Published on Oxfam Great Britain’s Mind the Gap blog

Don’t let the technical debate overshadow Oxfam’s real message.

Some critics of our work have asked why we looked at wealth, especially given the difficulties of measuring how it is distributed globally. Also, some charge that by only looking at wealth inequality, we’re missing the great reduction of extreme poverty that has taken place over the past couple decades as wages among the world’s poorest have risen, particularly in China and India.

So why not just look at income or consumption, since those don’t face the same problems of measuring wealth?

The answer is simple.

We are focusing on wealth because it is arguably the most significant source of power in the world.

Wealth could eradicate extreme poverty and create opportunities to close the gap between those with so much and those with hardly anything. Yet, when we look around the world, we see that while wealth is working in the interests of economic elites, it is also working against the interests of the poor.

A big part of the problem is that wealth is used to undermine democracy and equal political representation. Elites use wealth to capture the political process so that rules and laws arc in favor of their interests, allowing them to seize a disproportionate share of society’s shared resources. The consequence of such political inequality is a widening of economic inequality between the over-represented, who have great wealth, and everyone else, who are under represented.

#WealthIsPower in the U.S.

Wealth makes the playing field unequal in the U.S. In America’s pay-to-play political system, it’s nearly impossible for voices demanding greater transparency, fairer taxes, and better social services to compete with the deluge of dollars working to protect the interests of the wealthiest. This is bad for average Americans, as the interests of the wealthiest hardly mirror the interests of the majority. We may talk about democracy, but in recent decades America’s political system has responded primarily to those with the most wealth.

It’s easy to see the outcome in how the U.S. economy now works best for the wealthiest, but isbroken for so many U.S. working families. While middle class wages have stagnated for decades, the richest Americans have more than tripled their share of total household wealth since the late 1970s. Over nearly the same period, the poorest 90% of the population have consistently lost wealth.

Two features of the graphs below should signal alarm. First, the total share of household wealth among the bottom 90% is skewed upward because those families in the upper percentiles have significantly more wealth than those from the middle to bottom. Second, according to Saez and Zucman’s data, the bottom 90% share is about 23% of all U.S. wealth; the top 0.1% own just a shy less at 22%.

Saez and Zucman (2014)

Saez and Zucman (2014)

Wealth makes the playing field unequal in the U.S. in other ways. The ethos of the American dream is that no matter one’s origins, poor people can rise out of poverty through hard work and determination. Unfortunately the evidence suggests the “American dream” isn’t only in decline, it hasn’t existed for a very long time.

You see, rich kids have advantages over poor kids in the U.S. These advantages include attending better schools, making connections with influential people, and receiving significant support and guidance. All of these advantages ensure better opportunities for landing high salary jobs as adults. Poor kids lack these advantages, and our social services and education system seem to do little to increase poor kids’ opportunities to succeed. In the end, rich kids and poor kids replace their parents at the top and bottom of the wealth spectrum, entrenching inequality over generations. Even The Economist warns that this trajectory may be leading to the creation of an American aristocracy. In last week’s issue, they caution,

“Because America never had kings or lords, it sometimes seems less inclined to worry about signs that its elite is calcifying.”

#WealthIsPower everywhere else, too

The argument behind wealth-is-power was overshadowed by Oxfam’s now-famous stat that the world’s richest 85 people have the same amount of wealth as the poorest half of humanity(which we re-calculated last month to the 80 richest). That stat led off our paper released on the eve of the World Economic Forum in Davos last January. However, the remainder of the report makes the case for how extreme concentrations of wealth produce what we call political capture. Left unchecked, we worry that political capture becomes opportunity capture, whereby the best tax rates, the best healthcare, the best education, and the best living standards are captured by the wealthiest and passed on to their children, leaving everyone else behind, and perpetuating inequality unless society intervenes.

For instance, we looked at India, where 400 million still live in extreme poverty; yet the number of billionaires has skyrocketed from 2 to about 64 since the 1990s. A closer look reveals thatmost of these Indian billionaires acquired their fortunes in ‘rent-thick’ sectors of the economy. These are sectors highly dependent on government permissions, such as in winning contracts, or securing permission to build on public land, or conduct business over the public air waves. In this way, they are sectors susceptible to the corrupting influence of wealth. While the government has helped create a new class of billionaires, its spending on social services for the poor is among one of the lowest in the region.

We pointed to the same thing in Mexico, where Carlos Slim used his influence to establish a monopoly over the telecommunications spectrum. With his monopoly, poor Mexicans are price gouged when making a phone call or using the internet.

We also see wealth-is-power when considering the problem of tax avoidance, especially in developing countries. When corporations and the ultra wealthy avoid paying their fair share, the poor are deprived basic services like health, clean water, education, housing, and other human rights. Tax evasion and illicit flows are a form of theft that stifles domestic economic growth, prevents poor people from achieving better living standards, and keeps inequality discouragingly high. The extent of the problem is monumental. Countries in the global south lose significantly more revenue to tax evasion and illicit flows than they receive in aid. Worse, most tax avoidance is legal! The ease in which tax avoidance occurs is a testament to the power of wealth to shape the rules of the game.

The annual Davos summit is supposed to be a gathering of the world’s most successful, smartest, and forward-looking cosmopolitans. Consistently, Oxfam has ventured to Davos to give them a simple message:

Extreme wealth in the hands of a few tilts the scales of power disproportionately in favor of economic elites, and impedes the potential for poor people to live better, more dignified lives.

The biggest and most successful business venture the wealthy elite at Davos could advance is using their power to realize a more inclusive world, one in which extreme poverty and deprivation are a relic of a primitive humanity.