowhere does the report mention small and mid-sized business to employ those living in poverty. Nowhere does it consider the potential of engaging the base of the pyramid as producers or consumers, developing social enterprises, or harnessing impact investing tools. So as important as the 85 people example is in highlighting inequality, the report’s prescriptions for addressing it fall short.

I started the week with an email from the World Economic Forum containing a well-produced video on impact investment (see below). Frankly there isn’t a ton new in there, but here’s one statistic that leapt out, which is about 2:40 minutes in.:

“Over the next four decades the Baby Boomer generation is going to transfer 41 trillion dollars of assets to the millennial generation. I think investors are going to have to think a lot more about businesses that do create societal, economic and environmental impact,” says Abigail Noble, associate director and head of Impact Investing Initiatives at the World Economic Forum.

OK, one percenters (and your millennial offspring), what are you going to do with all that money?

In Case You Missed It … This Week on NextBillion

NexThought Monday (1/20/14) – The Tragic Failure of Microcredit: Yunus’ dream has become a nightmare for the global poor By Milford Bateman

How to Build a Market for Eyeglasses: More than 600 million people have serious vision problems and they — and society — pay a steep price By Paul Polak and Mal Warwick

Categories

Uncategorized