Why do wealthy people act so legitimately

Social inequality

The most common questions about the Oxfam Inequality Report

Since 2015, Oxfam has reported on the status of global inequality every January. But how does Oxfam get these numbers? What can be done about the dramatic inequality? And is social inequality a problem at all?

  1. Isn't poverty a bigger problem than inequality?
    1. Our economic system
    2. Consequences of climate change
    3. Unequal access to education and health
    4. Political exclusion
  2. Is inequality a global problem or only in poor countries?
    1. Inequality in Germany: Opportunities stolen - promises of promotion broken
    2. Inequality in Germany: Endangering Democracy and Society
    3. Inequality in Germany: Economic Development
  3. Is inequality increasing or decreasing?
    1. Global wealth inequality is increasing
    2. Wealth inequality within countries
    3. Income inequality within countries
    4. Global income inequality
    5. A relative decrease can also be an absolute increase
    6. Inequality between men and women
  4. How does Oxfam get inequality on its numbers?
  5. What can be done about inequality?
    1. Increase investment in social justice!
    2. Create gender equality!
    3. Make taxes fair and socially responsible!

Isn't poverty a bigger problem than inequality?

Inequality and poverty go hand in hand: inequality creates and increases poverty. There are the following reasons for this:

Our economic system rewards wealth and perpetuates poverty

Those who are already at the top of the wealth and income ladder benefit from our economic system. The wealth of the richest is reaching new records, while the share of the poorer half of the world's population in global wealth is less than one percent. The situation is hardly different when it comes to incomes.

One of the UN development goals is to end extreme poverty by 2030. However, if the prosperity gains continue to be redistributed from bottom to top to such a large extent, we will not be able to achieve this goal. It is true that the number of people in extreme poverty has fallen worldwide. However, billions of people continue to live just above the extreme poverty line.

If one wanted - while maintaining the current distribution of prosperity gains - to enable everyone to earn at least five US dollars a day by 2030, the global economy would have to grow strongly. However, such growth would be catastrophic given the limited resources our planet has. One thing is certain: if we want to overcome poverty, we must distribute the gains in prosperity more fairly and combat inequality.

Consequences of climate change

Through their lifestyle, the richest in the world are responsible for a large part of the climate-damaging emissions. By contrast, the effects of climate change such as storms, droughts and floods primarily affect people in poverty. Their livelihoods and livelihoods depend more often on intact ecosystems, for example in agriculture. At the same time, poorer population groups have fewer opportunities to adapt to climate changes or to protect themselves from them.

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Unequal access to education and health

Large inequality in income within a country often goes hand in hand with unequal access to education. In some countries, not only rich households but even middle-class families use private education and health offers wherever possible. They lose interest in public systems and, since they do not use them themselves, they no longer want to contribute to their funding.

However, it is fatal if only the poorest are interested in public infrastructure, because their concerns are often less heard (see below) and these services are neglected. A long-term consequence of the lack of comprehensive, good and above all public health care as well as corresponding educational offers is that poverty is cemented. Because access to these public social services is a prerequisite for a healthy and long life. In addition, people can get a well-paid job that offers them a way out of poverty.

The effects of inadequate health care are also dramatic: there is evidence that more people die from preventable diseases when more health services have to be paid for out of their own pocket.

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Political exclusion

If people in extreme poverty have to devote all of their time to ensuring their survival, they have little chance of becoming politically active. In many countries, the participation of poor people in elections and political processes is therefore low - poor people also rarely hold political offices. If people in poverty are denied their right to participate, numerous voices are not heard.

For Oxfam, the solution to this democratic deficit is to seek greater participation and to work with people living in poverty to ensure that their voices are heard.

Is inequality a global problem or only in poor countries?

Inequality is a global challenge and affects people in both poor and rich countries. Globally speaking, the majority of Germans are rich. However, income and wealth are also very unevenly distributed within Germany and Europe.

Here, too, the wealthy and top earners benefit more from our economic system than people with low wages. Despite the booming economy, income inequality in Germany is at an all-time high. And also in this country it is evident that people with lower incomes are less likely to be heard in politics.

Many problems associated with inequality do not differ fundamentally between poor and rich countries, only in intensity.

Inequality in Germany: Opportunities stolen - promises of promotion broken

The conditions may not be as catastrophic as in countries of the global south, but here, too, poverty is passed on over generations as well as wealth and the privileges associated with it. In Germany, too, people in structurally weak regions die much earlier than in affluent areas. And the German education system also makes it difficult for children from low-income families to achieve the same level of education as children from higher-income households.

And in addition to physical health, inequality also has a negative impact on mental well-being, self-image and self-esteem. With increasing inequality, fear of status and decline, as well as stress and depression, increase. People in poverty are given the feeling that they have failed individually, even though it is social structures that mean that great wealth and material shortage are equally inherited.

Last but not least, the idea of ​​fair performance is responsible for this. In a nutshell, this means that those who do not make it to the top have not tried hard enough and are therefore their own fault. In fact, differences in performance are mainly caused by existing inequalities - in income, wealth, but also gender and origin. Income inequality is a major cause of the lack of equal opportunities.

Inequality in Germany: Democracy and Society

In unequal societies, trust in the community decreases and social cohesion suffers. In addition, inequality is fueling a political crisis in this country too, in which wealthy people and large corporations manage to influence politics in their favor. On the other hand, many people lose interest in elections and politics because they do not see their concerns represented and their concerns are less heard.

At the same time, inequality helps people in the middle of society who are not affected by poverty to feel increasingly threatened by social decline or not recognized by society.

But poverty and social fears are not due to personal weaknesses or to one's own inability. Inequality creates these structures of social division, and together we can overcome them.

We need greater equity in the distribution of income and wealth. In the long run, this can only succeed if poor sections of the population are equally involved in the processes in which decisions are made about the distribution of resources.

Inequality in Germany: Economic Development

Last but not least, the current extent of inequality cannot be justified economically either. While it has long been said that inequality is necessary to create economic growth, even the International Monetary Fund is critical of this today. The following three arguments show that a rethink is necessary:

  1. When poorer populations have low incomes and cannot afford anything, inequality drives demand.
  2. If numerous people do not have the opportunity to gain comprehensive education and to use their talents economically, the potential for production and innovation will not be exhausted.
  3. The market concentration in numerous economic areas - such as the digital economy or the food sector - is an obstacle. If the world's largest corporations use their market power, they siphon off much more profits, thereby expanding their financial power, buying up smaller competitors and further safeguarding their supremacy.

Critics accuse Oxfam - and others who address social inequality - for dividing society. In reality, however, it is the daily experience of inequality that breaks social cohesion. Inequality - not the criticism of it - harms economic development, the fight against poverty, heats up global warming and undermines democracies.

This also makes it clear that we all have a lot to gain if we succeed in overcoming inequality - more social cohesion, more solidarity and more trust. In societies with lower inequality, there are fewer violent crimes and people feel more secure. Less inequality increases people's willingness to stand up for the common good: The stress of having to keep up with others decreases and releases energies for joint commitment. Let's do it!

Is inequality increasing or decreasing?

Before one can answer this question as to whether inequality is increasing or decreasing, it must first be clarified which inequality is actually being talked about.

Inequality can be related to capital as well as on income to be determined. Wealth and income inequality are not identical, but they are intertwined: income can be converted into wealth if it is not consumed. This is especially possible for those with higher incomes. Wealth can generate additional income, for example when investments generate returns. But every small saver knows: relevant profits from assets are achieved primarily by those with higher incomes.

These forms of inequality can be measured both globally and nationally. National inequality captures the differences in income or wealth within a country's population.

National inequality is relevant as numerous policies by policymakers that influence inequality have the greatest impact here. In addition, people tend to compare themselves with people in their environment before they make comparisons with people in other parts of the world.

Global inequality captures income and wealth differences between all people in the world. For a development organization like Oxfam, global comparison is important because economic gains come from global manufacturing and trading activities. Extreme wealth and extreme poverty are linked by the globalized economic system and must therefore be looked at together.

There are also other forms of inequality, for example in access to education, health care or in political participation. These are often closely related to income and assets - but also to gender and origin.

Global wealth inequality is increasing

Global wealth inequality is dramatic and has worsened over the years, as demonstrated by Oxfam's annual inequality reports.

Wealth inequality within countries

National wealth inequality has also increased in many places over the past few decades.

Income inequality within countries

Income inequality within national borders is increasing in numerous countries. As this particularly affects populous countries, seven in ten people worldwide live in a country where income inequality has increased. In Germany, too, income inequality has risen over the years. Within Europe, Germany is in the middle when it comes to income inequality.

At the same time, there are numerous opportunities for governments to successfully combat income inequality, especially at the national level: through fair tax policy, through investments in health, education and social security, as well as through fair wages and equality for women. Therefore, inequality does not increase equally everywhere, but especially where governments are not sufficiently committed.

Global income inequality

According to the World Bank, global income inequality is decreasing. So this could be the only one of the four levels of inequality that has given the all-clear. However, if the world were a country, it would show a similar level of inequality as South Africa, one of the most unequal countries in the world.

The data from the World Bank show above all that the difference between an average income in, for example, China and Germany has decreased. The reason for this is that incomes in China have grown significantly faster than in Germany; this also applies to a number of other densely populated Asian and Latin American countries. However, if China alone was excluded from this calculation, global income inequality would have increased further. The fact that many Chinese now have higher incomes is to be welcomed. However, this is not enough to speak of a trend reversal in global income inequality. In addition, there is the persistent absolute inequality, which is shown in the next section.

For the latest figures, see our Oxfam Inequality Report.

A relative decrease can also be an absolute increase

There is also no all-clear with a view to global inequality because the measurements mentioned above all relate to relative differences. But absolute changes are also of great importance for the poorest.

This is clear from the following example: Person A earns US $ 2 per day, Person B earns US $ 200. If both receive a 50 percent wage increase, the relative inequality between the two does not increase. Person B will still have 100 times more income than person A. At the same time, absolute inequality is increasing: Person A's income only increases by $ 1, while Person B receives an increase of $ 100. The absolute gap between the two has grown from $ 198 to $ 297.

So there can be a decrease in relative and an increase in absolute income inequality at the same time - and this is exactly what has happened at the global level.

Inequality between men and women

Inequality does not only exist between rich and poor, it also exists between men and women.

One cause are laws that prevent women in many places from having access to resources such as land, loans or inheritance. In addition, these laws discriminate against women in labor, tax or inheritance law. Social norms and stereotypes that define parenting, care and housework as “women's work” also stand in the way of real equality.

As a result - and because there is a lack of public services in these areas - it is women and girls who primarily take on the unpaid care of children, elderly and sick people, as well as washing, cleaning and cooking. The time that women spend in unpaid and hardly recognized care work is lacking for them to generate an income, to gain further qualifications and to make their own interests heard.

Especially at the age when women can have children and devote themselves to their care and upbringing, they are more often affected by poverty. As a result, women have fewer opportunities to do paid work throughout their lives. They also have to do more precarious or poorly paid work. Women can thus build up fewer assets and independent social security, which means that they are more likely to live in poverty even in old age.

Last but not least, women often lack the time to get involved in political processes due to their unpaid additional tasks.Where politics is neither made by nor for women, this increases their disadvantage. An economic system that does not recognize, value and redistribute unpaid care work is not fair - it is primarily made by men for men.

How does Oxfam get inequality on its numbers?

Oxfam's annual calculations of global wealth inequality are based on data from the major Swiss bank Credit Suisse on the wealth of the world's population and on research by Forbes magazine on the wealth of the super-rich. The figures are not easy to collect, neither for the richest nor for the poorest.

The small wealth of an Indian farmer or, for example, his debts to a moneylender in the neighboring village are not necessarily included in official statistics. Neither are the billions of wealth of the super-rich parked in tax havens recorded. Such partial data gaps are supplemented by the researchers at Credit Suisse and Forbes with projections and estimates - both are common methods in economics.

In sum, these are the two best available sources for the global distribution of wealth that have been consistent over the years. They are also continuously updated. Each year, Credit Suisse therefore retrospectively reports revised figures for previous years in line with the new information. Forbes annually compiles a list of the world's billionaires.

We explain our calculations in detail every year in an English-language "Methodology Note," which is available on our website together with our reports.

Here you can find our current publications on global inequality.

We have dealt with criticism of our figures and calculations in detail here and here over the past few years.

5. What can be done about inequality?

Inequality is not a force of nature. The deep and growing gap between rich and poor is the result of political decisions. The central question is what governments levy taxes on and what they use them for. There are a number of starting points for governments around the world to tackle inequality.

Decisive action in three areas is essential for this:

Increase investment in social justice!

Free public education, health care and social safety nets are indispensable in the fight against poverty and inequality - and important for more gender equality. To finance these services, states need leeway that cannot be restricted by austerity dictates. This applies to Germany and Europe as well as to partner countries in development cooperation.

Create gender equality!

The differences between the sexes in terms of income, wealth and political participation are huge in many places and need to be reduced. In particular, the rights of women must be strengthened globally, and we must promote equality for women in Germany and Europe.

Make taxes fair and socially responsible!

In order to invest in social justice and equality, corporations and the super-rich must make their fair contribution to the common good. We have to stop tax avoidance, tax corporations appropriately and make the super-rich more accountable.

Germany as one of the world's leading economic powers and the European Union as the largest economic area in the world have a special responsibility here. The right course must be set, through a policy of solidarity and openness to the world that effectively combats social inequality here, in Europe and worldwide.