Davos: The #62billionaires and the truth about #inequality

by Michael Roberts

The global elites are meeting today for their annual jamboree at the World Economic Forum in Davos, Switzerland.  Some of the world’s top political leaders, banking chiefs and corporate moguls will discuss the key issues, ideas and strategies for how to rule the world.

This year’s main theme is the impact that ‘disruptive technologies’, robots and artificial intelligence will have the future of capitalism.  But the rising risk of new global economic recession, just eight years from the last, will also occupy minds.

Last year, the WEF debated the issue of rising inequality of income and wealth.  But nothing came of that.  So this year, Oxfam issued another report on the grotesque inequality of the ownership of wealth globally.  The headline was that just the 62 richest billionaires own as much as the poor half of the world’s population.  And the top 1% of wealth holders own more wealth than the other 99% combined!

Oxfam’s data suggest that inequality of wealth globally has got worse since the end of the Great Recession.  The wealth of the poorest 50% in the world dropped by 41% between 2010 and 2015, despite an increase in the global population of 400m.  In the same period, the wealth of these richest 62 people increased by $500bn (£350bn) to $1.76tn.  Back in 2010, it took 388 people to have as much personal wealth as the bottom 50%.  By 2014, that number had fallen to 80 people.  Now it’s just 62.  Oxfam’s prediction that the richest 1% would own the same wealth as the poorest 50% by 2016 had come true a year earlier than expected.  Last year, the average wealth of each of the 72 million adults belonging to the richest 1% was $1.7 million, compared with about $5,000 for the 648 million people in the bottom 90%.

And Oxfam’s measures do not account for the estimated $7.6tn in hidden offshore tax havens that inequality expert Gabriel Zucman has identified in a recent book. The charity said as much as 30% of all African financial wealth was thought to be held offshore. The estimated loss of $14bn in tax revenues would be enough to pay for healthcare for mothers and children that could save 4 million children’s lives a year and employ enough teachers to get every African child into school. Oxfam said nine out of 10 WEF corporate partners had a presence in at least one tax haven and it was estimated that tax dodging by multinational corporations costs developing countries at least $100bn every year. Corporate investment in tax havens almost quadrupled between 2000 and 2014.

To get its headline results, Oxfam used the data for the wealth of 1%, 50%, and 99% from Credit Suisse Global Wealth Databook (2013 and 2014) https://www.credit-suisse.com/uk/en/news-and-expertise/research/credit-suisse-research-institute/publications.html.  The wealth of the richest 62 was calculated using Forbes’ billionaires list, http://www.forbes.com/ with annual data taken from list published in March.  And calculations were after deducting debt.

Oxfam’s methods have come under severe criticism.  When Thomas Piketty published his tome, Capital in the 21^st century, which argued that inequality of wealth was rising in most major economies, Chris Giles, the FT’s economics editor was quick to find holes in Piketty’s data and methods.  Piketty did an effective job of riposting Giles’ critique.

But Giles is now back having a go at Oxfam’s report.  First, Giles argues that actually the world is getting less unequal in income, and poverty is declining globally.  This is a hoary old argument from the mainstream.  Yes, inequality of income and wealth between countries has narrowed a little and poverty has fallen, as measured.  But this is for one main reason: the tremendous growth in real GDP and living standards for hundreds of millions living in China.  Take China out of the equation and there is no improvement in either inequality or poverty.  And within countries, inequality is rising as the gini coefficient of income and wealth in China and India shows.

Giles wants us to dismiss Oxfam’s numbers because they “splice together data on the richest individuals from Forbes, designed to sell magazines, with data on the rest of the world from Credit Suisse, which itself is compiled from a host of incompatible sources.”  I don’t think that the authors of the Credit Suisse report on global wealth would appreciate this attack on their integrity and methods.
I have reported before on the Credit Suisse report in this blog.  The co-author of that report is my friend Professor Anthony Shorrocks, who was head of the United Nations global wealth survey and is probably the world’s leading expert on global wealth.  He recently sent me an update on his data.  From this, he reckons that “the situation is even worse” than Oxfam indicates in its report.  He concludes that since 2000, the bottom 90% of the world’s population have seen a fall in their wealth, so that all the gain in personal wealth in the last 15 years globally has gone to the top 10%, with the lion’s share for the top 1%.

Giles also criticises the Credit Suisse measure of wealth as one of net worth (assets minus liabilities), so it treats a recent US graduate on a huge income, but with student debt, as poorer than a subsistence farmer in China. According to Giles, this explains why North America appears so unequal in this chart from the Credit Suisse report.  Actually, as a robustness check, Oxfam recalculated the share of wealth held by the richest 1 percent once negative wealth is excluded. It did not change significantly (falling from 50.1 percent to 49.8 percent). Negative wealth as a share of total wealth has remained constant over time, such that wealth distribution trends over time are not affected.

Giles makes much of the point that it does not take much wealth to end up in the top 1% globally: “most people owning a London property will have more than $760,000 wealth and put you in the supposed plutocrat zone of the global top 1 per cent.”  Yes, this is true.   But what this shows is how poor in personal wealth nearly everybody is: ownership of property is the province of the very few.  And even in London, most property owners do so through huge mortgages for which they must work to service.  That does not apply to the billionaires.

Giles’ last critique is to complain that Oxfam and Credit Suisse measure wealth in dollars rather than in purchasing power parity.  The latter supposedly measures what your wealth can buy in local currency.  Local currency goes further in Indonesia or Somalia but may not be worth much in dollars, particularly as the US dollar has been rising against most other currencies, making dollar wealth more than it is.   Giles claims that the change in national wealth in 2015 “is almost entirely linked to the size of last year’s depreciation against the US dollar.”  Maybe so, but PPP measures of wealth are just as biased as dollar measures.  You need dollars to buy imported goods like cars, i-phones, computers.  That form of durable goods or wealth is affected by your dollar wealth, along with land and buildings too in many countries.

The Giles critique does not really dent the Oxfam report or the work of authors of the Credit Suisse wealth report, just as he failed to do with Piketty’s data.  There is no getting away from the conclusion that the world is grotesquely unequal in the ownership of cash, bonds, stocks, land, buildings and means of production and in the incomes ‘earned’ by people globally.  It is unequal to the extreme between countries and within countries.  And the evidence suggests that inequality is not being reduced, at the very least, and probably is worsening.

But don’t expect the Davos elite to do anything about it.