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Oxfam’s miscalculations on global wealth

Oxfam regularly releases new reports on inequality and keeps getting it wrong.

So let’s revisit an older report to show how the next one is likely to be flawed once again — in an effort to avoid another needless European Parliament debate on inequality. The EU cannot allow itself to get stuck in an endless loop of ill-informed discussion on this issue.

Oxfam’s 2018 report claimed that inequalities are staggering. This was not the first time that the activists who made up the British NGO have shown their real talent: twisting reality to feed their political ideology, in defiance of any scientific rigour. Therefore, the question that arises is why continue to give echo to such people, whose nonsense is not without consequences, since it feeds the mistrust of the French towards their leaders and companies?

Oxfam had produced a similar document on inequalities, absurd in terms of the method, since wealth was calculated according to net worth, i.e. people’s assets minus their liabilities. Reading these figures, the attentive reader is left wondering, as most countries with developed economies allow considerable debt. But large material fortunes also have a large obligation, since this is how they feed their investments.

Similarly, a young graduate who has just found a job starts out with a low income and a substantial debt, which is, in fact, an investment in his or her potential future earnings. Comparing his situation to that of a low-income Chinese farmer with limited assets but little or no debt, using Oxfam’s methodology, the rural farmer far outstrips this indebted university graduate.

Let’s take the case study of France.

Oxfam’s report on CAC 40 CEOs’ incomes is riddled with comparisons, shortcuts, amateurism, and out of context figures. This context, however, is essential to a proper understanding of the economic issues raised. First of all, let us remember that the overwhelming majority of companies are VSEs and SMEs. These small businesses represent 99.9% of French companies and 49% of salaried employment.

The key figure revealed by this new report is that the CEO of a CAC 40 company earns 257 times more than a person on minimum wage. It reads: “In 2016 the average remuneration of CAC 40 CEOs was 4,531,485 euros. According to INSEE, the gross minimum annual salary was estimated at 17,599 euros, a difference of 257: 4,531,485/17,599 = 257.

Oxfam uses the average income of CAC 40 CEOs instead of the more realistic median income. The organisation explains that it does not have the data, due to a lack of corporate transparency, but still seems quite willing to use the average income to make a splash, claiming that CAC 40 CEOs earn more than 250 times the minimum wage. The calculation of median income, on the other hand, is quite possible and gives a result below 250. If we do this calculation, we find that the median income of CAC 40 CEOs in 2016 was 3.745 million, so we arrive at 3,745,000/17,599 = 212. It should also be noted that this calculation does not take into account a differentiation in the hours worked by people paid at minimum wage. Is Oxfam asking us to compare a person who works part-time with a person who works overtime regularly? And why is Oxfam hiding the fact that fixed salaries for company executives represent only 12% of their total income, and that options, bonuses and shares (based on company performance) vary continuously? Assuming we had all the data on the median salary, we would only have 12% of total income, and certainly not a factor of 257.

Next, regarding the assertion that CAC 40 companies would have paid 67.4% of their profits to their shareholders in the form of dividends, it is essential to remember that these are paid according to the company’s added value and after salaries have been paid. However, as economist Jean-Marc Daniel notes, since 1985, 65% of a company’s added value has gone to wages and 35% to the gross operating surplus, which is either redistributed in the form of dividends and or profit-sharing or invested in the company’s productive apparatus. 

But we will be explained that these “small calculation errors” and this representation are not significant. After all, Oxfam is not here to do research but to lecture us. Need we remind you that Cécile Duflot, the former Minister of Housing, author of the catastrophic Loi Alur whose measures are still being felt in the building sector, has just taken over the reins of Oxfam’s French branch? Is she responsible for the appearance of a proposal for a new blacklist of tax havens at the end of the report? This list should include Belgium and Luxembourg, which are by no means tax-havens. Let us add that the CAC 40 companies that are singled out (LVMH, BNP Paris, Société Générale, Crédit Agricole and Total) are in countries that Oxfam considers as tax havens, not because they practice tax evasion (Oxfam concedes that it has no evidence to prove it), but because they have clients there. Removing their subsidiaries from all these countries would be tantamount to depriving themselves of a considerable part of their turnover.

Political and ideological NGO. Instead of recognising the achievements that the development has made of the free market, Oxfam wants to revive the stereotype of the operetta boss, a man in a suit smoking a cigar in his office while looking down from his canopy at his exploited employees. But this caricature, inspired by the Monopoly man, no longer has much to do with reality.

As Steven Pinker reminds us in his book Enlightenment Now, while 90% of the world’s population lived in extreme poverty in 1820, only 10% of it remains today, thanks to the market economy. In recent decades, China’s economic miracle has lifted 600 million people out of absolute poverty, halving the world’s extreme poverty levels. We live in the most materially prosperous times in history, which is not about to be reversed.

Oxfam is a political and ideological NGO. It will continue to release misleading reports to argue for broad redistribution that would harm our economic performance and, ultimately, those it purports to help. Helping the poorest means opposing this demagoguery. It also means, for the media, to stop relaying it massively.

Originally published here.

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