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 their latest report, released to coincide with the annual gathering of the rich and powerful at the World Economic Forum in Davos, Switzerland, the group once again focuses exclusively on the rich and calls for failed economic policies that empower governments and stifle economic growth.
According to Oxfam’s latest report, “The number of billionaires has doubled since the financial crisis and their fortunes grow by $2.5bn a day”. This is not something to be lamented - it is something to be celebrated! 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 per day as living in extreme poverty. It demonstrates that extreme poverty in the developing world has shrunk from 57% in 1980 to 35% in 2000 and 10% in 2015. The World Bank’s preliminary forecast is that extreme poverty declined to 8.6% in 2018. As the World Bank Group’s former President Jim Yong Kim stated, “Over the last 25 years, more than a billion people have lifted themselves out of extreme poverty, and the global poverty rate is now lower than it has ever been in recorded history. This is one of the greatest human achievements of our time”. 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 on earth.
In addition to its proposals on how wealth and income should be redistributed, Oxfam calls on governments to “curb corporate tax dodging” by implementing “a much more ambitious set of global reforms…that reverse the race to the bottom on corporate tax”. But 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 millions of middle-and low-income individuals, when Oxfam calls for increased taxes or complains that companies are not paying their “fair share”, they are in fact calling for reduced dividends, pension fund pay-outs and so on. High corporate tax rates reduce the returns on the 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 and not 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 decrease overall investment. Inevitably, this has a negative effect on future labour productivity and wages.
Scapegoating the rich and focussing on income inequality misdiagnoses the problem and shifts attention away from the real causes of poverty. To permanently help the poor, history demonstrates that what is required are greater levels of economic freedom characterised by less government intervention. This is the proven and surest path to increased economic prosperity. A cynical observer might ask why Oxfam keeps on giving governments such bad advice. Perhaps it is because Oxfam is only all too aware that if governments keep liberalising and world economies keep growing, it will then be out of a job.
This article was first published in the Sunday Independent on 27 January 2019