Thursday, January 23, 2014

Working For The Few

Oxfam released a new report in conjunction with the World Economic Forum in Davos:

Working for the Few: Political capture and economic inequality

Almost half of the world’s wealth is now owned by just one percent of the population, and seven out of ten people live in countries where economic inequality has increased in the last 30 years. The World Economic Forum has identified economic inequality as a major risk to human progress, impacting social stability within countries and threatening security on a global scale.

This massive concentration of economic resources in the hands of fewer people presents a real threat to inclusive political and economic systems, and compounds other inequalities – such as those between women and men. Left unchecked, political institutions are undermined and governments overwhelmingly serve the interests of economic elites – to the detriment of ordinary people.

In this paper, Oxfam shows how extreme inequality is not inevitable, with examples of policies from around the world which have reduced inequality and developed more representative politics, benefiting all, both rich and poor. Oxfam calls on leaders at the 2014 World Economic Forum at Davos to make the commitments needed to counter the growing tide of inequality.

Just a sampling of their findings (taken from the summary):

  • Almost half of the world’s wealth is now owned by just one percent of the population.
  • The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.
  • The bottom half of the world’s population owns the same as the richest 85 people in the world.
  • Seven out of ten people live in countries where economic inequality has increased in the last 30 years.
  • The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.
  • In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer.

Stultifying numbers indeed. There are a set of policy recommendations that we should take a serious look at, given Malaysia’s also relatively high level of income and wealth inequality:

  • Cracking down on financial secrecy and tax dodging;
  • Redistributive transfers; and strengthening of social protection schemes;
  • Investment in universal access to healthcare and education;
  • Progressive taxation;
  • Strengthening wage floors and worker rights;
  • Removing the barriers to equal rights and opportunities for women.

Yes, BR1M actually makes sense and so will unemployment insurance when and if it actually comes in; though income tax cuts do not. We also need a mechanism for the automatic adjustment of the minimum wage, which I’m uncertain whether it is in place.

You can see some of the source data that Oxfam uses here. The database includes Malaysia.


  1. Hishamh,

    One of my biggest concern is cost of health care. Certainly for the well to do, there is no concern for them. But for the general population, access to quality health care at low cost is an issue that Malaysia will need to address. While our current system is OK, and heavily subsidized, how can we continue and make it better?

    Zuo De

  2. 1) The Malaysia database makes no sense on my Firefox. I click and drag the graph but no data appears.

    2) all the talk about redistribution of wealth and income seem to leave the middle class out of the discussion. they are the working folks, they contribute to the economy output (arguably more than the low income group) but don't get their fair share of salaries. they consume almost as much subsidy as the wealthy folks (cept they actually need it) but shift to targeted assistance are only targeted to the poor (eg BR1M only covers 4K income household below).

    3) take for exp the recent news that RON95 will be targeted to the poor (any inside news how this will be done? by car CC?). it is a good idea. however the middle class need subsidized RON95 too cause there's no viable public transport alternatives (eg look how unreliably expensive taxis are -- why can't individuals get permit easily?). government need to get both side of the equation right -- remove subsidy, redistribute income and take apart monopolies and political patronage. the latter is lacking in light of the recent subsidy cut

    4) the assistance for the poor need to be conditional too (eg look for job, get higher BR1M). it is not just about redistribution income but also instilling the behaviour change to move out of poverty (ie the proverbial teach a man to fish analogy). the middle class too, by nature of them being the working folks, deserve assistance so they to can break the glass ceiling and earn higher wages.

    5) just ranting. hopefully the people in power reading your blog can take note.

    @Zuo De

    ironically, on the Net, everybody bash public healthcare. it is sad when people describe going to govt hospitals as gambling for the lives.

    1. @Zuo De

      Yes, heatlhcare will become progressively more important in the years to come. We are currently a very "young" country, but as the population ages, geriatric medicine will take on greater prominence. I don't think the government is fully prepared for that eventuality. There's a business opportunity in there somewhere, just as pediatrics and childcare services and education are the big thing right now.


      1. Try the database download instead.

      2. I'm actually half inclined towards a negative income tax, which would be more efficient than the blanket handouts we have now.

      3. Apparently, it's still under study, though for the life of me I don't know how it can be implemented. Car engine size isn't a good proxy - the rich would just trade down. Agree on the rest of it. Price controls and monopolies should go, where possible.

      4. Also agree. It's a point that many local economists have repeatedly raised with EPU and MoF.

      5. As long as it doesn't involve name-calling or ad hominem attacks, all rants are welcome on this blog!

    2. 1) thanks

      2) like UK's Working Tax Credit? I can see that supplementing BR1M for the low income group. there's incentive work too. but more difficult to implement of course. for the middle class, it is easier to identify and cheaper to implement direct assistance, just use EPF.

      3) well at least proton and produa may see higher sales. btw can the economy stomach another subsidy cut for petrol this year? assuming crude oil WTI price stay below 100.

    3. @anon

      Yes, I think we can stomach another subsidy cut. In fact I'm hoping the oil price might fall a bit further. The reason is because that would minimise the number of subsidy cuts required to bring the pump price in line with market prices.

      Having said that, the government really should have a timetable for this - the arbitrariness of the current process is part of the reason people are pissed off.

    4. yes, it is like a surprise divorce but somehow you hear rumors about it weeks before the date. sometimes you just hear rumors

      I was thinking.. why not do price hike at the same time when most ppl are due their bonus and increments (too late now?). by announcing it months beforehand, the salary bargaining process can start earlier. when prices go up, salary goes up.

    5. That would be a good idea, though I doubt Treasury would display that much good sense.

    6. 1)hopefully the people in power reading your blog can take note.

      2) it seems the current process is to only cut subsidy when the deficit target not gonna be met.

      3) how long is the ideal time period to remove all subsidy? 5 years is politically impossible and requires iron will (after subsidy is removed, you get voted out). 1 year is too much pain. where's the middle ground? 2-3 years?

    7. @anon

      2) I think the deficit target will be easy to meet - that's not really an issue. Keeping debt below 55% might be harder, which is why the subsidy cuts have been so quick.

      3) Politically, they'll probably need a year for gearing up to the next GE, so early 2017 would be the latest.