1% vs. 99% – Why 62 individuals are richer than half of the world

Favela in Rio de Janeiro

Favela in Rio de Janeiro

According to Oxfam 1% of the people possess more than 99% and 62 individuals more than half of mankind. But this is totally normal!I personally see no problem in it. I, in fact, mean that this distribution is very natural and unavoidable even though the exact numbers could have been bent in the one or other direction. Why I estimate it as unproblematic and why those numbers don’t scare me you will get to know in this article.

Only 62 individuals? That sounds crazy!

Let’s take the current Oxfam study as data corpus. And let’s assume that this study is all correct. Accordingly, the 62 richest human beings possess as much as the poorest half of humanity. And 1% of the world’s population possesses as much as the other 99%. On the first sight, that sounds unbelievable. But when you study it more closely it is not surprising. Because there are some banalities which easily explain the whole issue.

A majority of the world’s population possesses almost nothing

A majority of the world’s population has nothing or almost nothing. That is really terrible and should be fixed (more down below)! But whether the wealth of Bill Gates has any correlation to it is anyone’s guess. It’s a matter of face that any German welfare recipient has for itself more than masses of those people together. Because even millions times zero still equals zero and billions time zero equals zero as well. And even those people which don’t have much in comparison to Western standards don’t really increase the numbers that much even though they might live quite good in their home country. That leads me to my second point:

Relative poverty

Whether someone is poor or rich is a matter of your measuring stick. As already mentioned above the poorest German is still wealthier than masses of people for example in Africa (and even wealthier than any European aristocrat and monarch 200 years ago). Also in Germany a savings amount of 50,000 Euros makes a big difference. Huge parts of the working population which don’t even live badly have nothing left at the end of the month. They have to spend their income immediately. There are even stars or managers which earn good money but still have nothing left at the end of the month because they dissipate everything they earn. According to this the saver with 50,000 Euros is richer than a huge part of the working population of Germany and the dissipating wealthy people. But what are even 50,000 Euros? You can’t even easily get your own apartment bought in Germany with that amount of money while in many poorer countries it is normal to live in your own property (not with a German standard of course, but still not a bad standard). By the way, in Germany the poverty statistics only indicate relative poverty. Therefore, someone counts as poor when he deceeds a certain and arbitrary percentage below the average income. It doesn’t matter whether he starves like a poor person in Africa or whether he has a flat screen TV and makes holidays in the Mediterranean every year. Don’t get me wrong! There are many precarious living conditions in Germany and especially in Germany, but my goal is it to critically review some statistical claims. It is just not very hard to have more than people who have nothing. And of course, an income of 500 Euros is a lot in Africa but you can’t survive with it in Germany.

Natural distributions

Many might now it: The Pareto principle. It says that about 80% of the outcome is generated by only 20% of the effort. The other 80% percent of the effort generate the remaining 20% of the outcome. This principle derives from the Pareto distribution which can be found in many areas of the economy: For example, 80% of all company’s revenue is only due to 20% of the products and are generated by 20% of the steady customers. 80% of the population lives in the cities. 20% of customers are responsible for 80% of the phone calls and complaints. And yet the 80/20 ratio is not meant to be understood as fixed. It can also be a ratio of 99/1. That explains how some super successful people are so much distinguished from the mediocrity. For example, almost every German boy wants to become a soccer star but only 11 players will eventually stand on the field for the national soccer team of Germany. But those 11 will, therefore, earn millions and not just minimum wage. But they came out on top of millions and now entertain millions with their soccer skills.

How facts still manipulate our perception

The following diagram show factual numbers. I even believe that they have not been cooked or manipulated otherwise:

Source: http://www.faz.net/aktuell/wirtschaft/geht-es-bei-uns-gerecht-zu-wer-im-wohlstand-lebt-11908598.html


But how does this affect us? Again, it seems scary on the first sight! But once again, it is all very reasonable. If all bars would match the diagram would be pointless. Then everybody would be equally wealthy, and one wouldn’t need to divide the data corpus in to 10 groups. But since you want to compare wealth it is very logical that the richest group has the biggest bar. And of course, the second richest tenth would fit into the richest tenth. And the third richest bar would fit in the second richest bar and so on. Otherwise, they would need to change their rank which would once again end up in a similar distribution and similar-looking diagram. The only thing which might be questionable in this diagram is the fact that the richest tenth is so much bigger so that even the second richest tenth will fit in it several times. But here we only see the above-mentioned Pareto distribution in action.

Rich at the poor’s expense?

Surely, the usual narrative has a point there when it says that poor people get exploited by the rich. One only has to look at our corrupt monetary system to realize that our world good be much better and more just. But as dull I wouldn’t agree to this slogan. Especially because it often comes together with the call for more government. But it is actually corruption and a lack of liberty which keeps people in poverty. It is not as if Bill Gates is rich because Africans are poor just like some people are not tall because others a small or some are smart because others are stupid. It is a myth that richness only comes at the expense of others. There are also win-win situations. Wherever there is free trade and a free market economy the most trades should be on a voluntary basis. But those just only be agreed freely to if both parties see an advantage in cooperating together. Both parties see themselves as winners. Free market economy means a win-win situation in the most cases while state’s intervention in the economy always comes at the expense of someone – at least at the expense of the tax payer!

Rich people are important – poor people, too!

And also, we should realize that civilization only makes progress when everybody has a different task to do. For example, if everyone had the same job there would be 80 million bakers in Germany and that would not move the country forward. There must be also researchers and entrepreneurs which bring forth new insights and therefore also new products. But if additionally, there would be no over-average wealthy people who would then buy the expensive new innovations? If nobody had invested by buying the first mega-expensive and super-ugly radio telephone, then we would still have no smartphones today. But nowadays even most poor people in Germany have their own smartphone and even in Third World countries mobile phones become more and more spread. They provide those poor people new freedoms to such a degree they have never had before. But in order that the researchers and entrepreneurs can bring forth those innovations it also needs below-average wealthy people which keep the whole things running with their labor and which back up those who push forward new ideas. If everybody was rich who would then for example still bake the bread. Wouldn’t the incentives to work be so high so that the bread would then become so expensive that nobody would still be relatively rich?

The gap between rich and poor is widening

As I have already suggested above it might even be true that the Pareto principle turns out very extreme in the case of wealth distribution. But let’s look at the history of wealth to see how situation of absolute poverty developed.

The people in the developing countries escaping poverty much quicker today than in earlier times. While the West needed 200 years of industrialization today for example Asian countries often need only 1 or 2 generations to close up in many standards. Surely, poverty and child labor are lamentable conditions, but we here also should consider the perspective. The growth of population in the poor countries is even to count as a growth in wealth. Because in earlier times people all just died. Today as yesterday we have child labor, but child mortality decreases. Even though the world is cruel: A child that sews shoes is still better than a child that has to die a wretched death!

The legend of Manchester capitalism

At this point I want to get rid of another myth: The idea invented by the communist Engels that in the so-called era of Manchester capitalism during the industrialization lead the people into impoverishment. Back then there was a population explosion in the agricultural economy of Europe caused by the industrial revolution. The people poured from the countryside into the cities so that for example Manchester grew by hundreds of thousands of inhabitants in only a few years. Of course, the cities were not immediately ready to handle so many new people at once. But why did people voluntarily move into the misery of the cities? Because they lived there still better than at the countryside where they didn’t find any jobs. But only after a short time – before the labor unions even gained influence – the quality of life became better. Yes, the children of farmers at first became poor because they could not bring their farms into the cities. But even if they would have stayed on the countryside they would have starved. And what Europe had gone through already 200 years ago, the developing world in the age of globalization now goes through on the speedy trail.

How can we help?

We see there is a lot of propaganda talk. But how can we then help poor people that they reach even quicker more wealth then already? How can we help that those people come out of their poverty in real and absolute terms even though in relative terms it is impossible by definition? One thing has to be clear: As well as Bill Gates cannot feed the whole USA the rich countries cannot constantly sustain a good life for the poor countries without experiencing huge economic damage themselves. And also, such a huge redistribution of wealth wouldn’t come voluntarily and must be enforced what would become morally equal to robbery. And furthermore, it is much more important to help the people sustainably. Because we want that all people get richer in absolute terms and not just in relative terms like when we would make all people absolutely poorer. Let’s educate the people and support them to get more political freedoms. Let’s save them from (mostly governmental) corruption. For example, it is not always helpful to donate old clothes because they would destroy the textile market in the recipient’s country. It would make the people dependent on our cloth donations. It makes more sense to give for example a micro-loan (maybe through one of the P2P-loan platforms on the internet) to a business person in their textile industry. That helps more than donating money according to the scattergun approach. 1-to-1, without any huge institutions in between!

Please note: I have tried to critically review the empirical studies of Oxfam with rational and also empirical arguments as well. But why I am against empiricism even already on philosophical grounds you will learn HERE.

Do you have more ideas how we can increase the collective wealth of humanity by helping individuals to help themselves? Then please post your suggestions in the comment section. Maybe somebody gets inspired by it to help and lives will be changed!

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