The 62 richest people in the world own as much wealth as half of humanity. Such extreme wealth conjures images of both fat cats and deserving entrepreneurs. So where did so much money come from?
A key empirical question in the inequality debate is to what extent rich people derive their wealth from “rents”, which is windfall income they did not produce, as opposed to activities creating true economic benefit.
Economists define “rent” as the difference between what people are paid and what they would have to be paid to do the work anyway. The classical example is the farmer who owns particularly fertile land. With the same effort, she can produce more than other farmers working on land of average productivity. The extra income she gets is a rent. Monopolists also get rent by overcharging customers as compared to what they could charge in competitive markets. More generally, economists have identified a series of “market failures”, which are situations where full competition does not prevail and where someone can therefore overcharge – they would be ready to do the work for less, but lack of competition allows them to make a quick extra buck. Government can alleviate market failures through proper economic regulation; or it can make them worse. Political scientists define “rent-seeking” as influencing government to get special privileges, such as subsidies or exclusive production licenses, to capture income and wealth produced by others.
The report, An Economy for the 1%, outlines how the wealth of the poorest half of the world’s population –more than 3.6 billion people - has fallen by a trillion dollars (38 percent) since 2010. Meanwhile the wealth of the richest 62 people has increased by more than half a trillion dollars to $1.76 trillion.
“Power and privilege are being used to rig the system to increase the gap between the richest and the rest of us to levels we have not seen before. Far from trickling down, income and wealth are instead being pulled upwards at an alarming rate,” said Raymond C. Offenheiser, President of Oxfam America. “While such extreme inequality is bad for all of us, it’s the poorest among us who suffer the grimmest consequences.”
Although world leaders have increasingly talked about the need to tackle inequality, the gap between the richest and the rest has continued to widen dramatically in the past 12 months. At last year’s Davos gathering, Oxfam predicted that the 1% would soon own more than the rest of us, a prediction that came true even before the year ended.
It gets better
“Tax havens are at the core of a global system that allows large corporations and wealthy individuals to avoid paying their fair share, depriving governments, rich and poor, of the resources they need to provide vital public services and tackle rising inequality,” continued Offenheiser.
Globally, it is estimated that a total of $7.6 trillion of individual’s wealth sits offshore – a twelfth of the total. If tax would be paid on the income that this wealth generates, an extra $190 billion would be available to governments every year.
Are you angry yet? Yours truly is.