Oxfam, the international charity organisation, has warned in their latest report that growing inequality if left unchecked threatens to pull societies apart and undermines the fight to end poverty.
The report “An Economy for the 99%” was released on Monday, a day before world leaders convene at Davos for the annual World Economic Forum where issues of inequality are expected to take centre stage. Oxfam said new data from its report shows that total global wealth has reached a staggering $255 trillion. Since 2015, more than half of this wealth has been in the hands of the richest 1% of people. At the very top, this year’s data finds that collectively the richest eight individuals have a net wealth of $426 billion, which is the same as the net wealth of the bottom half of humanity.
The report describes how wealth continues to accumulate for the wealthy, and how capital owners have consistently seen their returns outstrip economic growth over the past three decades. Oxfam’s previous reports have shown how this extreme and growing wealth in the hands of a few translates to power and undue influence over policies and institutions.
In a press release summarizing the report, Oxfam outlined how the inequality crisis is being fuelled by companies whose business models are increasingly focused on delivering ever-higher returns to wealthy owners and top executives. Companies are structured to dodge taxes, drive down workers' wages and squeeze producers instead of fairly contributing to an economy that benefits everyone.
Mark Goldring, Oxfam GB Chief Executive, said: "This year's snapshot of inequality is clearer, more accurate and more shocking than ever before. It is beyond grotesque that a group of men who could easily fit in a single golf buggy own more than the poorest half of humanity.
"While one in nine people on the planet will go to bed hungry tonight a small handful of billionaires have so much wealth they would need several lifetimes to spend it. The fact that a super-rich elite are able to prosper at the expense of the rest of us at home and overseas shows how warped our economy has become.
"Inequality is not only keeping millions of people trapped in poverty, it is fracturing our societies and poisoning our politics. It's just not right that top executives take home massive bonuses while workers' wages are stagnating or that multinationals and millionaires dodge taxes while public services are being cut."
The report states that many people experiencing poverty around the world are seeing an erosion of their main source of wealth–namely land, natural resources and homes –as a consequence of insecure land rights, land grabbing, land fragmentation and erosion, climate change, urban eviction and forced displacement.
Oxfam says while hundreds of millions of people have been lifted out of poverty in recent decades, one in nine people still go to bed hungry and had growth been pro-poor between 1990 and 2010, 700 million more people, most of them women, would have escaped poverty over this period.
The report describes how life for the world's poorest people remains brutally hard. The incomes of the poorest 10% of people increased by $65 between 1988 and 2011, equivalent to less than $3 extra a year, while the incomes of the richest 1% increased 182 times as much, by $11,800. Oxfam’s research has revealed that over the last 25 years, the top 1% has gained more income than the bottom 50% put together, and almost half (46%) of total income growth went to the richest 10%
“This is important because the poorest 10% of the global population still live below the extreme poverty line of $1.90 a day, and the World Bank has projected that with the current income distribution we will fail to meet the global target to eradicate poverty by 2030. Even this is a modest ambition, as the national poverty lines of countries themselves is in fact above $1.90 a day. Closer to three billion people, or half the global population, live below the “ethical poverty line”, calculated as the amount per day that would enable people to achieve a normal life expectancy of just over 70 years,” the report said.
According to the report, the rise in wage gap and the decline in workers collective bargain have colluded to accelerate inequality particularly in developing countries. The report notes that within the labour share, wage disparities have been growing. Wages in low-skill sectors in particular have been falling behind productivity in emerging economies and stagnating in many rich countries, while wages at the top continue to grow.
Moreover, in many developing countries where wage disparities are growing, the pay gap between workers with different skills and education levels is a key driver of inequality. Highly skilled workers with more education see their incomes rise, while low-skilled workers see their wages reduced.
“The changing structure of the jobs market and associated decline of collective bargaining makes things worse. Various factors have led to the decline in the proportion of workers who are members of unions, and the IMF has found a relationship in advanced economies between this decline and the increasing share of incomes of the top 10%,” the report highlighted before adding that the informal sector continues to be one of the most important sources of income for people, especially women, in low-income countries, where workers are not entitled to minimum wages or workers’ rights and are therefore vulnerable to abuse.
Oxfam is calling for a fundamental change in the way economies are managed so that they work for everyone, not just a privileged few. The report is published amid increasing concerns about the economic status quo, with the Bank of England's Chief Economist warning recently that a 'rebirth of economics' is needed to replace out-dated models.
“Oxfam is calling for a more human economy where markets – a vital engine for prosperity – are better managed in order to ensure no one is left out or denied basic rights such as decent work, healthcare and education.” Key features would include:
improved cooperation between governments to prevent tax dodging that costs poor countries at least $100 billion every year; Government action to encourage companies to act for the benefit of their workforces and wider society as well as their executives and shareholders; taxes on wealth to generate funds for healthcare, education and job creation; action to tackle the barriers that hold back women including lack of education opportunities and the burden of unpaid care work.
“Ultimately it is governments which are responsible for the rules, regulations and policies that govern our economies and shape our societies. Governments can, if they choose, use their power and policy tools to have a huge impact on reducing inequality in a country, and work in the interests of those towards the bottom of the economic distribution and of society more broadly. Or they can stand back and let the gap between the rich and the poor grow, exacerbating the inequality crisis,” the report advised.
This century is always looking at improving new super high speed technology to make life easier. On the other hand, beckoning as an emerging fierce reversal force to equally match or dominate this life enhancing super new tech, comes swift human adversaries which seem to have come to make living on earth even more difficult.
The recent discovery of a pandemic, Covid-19, which moves at a pace of unimaginable and unpredictable proportions; locking people inside homes and barring human interactions with its dreaded death threat, is currently being felt.
Member of Parliament for Kanye North, Thapelo Letsholo has cautioned Government against excessive borrowing and poorly managed debt levels.
He was speaking in Parliament on Tuesday delivering Parliament’s Finance Committee report after assessing a motion that sought to raise Government Bond program ceiling to P30 billion, a big jump from the initial P15 Billion.
Government Investment Account (GIA) which forms part of the Pula fund has been significantly drawn down to finance Botswana’s budget deficits since 2008/09 Global financial crises.
The 2009 global economic recession triggered the collapse of financial markets in the United States, sending waves of shock across world economies, eroding business sentiment, and causing financiers of trade to excise heightened caution and hold onto their cash.
The ripple effects of this economic catastrophe were mostly felt by low to middle income resource based economies, amplifying their vulnerability to external shocks. The diamond industry which forms the gist of Botswana’s economic make up collapsed to zero trade levels across the entire value chain.
The Upstream, where Botswana gathers much of its diamond revenue was adversely impacted by muted demand in the Midstream. The situation was exacerbated by zero appetite of polished goods by jewelry manufacturers and retail outlets due to lowered tail end consumer demand.
This resulted in sharp decline of Government revenue, ballooned budget deficits and suspension of some developmental projects. To finance the deficit and some prioritized national development projects, government had to dip into cash balances, foreign reserves and borrow both externally and locally.
Much of drawing was from Government Investment Account as opposed to drawing from foreign reserve component of the Pula Fund; the latter was spared as a fiscal buffer for the worst rainy days.
Consequently this resulted in significant decline in funds held in the Government Investment Account (GIA). The account serves as Government’s main savings depository and fund for national policy objectives.
However as the world emerged from the 2009 recession government revenue graph picked up to pre recession levels before going down again around 2016/17 owing to challenges in the diamond industry.
Due to a number of budget surpluses from 2012/13 financial year the Government Investment Account started expanding back to P30 billion levels before a series of budget deficits in the National Development Plan 11 pushed it back to decline a decline wave.
When the National Development Plan 11 commenced three (3) financial years ago, government announced that the first half of the NDP would run at budget deficits.
This as explained by Minister of Finance in 2017 would be occasioned by decline in diamond revenue mainly due to government forfeiting some of its dividend from Debswana to fund mine expansion projects.
Cumulatively since 2017/18 to 2019/20 financial year the budget deficit totaled to over P16 billion, of which was financed by both external and domestic borrowing and drawing down from government cash balances. Drawing down from government cash balances meant significant withdrawals from the Government Investment Account.
The Government Investment Account (GIA) was established in accordance with Section 35 of the Bank of Botswana Act Cap. 55:01. The Account represents Government’s share of the Botswana‘s foreign exchange reserves, its investment and management strategies are aligned to the Bank of Botswana’s foreign exchange reserves management and investment guidelines.
Government Investment Account, comprises of Pula denominated deposits at the Bank of Botswana and held in the Pula Fund, which is the long-term investment tranche of the foreign exchange reserves.
In June 2017 while answering a question from Bogolo Kenewendo, the then Minister of Finance & Economic Development Kenneth Mathambo told parliament that as of June 30, 2017, the total assets in the Pula Fund was P56.818 billion, of which the balance in the GIA was P30.832 billion.
Kenewendo was still a back bench specially elected Member of Parliament before ascending to cabinet post in 2018. Last week Minister of Finance & Economic Development, Dr Thapelo Matsheka, when presenting a motion to raise government local borrowing ceiling from P15 billion to P30 Billion told parliament that as of December 2019 Government Investment Account amounted to P18.3 billion.
Dr Matsheka further told parliament that prior to financial crisis of 2008/9 the account amounted to P30.5 billion (41 % of GDP) in December of 2008 while as at December 2019 it stood at P18.3 billion (only 9 % of GDP) mirroring a total decline by P11 billion in the entire 11 years.
Back in 2017 Parliament was also told that the Government Investment Account may be drawn-down or added to, in line with actuations in the Government’s expenditure and revenue outturns. “This is intended to provide the Government with appropriate funds to execute its functions and responsibilities effectively and efficiently” said Mathambo, then Minister of Finance.
Acknowledging the need to draw down from GIA no more, current Minister of Finance Dr Matsheka said “It is under this background that it would be advisable to avoid excessive draw down from this account to preserve it as a financial buffer”
He further cautioned “The danger with substantially reduced financial buffers is that when an economic shock occurs or a disaster descends upon us and adversely affects our economy it becomes very difficult for the country to manage such a shock”