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Inequality

Ricardo Fuentes-NievaRicardo Fuentes-Nieva is Head of Oxfam GB research and co-author of Oxfam’s 2013 Report ‘Working for the Few’ which focuses on economic inequality.

We spoke to Ricardo about some of the issues around inequality and why it is so important.

The Oxfam Briefing Paper: ‘Working the Few: Political Capture and Economic Inequality’ captured the attention of the global media with some of its striking statistics, most notably:

  • ‘The wealth of the one percent richest people in the world amounts to $110 trillion. That is 65 times the total wealth of the bottom half of the world population’
  • ‘The bottom half of the world’s population owns the same as the richest 85 people in the world’

The report highlights how there is growing concentration in income in a small percentage of the population, how economic inequality and political influence are linked, and why these issues are so important.  It was released ahead of the 2013 World Economic Forum held in Davos and sought to highlight the importance of addressing inequality in discussions of economic growth and development for the future. 

The report attracted widespread media attention, and was discussed on many of the mainstream news channels including the BBC, Sky, the Telegraph and Guardian.  It was also mentioned in many of the sessions at Davos. After Davos it has continued to be quoted by many leading figures in international organisations including Christine Lagarde, the Managing Director of the International Monetary Fund (IMF). 

Ricardo has written a blog post on the Oxfam ‘From Poverty to Power’ blog explaining how some of  striking statistics in this report were calculated.

The report makes a series of recommendations for those who gathered at Davos (see the report for full list of recommendations):

  • Not to dodge taxes
  • Not use their economic wealth to seek political favours
  • Support progressive taxation (ie the more you earn the higher rates of tax you should pay)
  • Challenge governments to use their tax revenues to provide universal healthcare, education and social protection for citizens
  • Increase spending on health care and education
  • Increase minimum wage and employment opportunities

Why does inequality matter?

Inequality matters for many reasons, I personally believe that it is morally wrong that a few people hold a larger disproportionate and unfair amount of wealth. But I understand that that is my personal view and people disagree with that. It matters because higher inequality opens the door, to a host of social problems. So the problem that we are highlighting in our more recent work is how high levels of inequality lead to political processes that represent the views and the interests of the few rich people in countries.

How do you go about measuring inequality?

Inequality means different things for different people but we are focusing on economic inequality so we are mostly focusing on income, wealth and consumption. So we measure that with different tools and all these tools relate to the financial assets and wages, transfers and the monetary gains that people make. These tools vary by country but we as the international community have used household survey data, which is basically a subsample of the population where they ask different sources of incomes in terms of labour, transfers, remittances and the like, and also sometimes patterns of consumption. But there have been advances in how we measure income inequality, so some people are using tax records which are collected by governments to see the extent of income going to the top end of the income distribution. There is also another source of information called Household Balance sheets which basically identifies all the assets that people hold, and the debt, so you can calculate the net worth of individuals by country. So we have a lot of information on income inequality and wealth inequality. The problem is that it is usually the richer countries that have the best information on these so there is a dearth of good information on income inequality in least developed countries and poorer countries.

Is that something you are struggling within terms of being able to talk about more of the developing countries?

Yes. It is something that we do not have enough information to make meaningful generalisations or meaningful analysis on it.

Why do you think inequality was not really a feature of the initial set of Millennium Development Goals?

I think in 2000 when the Millennium declaration was published, there was not the political appetite, and the public was not interested in the topic. I was working in Washington at the time and I remember the conversations about inequality. There were very few people working on inequality and they were ostracised in many different ways. The argument at the time inequality really does not matter, what matters is the absolute level of living standards for the poor. A lot of things have changed. One thing is that academic scholars actually have come up with a lot of theoretical  analyses on why income inequality is bad for societies and the economy. Then we have the empirical evidence that shows income inequality is getting worse in a large chunk of the world, and then we have the issue that the public is noticing that. So those three things actually can create the space to start talking about it. Now I think that it is rather worrying that we are responding to this 35 years after the trend is visible. That is more than a generation. We have been slow. The real question is can we reverse that trend, and how long will it take to reverse that trend?

What kind of barriers are there to reverse this trend and reduce inequality?

The most obvious one is that actually the people that have more power do not have any incentive to reverse the trend and that is why organisations like Oxfam work on this issue. Our role is actually to put pressure on those groups to do something. Then there is also a myriad of potential responses and it is not clear what the best response is to solve the problem. I think, we cannot waste more time. We need to get into serious discussion of how to reverse that trend.

And Oxfam has made a series of recommendations about how we can begin to reverse the trend in inequality?

We have.  These include progressive taxation, public investment in public services, monitoring the income of the top 1%. And we will continue to make more recommendations as we develop our campaign.

So governments can do a lot to address these issues of inequality, are there other institutions that can play a role in reversing the trends highlighted in the Oxfam report?

Organisations like Oxfam have that role, but more and more we see the international monetary fund identifying income inequality as a big problem and calling for more progressive tax systems and redistribution. So that is quite an interesting development. We certainly think organisations like the IMF, the World Bank and probably even the UN have a role to play to galvanise countries around the importance of tackling income inequality.

Are there any countries or regions that inequality has got significantly worse or better?

There are two regions where the trends are really clear, in richer countries, developed countries, inequality is getting worse. It is across most rich countries where this is happening. And there is one region where inequality is getting better almost universally which is Latin America. And this is an interesting case. What is happened in Latin America over the last 30 years was the consolidation of democracy. Some people suggest that this created the pressure for governments to pay more attention to redistributive transfers and what we have seen over the last 15 years in Latin America is social policy innovations like the conditional cash transfers in Mexico, Bolsa Familia policy in the Brazil (which provides financial assistance to poor families if they ensure their children attend school and are vaccinated). So that is an interesting case because inequality has actually fallen in Latin America.

You have worked for a range of international organisations. Could you tell us a little about your work leading up to your current role in Oxfam?

So I have been working in this sector for 15 years or so. When I was finishing my college degree I learned how to use these household surveys and I was doing a lot of analysis on poverty and inequality. I liked using these databases and that gave me the opportunity to then move to Washington DC and work with the Inter-American Development bank to work on these issues. So I have a very particular set of technical skills which at the time was very well rewarded by the market. That gave me the opportunity to get to know a lot of people, and get to know a lot of different approaches and basically have that experience.  I was very young when I was living in Washington DC and being close to all these discussions that I was referring to in the late 1990s and early 2000s and then after that I worked a bit with the Mexican government where I wrote a paper for the United Nations (UN) and that opened the doors to the UN and then I’ve been working with the UN, World Bank and now Oxfam.

And looking to the future, what are you going to be working on in Oxfam?

We are doing things on different topics. We’ll be working on climate, change and we will continue working on inequality and we will continue working on how to improve Oxfam s programmes in the field.

You can read more about Oxfam’s work on inequality, climate change and other issues at the links below:

Ricardo was interviewed in May 2014

Developed as part of the UK government funded Global Learning Programme Global Learning Programme

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