Why can't the poor also get richer?

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DOUG SAUNDERS
The rich do get richer. Why can't the poor also get richer?
DOUG SAUNDERS
The Globe and Mail
Published Saturday, Jan. 24 2015, 3:00 AM EST
Last updated Saturday, Jan. 24 2015, 9:40 AM EST

The rich get richer; there’s no denying that. They get a lot richer. And the poor get – well, what do they get? Too often, they get ignored. Or we don’t even know who they are.

That became apparent this week, when we had simultaneous headlines declaring that worldwide wealth inequality has soared to record levels, and that international income inequality has been plummeting for years. Both statements are true. Neither tells us what we really need to know.

The first comes from a report from the charity Oxfam, which concluded that by the end of this year, the wealthiest 1 per cent of the world’s people will hold more wealth than everyone else in the world combined.

That report certainly shows us that the very wealthy are getting even wealthier, and fast – and this is a serious concern, because much of that wealth never gets taxed. But what about those poorest 50 per cent? Who are they?

That’s where you find this report’s weakness. Economics writer Felix Salmon has examined the Credit Suisse data used to compile the Oxfam report, and discovered that the “poorest people in the world” include some very well-off people.

Imagine a Vancouver professional couple with a joint income of $360,000, five children in private school, a live-in nanny and an $800,000 mortgage on a $1.1-million property. They would be counted, in the Oxfam report, among the poorest 10 per cent of people in the world – poorer than all of China’s 1.3 billion citizens. That’s because their net worth, assets minus debt, would be negative $500,000.

If the report had measured income, rather than wealth, then this would be different: The highest-paid 5 per cent of India’s people earn less money on average than the poorest 5 per cent of Americans, which provides you with a much more useful piece of information. But that would effectively cut the billionaires – and thus the dramatic headline – out of the equation, because their mountains of lucre don’t tend to manifest themselves as income.

That’s closer to what was done to produce the second statement, the one about inequality having plummeted for years. This refers to the work of World Bank economist Branko Milanovic. He has analyzed detailed income data from every country that conducts household surveys (giving him close to 95 per cent of the world’s people), and come up with measures of worldwide inequality.

He found that, as of 2014, inequality among all the world’s people had been dropping significantly for at least seven years – mainly because of growing incomes in China and India, but also because many wealthy Western countries stalled. And compared to the 1990s, when the world’s income was sharply divided between one lump at the top (the West) and one lump near the bottom (the rest), today the largest pile of income is concentrated in a worldwide “middle class” – the no-longer poor of the east and the just-scraping-by elsewhere, whose income averages $5,000 per year.

This is interesting information, but it does not, as Mr. Milanovic acknowledges, really tell us what is happening within countries. Are people actually, through education or employment or small business, ceasing to be among “the poor” and joining this middle class? Or are they just becoming somewhat less poor?

This is a question not of equality, but of social mobility: If you’re born poor, what are the chances of dying non-poor? Inequality matters less if you have a chance of moving between unequal poles.

And this is where we should really be paying attention: By most measures, social mobility is getting harder. University of Ottawa professor Miles Corakhas measured, in 22 countries, the chances of winding up in a different income group from your parents – what he calls “intergenerational earnings elasticity.”

China, Brazil and Peru come out among the worst: All three countries have become dramatically less poor in recent decades, with hundreds of millions of their people escaping starvation-level rural poverty. But Mr. Corak’s measures show that those people are still poor – just at a less desperate income level. And other studies have shown that mobility in China was higher a decade ago. In other words, there was a time when you could escape being poor, but progress has become stalled. People get stuck on an urban-poverty plateau, struggling but not dying.

The places where social mobility still occurs – including Canada and Scandinavia – tend to be places with robust social safety nets and active governments. These can both reduce inequality and boost mobility. So, to answer the opening question: The poor aren’t getting poorer, but if you want them to stop being poor entirely, you need a national project.


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