Higher economic freedom lifts up the poor

OXFAM’S motto is “the power of people against poverty”.

You could be forgiven for assuming Oxfam promotes proven policies that lift the poor out of poverty. Instead, in its latest report, released to coincide with the annual gathering of the rich and powerful at the World Economic Forum in Davos, Switzerland, the group focuses exclusively on the rich and calls for failed economic policies that empower governments and stifle growth.

Oxfam’s dodgy calculations demonstrate that the combined wealth of the world’s eight richest men is equal to the wealth of 50% of the world’s poorest.

To arrive at its shocking statistic (no doubt formulated to shame individuals in rich countries into forking over some of their cash to Oxfam), it adds up assets and subtracts liabilities to give a net worth figure.

When your liabilities exceed your assets, you have a negative net worth.

By this calculation, 50% of American and European youth who have just completed their studies at university and face a mountain of debt, fall into the bottom 50%.

The gap between rich and poor is irrelevant.

Compared to a billionaire, a millionaire is poor. As economist Julian Simon stated: “Data on the absolute gap between yearly incomes of the rich and poor countries are beside the point; widening is inevitable if all get rich at the same proportional rate, and the absolute gap can increase even if the poor improve their incomes at a faster proportional rate than the rich.”

Oxfam’s obsession with redistributing the wealth of the rich overlooks the tremendous strides that the world has made in recent decades to eliminate poverty.

The World Bank classifies persons with incomes of less than $1.90 (R25.78) per day as living in extreme poverty.

It demonstrates that extreme poverty in the developing world has shrunk from 56.9% in 1980 to 34.5% in 2000 and 15.6% in 2014. For an organisation that purports to be focused on eliminating poverty, Oxfam strangely overlooks the fact that the world is on the cusp of a historic feat – the complete eradication of extreme poverty.

This remarkable achievement has been thanks to the wider adoption of more open trade and free market policies that promote individual liberties.

According to the Fraser Institute: “The developing countries that moved most markedly toward economic freedom achieved both strong economic growth and substantial reductions in poverty.

“This indicates that an institutional and policy environment consistent with economic freedom is an important ingredient of progress against poverty”. In simple terms, if you are poor, the best place to live is in economically free societies where government intervention is kept to a minimum.

That is why millions of people trying to escape despotic nations controlled by overbearing states seek refuge in the most economically free nations.

In addition to its proposals on how wealth and income should be redistributed, Oxfam calls for “increased co-operation between governments to put a stop to tax dodging and the race to the bottom on corporate taxes”.

But this introduced an elephant into the room. Companies do not pay taxes. People pay taxes.

Most large corporations are owned by shareholders (people) and groups of people such as government employees through their pension funds.

Since pension and mutual funds are simply collections of the savings of mil- lions of middle and low-income individuals, when Oxfam calls for increased taxes or complains that companies are not paying their “fair share”, it is in actual fact calling for reduced dividends, pension fund pay-outs and so on.

High corporate tax rates reduce the returns on investments and life savings of individuals.

If, as a shareholder, you do not like the idea of a company trying to maximise your returns, just sell your shares. Nobody forces anyone to invest in any company. What could be more democratic?

In contrast, try not to pay your taxes – you will almost certainly be hauled off to prison.

Most studies show that a portion of corporate tax is passed on to workers in the form of lower wages and benefits.

Future wages are also adversely affected because high corporate tax rates retard capital formation and reduce overall investment. Inevitably, this has a negative effect on future productivity and wages.

In South Africa, Oxfam’s report raised the idea of a national minimum wage (NMW).

But an NMW does wide, untold harm by preventing unskilled people with little or no work experience from entering the job market, thereby harming the very people the policy pretends to assist.

We cannot escape the economic truth that minimum wages price some people out of jobs that they otherwise would have voluntarily chosen to take.

The NMW will inevitably exacerbate poverty and inequality.

Scapegoating the rich and focusing on income inequality misdiagnoses the problem and shifts attention from the real causes of poverty.

To permanently help the poor, history has demonstrated that what is required is greater levels of economic freedom characterised by less government intervention.

This is the proven and surest path to increased economic prosperity.

Jasson Urbach is director at the Free Market Foundation

This article was first published in The Star on 23 January 2017

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