I heard econ rock star Thomas Piketty speak for the first time last week – hugely enjoyable. The occasion was the annual conference of the LSE’s new International Inequalities Institute, with Piketty headlining. He was brilliant: original and funny, riffing off traditional France v Britain tensions, and reeling off memorable one liners: ‘meritocracy is a myth invented by winners’; ‘It’s difficult to be an honest country in today’s world. Britain used to be an honest country.’
He started with a mea culpa for the lack of attention in his best selling Capital in the 21stCentury to inequality in developing countries. The good news is that he is now putting that right, with research under way on inequality in South Africa, Brazil, the Middle East, India and China. He gave us a preview on the first three.
His overall conclusion? "Official measures vastly underestimate inequality". The most common reason for this is that inequality stats are drawn from household surveys, but samples of households typically miss the few megarich ones, and so underestimate the money at the top. He prefers to use tax and income data, which he has now got access to from governments because of his newfound fame. Even that data doesn’t tell the whole story, as it misses tax evasion, for example, but it’s a step in the right direction.
Oxfam number cruncher Deborah Hardoon tries to get her head round something weird – according to the stats, the poorest half of the world is getting poorer even though the incomes of these people are rising.
It has become something of a tradition that in January every year we take a look at the Forbes list of billionaires and the Credit Suisse Global Wealth databook and calculate how many billionaires it takes to have the same amount of wealth as the bottom 50% of the planet. Since we started doing these calculations, we have watched the wealth of the top grow at the same time as the wealth of the bottom 50% has fallen. The data tells us that the bottom 50% have approximately $1 trillion (that’s $1,000 billion) less wealth than they did 5 years ago, whilst the richest 62 have about $0.5 trillion more.
The extremely wealthy are able to accumulate more wealth in a day than a whole factory full of workers could earn in a year. On 21stApril, in a 24 hour period, Carlos Slim made more than $400 million. Thomas Piketty famously points out that the rate of return on capital is higher than the general growth rate, such that capital owners are at a distinct economic advantage.
Meanwhile those 3.6 billion people in the bottom 50% include people in debt, people with nothing and people with a net wealth of up to about $5,000. People with little, no, or negative wealth, especially in developing countries with poor social insurance mechanisms (four out of five people in the bottom 50% live in Africa or Asia – including China and India), will not only find it hard to respond to financial shocks – like a poor harvest or a medical bill, but will also find it much harder to invest in their families’ future. Having little wealth may be concerning, but having less and less wealth year to year is even more worrying.
Oxfam’s private sector adviser Erinch Sahan is thinking through the implications of inequality for the businesses he interacts with.
Mention inequality to a business audience and one of two things happens. They recoil in discomfort, or reinterpret the term – as social sustainability or doing more business with people living in poverty. Same goes for the private sector development professionals in the aid community (e.g. the inclusive business crowd).
A good example is the UN Global Compact, which steers companies on how to implement the SDGs. They completely side-step the difficult implications of inequality on business and redefine the inequality SDG as boiling down to social sustainability or human rights / women’s empowerment goal. All good things that we at Oxfam also fight for, but these can all happen simultaneously with increasing concentration of income and wealth amongst the richest – i.e. rising inequalityWe know that rising inequality is one of the great threats to our society and economy. So why is business and the aid world so uncomfortable with tackling it head on?
Inequality is a relative rather than an absolute measure. This often makes it a zero-sum game – to spread wealth and income more equally, someone probably has to lose. But the intersection of business, sustainability and development has become locked into an exclusive focus on win-win approaches where there are no trade-offs and everyone gets their cake and eats it too. Addressing inequality often hits the bottom line – meaning changes to the prices paid to farmers, wages paid to workers, taxes paid to government and prices charged to consumers. But there is hope. Through a new lens (or metric) that should drive how business addresses inequality: share of value.
Don’t confuse this with Creating Shared Value, which is focused on the win-win (without commenting on how the created value is shared). What I’m proposing is a measure that compares businesses on how they share value with workers, farmers and low-income consumers. In fact the concept dates back to the original principles underpinning the fair trade movement some decades ago.
Guest post from Paul O’Brien, Vice President for Policy and Campaigns, Oxfam America (gosh, they do have august sounding job titles, don’t they?)
As the poorest half of the planet sees that just 62 people have more wealth than all of them, collective frustration at extreme inequality is increasing. To rebalance power and wealth, many in our community are turning to transparency, accountability, participation and inclusion. Interrogate that “development consensus,” however, and opinions are fractured over the benefits and costs of transferring power from the haves to the have-nots.
In truth, our theories of change often diverge. Most development organizations may agree on the need to advocate for more Investment, Innovation, Information, strong Institutions and Incentives, but some organizations are genuinely committed to only one of those “I’s”, and that can be problematic: Oxfam often finds itself choosing and moving between the relentless positivity of politically benign theories of change (e.g. we just need more “investment” or “innovation”), the moderation of those who focus exclusively on transparent “information” with no clear pathway to ensure its political relevance, and the relentless negativity of activists that think the only way to transform “institutions” or realign the “incentives” of elites is to beat them up in public.
Oxfam’s challenge is to be both explicit in our theory of change and show sophistication and dexterity in working across that spectrum. If Oxfam’s theory of change is based on a citizen-centered approach to tackling global systemic challenges like extreme inequality, then our opportunity may be engaging the “rational ignorance” of citizens and consumers.