OurFuture.org by People's Action

A New Benchmark for Measuring Progress Against Inequality

Oxfam is once again making headlines on inequality. On the eve of the annual Davos World Economic Forum in Switzerland, the activist global charity released its own annual contribution to the global economic debate: an updated analysis of our planet’s grand divides in income and wealth.

As usual, this year’s Oxfam analysis featured some incredibly vivid stats. The world’s billionaires saw their combined wealth soar by $762 billion in 2017, the new study points out, enough to end global extreme poverty seven times over.

Also as usual, Oxfam’s 2018 analysis includes a list for recommendations for helping the world become a more equal place. In past years, news media accounts on Oxfam’s annual inequality reports have by and large ignored these recommendations. And this year? Unfortunately, the same story.

Staggering Economic Divides

Oxfam’s annual recommendations have neatly catalogued the world’s best egalitarian thinking on what we need to do to narrow our staggering contemporary economic divides. The latest Oxfam inequality-busting proposals continue that tradition.

The 2018 recommendations, for instance, highlight the notion of a global wealth tax on billionaires and urge governments to push policies that promote, within corporations, pay ratios that have top execs making no more than 20 times the pay of their most typical workers.

This year’s Oxfam recommendations explore important new ground on another front as well. The world’s governments, says Oxfam, should set a core egalitarian benchmark for their economies. In no nation, urges Oxfam, should the income share of the top 10 percent run higher than the income share of the bottom 40 percent.

Oxfam didn’t pluck these 10 and 40 percent numbers out of thin air. In nation after nation, researchers have shown over recent years, substantial shifts in income seem to be largely taking place only within the ranks of society’s most affluent 10 and poorest 40 percents.

The income share of people who make less than the most affluent 10 and more than the poorest 40 percent, analysts have found, tends to remain stable.

The Palma Ratio

Gabriel Palma, a Chilean economist now at Cambridge, has led the way on this research. Out of his work has come a tool —  the “Palma ratio” — for tracking and comparing inequality rates at the national level. This simple-to-understand Palma ratio expresses a nation’s inequality as the relationship between its top 10 and bottom 40.

In a society with a Palma ratio of 3, the top 10 percent would be grabbing three times the income share of the bottom 40 percent.

Norway, one of the world’s most equal nations, currently sports a Palma ratio of 0.9, the UN Human Development Report calculates. Norway’s most affluent 10 percent is taking a smaller share of Norwegian income than Norway’s poorest 10 percent. In Japan, another relatively equal nation, the Palma ratio runs 1.2.

In the United States, by contrast, the top 10 percent is collecting twice as large a share of national income as the bottom 40 percent. In South Africa, the top decile of the population is taking an astonishing seven times the income share of the bottom 40.

Economists like Nobel laureate Joseph Stiglitz want to see the United Nations set a goal that encourages all nations to reach — by the year 2030 — a Palma ratio of just 1. The new Oxfam inequality report just may help bring that needed goal more than a little bit closer.

Labor journalist Sam Pizzigati, an Institute for Policy Studies associate fellow, co-edits Inequality.org. Among his books: The Rich Don’t Always Win: The Forgotten Triumph over Plutocracy that Created the American Middle Class, 1900-1970 (Seven Stories Press, 2012) and The Case for a Maximum Wage (Polity, 2018). Follow him on Twitter at @Too_Much_Online