The number of poor people does not increase because there are more rich people

Op-ed views and opinions expressed are solely those of the author.

Every year, Oxfam publishes a study to coincide with the World Economic Forum in Davos. Past reports were often based on flawed data and unscientific methods. Nevertheless, the media have always devoted wide coverage to Oxfam’s annual reports.

This year, though, one of Oxfam’s findings is correct: For the first time in 25 years, extreme wealth and extreme poverty have increased simultaneously, and Oxfam makes a point of criticizing this development. In the years before, however, Oxfam never reported that exactly the opposite was the case.

As the chart below shows, the number of billionaires has steadily increased over the past few decades, while the number of people living in extreme poverty has steadily decreased.

 

© Zitelmann, Sources: World Bank/Forbes

 

Before capitalism emerged, most people in the world were living in extreme poverty. In 1820 around 90 percent of the global population was living in absolute poverty. Today, the figure is less than 10 percent. And most remarkably: In recent decades the decline in poverty has accelerated to a pace unmatched in any previous period of human history. In 1981, the absolute poverty rate was 42.7 percent; by 2000, it had fallen to 27.8 percent, and in 2021 it was below 10 percent. The number of billionaires, on the other hand, has increased about fivefold since 2000, according to Forbes.

It is this main trend, which has persisted for decades, that is crucial. It is true – contrary to the original expectations of the World Bank, which compiles these data – that poverty has risen again over the last couple of years. But this is largely a result of the global Covid-19 pandemic, which has exacerbated the situation in countries where poverty was already relatively high.

Other long-term trends also provide cause for encouragement. For instance, the number of children in child labor around the world has dropped significantly, falling from 246 million in 2000 to 160 million twenty years later in 2020. And this decline is despite the fact that the global population increased from 6.1 to 7.8 billion over the same period.

This shows that what anti-capitalists believe, namely that the rich are getting richer at the expense of the poor, is a misconception. In fact, the opposite is true: Economic growth means that as the number of rich people increases, the number of people living in poverty decreases – on a global scale. One example of this is China: In 1981, 88 percent of the Chinese population was still living in extreme poverty. Then Deng Xiaoping started his free-market reforms with the slogan: “Let some people get rich first.” Before that, China did not have a single billionaire because private property was not permitted under Mao’s rule. Today, there are more billionaires in China than anywhere else in the world, with the exception of the USA. And the number of people living in extreme poverty has fallen to less than 1 percent.

Another example is Vietnam: As recently as 1993, as many as 80 percent of the Vietnamese population was living in poverty. By 2020, the proportion had fallen to just five percent. This was made possible by the introduction of private property rights and free-market reforms. At the same time, this led to some people in Vietnam becoming very rich and today there are even several billionaires in a country that was once one of the poorest in the world.

How do you effectively fight poverty and hunger? Many people believe the answer is development aid, despite the fact that aid has not changed anything fundamental in Africa in the past 50 years. What has worked very well in a whole host of countries, however, is the introduction of a market economy and private property rights.

Anti-capitalists such as the left-wing organization Oxfam see the world in “zero-sum” terms. They tell us that the poor are only poor because the rich are rich. But if that were true, how do you explain the fact that as the number of extremely rich people has increased, the number of people living in extreme poverty has decreased? That has been the rule for 200 years. A year in which the opposite is the case, largely due to the effects of the coronavirus pandemic on the one hand and a very positive stock market on the other, is a very rare exception.

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