Washington, D.C., September 20, 2005
World Bank Chief Economist
Francisco Ferreira and Michael Walton
WDR Lead Authors
MR. NEAL: Good morning, ladies and gentlemen, and thank you for coming. I'm sorry we are a little bit late.
My name is Chris Neal. I am the External Affairs Officer for the Development Economics Department here at the World Bank, and I am pleased to present to you today the World Development Report on Equity and Development.
We have the team here before you. I'll start with, on my far left, Francisco Ferreira, who is with Michael Walton on my immediate left, the two lead authors, co-authors, of the World Development Report.
This is a report that is produced by a team of about ten people altogether whose names are in the Report, in the Preface to it. And both Mr. Walton and Mr. Ferreira are long-time economists with the World Bank.
Mr. Walton is now teaching at Harvard University, actually, but has been brought in to work on this Report, and Francisco Ferreira is a Lead Economist in the Development Economics Department.
But before going to Francisco Ferreira, who will actually present the Report, I would like to first ask Francois Bourguignon, our Chief Economist and Vice President for Development Economics, who has played really a guiding role in this Report and in developing the idea of doing a report on equity and development--having this subject chosen as the subject for this year's World Development Report has really been driven by Francois Bourguignon at its outset--and I would like to ask him to give an overview of how this Report arose, and why equity matters, and then we'll go to Francisco Ferreira to present the findings, and then we'll go to questions.
Thanks very much.
MR. BOURGUIGNON: Thank you very much, Chris, and good morning, ladies and gentlemen.
It is a pleasure to be here today to present the key findings of this Report on Equity and Development.
The findings will really be presented by the authors of this Report, and I would only like to mention to you the reason why we got into this Report and the main lessons that were taken away from that work.
So this World Development Report 2006 discusses equity and development. Equity can be seen as an essential part when we think about poverty reduction strategies.
Poverty reduction is, in a very mechanical way, obtained through two types of mechanisms. One is the growth of the economy and the fact that if, in an economy, all incomes or all consumption levels are growing at the same rate, then necessarily poverty will be reduced at a speed that will depend on the rate of growth, the common rate of growth, of income in that economy.
So this is the impact of growth on poverty, and this impact is absolutely crucial, essential.
But at the same time, if you are in an economy where incomes are not growing at the same rate for everybody--the average is growing at some rate, but some people are growing at a rate faster than average and others at a rate slower than average--if the people whose income is growing slower than average are at the bottom of the distribution of the poor people, then of course, growth is not bringing about as much reduction in poverty as could be the case if growth were neutral in terms of distribution.
So this means that behind poverty reduction, we have two forces--on the one hand, forces which determine the distribution of income in the population, and on the other hand, forces that determine the rate of growth, the common rate of growth, of this income.
The issue for development strategy is therefore to see what is the relationship between those two aspects. Is it the case that by accelerating growth, we are modifying the distribution? If this is the case, then we have a choice to make in the strategy. Or, is it the case that if we want the distribution to be more favorable to the poor, more equal, we are affecting the rate of growth of the economy, maybe negatively. Then again, if this is the case, we have to think about what is the strategy that we want to bring.
So, some work has been done for some time on this area of the relationship between inequality of incomes or concentration levels, something which in the Report we call "outcomes of economic activity," and the rate of growth.
This Report goes beyond that in the sense that the concept on which it insists is not the concept of inequality of outcomes--although this is really part of the whole action in the Report, of course--but the primary concept or the primary concern of the Report is with equity, which is defined as "equality of opportunities."
So it is equality before we know the outcome of economic activity, the access that people have to economic facilities like the credit market, the access that people have to education, to health services, the access that they may have to the labor market--are they discriminated against on the labor market--the access they may have to the public decisionmaking, the political process, at the local level or at the national level.
All this is determining the opportunities of the people and the way in which they may generate a satisfactory level of living or not. And this is the focus of this Report for one fundamental reason, which is that what we find in this Report, and the main conclusion of the Report, is that there is a complementarity between more equity in the sense of better distribution of opportunities and more equal distribution of opportunities in a society, and the rate of growth, of the efficacy, efficiency, of that society.
This is the main message of the Report, which is that by generating more equity, it is possible not only to get a fairer society, which is a goal that we would all share on ethical or moral grounds, but it is possible to generate a society which is more efficient, which will grow faster.
So equity must be sought for not only intrinsically but must be sought for because it is a very important complement in determinants of economic development and economic growth.
So this is the main message of the Report.
I would like to mention that it is not a new direction for the Bank. We see this message as really combining or unifying what we call the two pillars of the Bank development strategy. You may remember that the two pillars are, on the one hand, the investment climate--that is, all the factors which are responsible for growth, for entrepreneurship, for investment, and on the other hand, the second pillar is what we call empowerment or human development, which is really empowering the poorest people in a society.
What this Report is saying and is doing is to put together those two pillars and to say don't consider that these are two strategies which must be developed in a parallel way. Think of these two strategies as being essentially complementary to each other. More growth will bring more opportunities in the population, but better distribution of those opportunities and the fact that more opportunities will be brought to the poorest people will generate faster growth. The fact that there will be less capture by the elites in a society of key markets will also be contributing to faster growth. This is the full set of relationships that is being explored in the Report.
I think that I have already been a little long, and I will leave the authors of the Report to present it to you, the basic relationships and the policy implications.
Chico, I think you are responsible for that.
MR. FERREIRA: I am even less coherent when I am sitting down, so I'm going to stand up.
As Francois and Chris have already said, this Report is the result of work from a large team of people in addition to the four of us who are here today. This is the 28th Report in the annual series of World Development Reports that the Bank puts together. And what I want to do in the next 15 minutes is jus give you a flavor of some of the detail in the Report now that Francois has already given you the headlines, as it were. And I will do that quickly but based on the same structure that the Report has--an introduction, where we make it very clear what we mean by "equity," since this word can mean different things to different people; then, a descriptive part where we go over the evidence of inequities around the world, both within and across countries; then, the part where we ask why do we care; and finally, the most important part, which is where, on the basis of the diagnostics in the first two parts, we ask what does it imply for policy for developing countries, and we argue that there is a role for public action in leveling the economic and political playing fields.
So in the Introduction, the first thing we ask is what we mean by equity, and it is a different thing from equality. Equality and inequality are positive terms in the sense of the word that means "descriptive." They just describe how equal or unequal a distribution is. Whereas equity has a normative concept to it. It is related to what a people or a society perceive as fair.
There are many different perspectives on what equity is in the world--legal, philosophical, religious--and we look a little bit at some of those in the Report, but we draw basically a simple set of two principles that we use as a common denominator for what equity is for us, and fundamentally, the first one of those is equality of opportunity.
What we mean by equality of opportunity is that what a person achieves in his or her life should be driven by his or her efforts, his or her preferences and talents, and not by predetermined circumstances such as his or her race, gender, social group they belong to, the background of their families, the place of their birth.
So equality of opportunity is about outcomes being driven by preferences and efforts.
There is a subsidiary principle there which is the avoidance of absolute deprivation. Society may decide, even if a society had achieved equality of opportunity, that if I am very unlucky or very lazy, still society wouldn't want to let me starve. If that's the case, then that is a separate sub-principle there; it is the principle of avoidance of outcome deprivation.
But the essence of our view of equity in this Report is really to provide equal opportunities, equal chances in life, for people.
Now, the other concept that we introduce in this first part of the Report is to answer the question, well, if equity is such a great thing, as we are going to claim in the Report, if it is intrinsically valuable on moral and ethical grounds as Francois said, and if it is also instrumentally valuable in that it is complementary to growth, why don't we see more of it around? Why isn't there equity everywhere? Why do we observe inequity?
And the reason why we observe inequity is that political systems and governments are not necessarily benevolent dictators trying to maximize what is best for everyone in society. But what they do is they represent group interests, the interests of different sets of people in society.
So it is possible that a country may find itself in a kind of low-level equilibrium, in a kind of trap where interactions between economic inequalities and political inequalities and social-cultural inequalities reinforce one another and perpetuate inequalities through institutions.
So what we are talking about, for instance, is that a group of people may own all of the land in a country, and they may therefore also control political power in that country, and therefore, the government policies that arise from that equilibrium will not necessarily be the ones that are best for the country as a whole; they may protect the interests of that small elite.
When a country is stuck in that kind of trap, we call it an "inequality trap," and we find that these inequality traps can explain the persistence of highly inequitable low-growth equilibria, as we observe in some countries in the world.
Now, having introduced these two concepts--the concept of what we mean by equity, particularly the idea of inequality of opportunity, and also the idea of inequality traps, let me give you just a few examples from the descriptive part of the Report, from Part I of the Report where we look at evidence.
Here, our main problem was how do we measure inequality of opportunity. It is already difficult enough to measure income inequality, but how do we measure inequality of opportunity? Opportunities are potentials rather than actuals, so they are harder to measure.
This graph just gives you an example of that, and there are many like it in the Report. Let me tell you what this graph has.
On the left here, we have infant mortality rates--so, of 1,000 live births, how many kids die before their first birthday in a set of countries which you have there. We know that it varies across countries. The line right in the middle there gives you the average infant mortality rate per countries. But what we focus on in particular in this Report are the differences within a single country.
So, for instance, if you look at El Salvador, this country right over here, here at the bottom of the line, we have infant mortality rates for kids in El Salvador whose mothers are educated, whose mothers have secondary or higher education, and that is about 25 per 1,000.
Now, for those mothers who have no education, infant mortality amongst their kids is four times as high--four times as high--at 100 per 1,000. So one in 10 kids in El Salvador whose mothers have no education die before their first birthday.
We see this as prima facie evidence of unequal opportunities in the sense that it is circumstances that are clearly beyond the kid's control. It's not that this child isn't trying very hard in their first year of life, right--it's something about their family background, the education of the parents, which is correlated to wealth, which is correlated to access to services, is correlated to access to clean water. All of these things are affecting the very basic opportunity of life, the most basic opportunity of all, and for some groups, it is four times as high as it is for other groups.
So here are morally irrelevant predetermined circumstances affecting life chances right from the beginning. And unfortunately, the evidence suggests that it doesn't get a whole lot better as children get older.
Here, we've got a study of the development of cognitive ability, the ability to learn, amongst children age 3 to 6--that's in months there, so that is 36 months to 72 months--in Ecuador. And here, the authors have divided the sample into population subgroups. So here, for instance, we have the richest 25 percent and the poorest 25 percent.
Now, what is on the vertical axis is a measure of cognitive ability which social psychologists have developed and which has to do with vocabulary recognition. In this case, it is the number of words that these kids recognize in Spanish, normalized to what should be right for the age, and what should be right for the age is 100 there. It is always normalized to 100; 100 is what an international comparison group says these children should be having this kind of cognitive ability, this kind of vocabulary recognition.
What you see is that whereas the wealthiest 25 percent or those kids whose mothers have 12 or more years of schooling do quite well, they in fact come slightly above the norm after a while. But the poorest 25 percent of the kids, or the kids whose parents are less educated, whose mothers have zero to five years of schooling, are doing much less well. There is a big divergence there between the cognitive ability of those kids.
So an important thing to emphasize is that even before they get out of primary school, their opportunities, their ability to learn, their ability to benefit from investment in schooling is already different on the basis of family background, on the basis of opportunities that are defined before they get there.
And if the opportunity gaps are very large within countries, they are if anything even larger across countries.
In this graph, we have another measure of the opportunity for life, which is how long people can expect to live in certain countries--the life-expectancy at birth.
Let's look first at the bottom picture there, which is the distribution of people, of the world's population, by the life expectancy at birth--by how many years these people can expect to live. And what we see is that the person's nationality, where a person is born and lives, is a key determinant of that. For instance, whereas in Western Europe, Japan, and the United States is close to it as well, life expectancy at birth is around 80 years. In some countries in Africa, people can look forward to living only half of that time--40 years of age--and in many, many countries, it is closer to 60, so three-quarters of that time.
So even again, the opportunity for life and the duration of life, longevity, is determined in part by a circumstance such as your nationality.
If we look over time, we see there is some improvement in that. If you look in the 1960's, the distribution was more unequal; it was bi-mobile; it had two little mountains here. It has improved over time, in part as a result of massive public health campaigns, immunization campaigns, vector control, cleaner water, in a number of developing countries.
But even on that evolution, the story isn't one of unmitigated success. If you look at the last decade we have data for here, you will see that there is the appearance of a bump here at around 40. There is an increase in the mass of people whose life expectancy is very, very low. That is of course due to the very serious AIDS pandemic, particularly in Africa. So there have been losses in life expectancy at birth over the last decade driven to a large extent by the catastrophe of AIDS.
Now, there is lots and lots more evidence of both inequities within and across countries in the Report, but I must move on given the time to the second part of it, which is why do we care. And, as Francois already highlighted, we care first intrinsically--first, because for many people, a fair society, a just society, a society where people's opportunities don't depend on their race or on their gender, is a better society. And we have a chapter looking at various sorts of evidence on how that is true for a number of different people from a number of different disciplines.
But in this Report, we chose to emphasize another and I think slightly newer angle, which is that over the long term, equity defined not as income equality, but equity defined as equality of opportunities, is actually good for growth and development.
The first reason for that is that when wealth and power are very unequal, and that is combined with markets that don't work well, then investment isn't efficient. One example is if markets worked perfectly, and I were a poor entrepreneur, and I had a brilliant idea for a business, I could borrow money from the Bank or I could issue stocks, and then I could get a good return independent of whether I had been rich or poor.
But when markets don't work so well, poorer entrepreneurs don't get that access to credit, so a lot of poorer people who have good business ideas don't get access to capital, and capital is remunerated at a lower rate somewhere else in the economy than it could have been in this part of the economy. So marginal products of capital don't equalize, and that again is prima facie evidence of inefficiency, and we document that, for instance, for the case of some small firms in Mexico.
Credit constraints can also prevent very bright poor children from staying in school while less bright, richer children can go on to universities; so again, there is a misallocation of human capital, and the overall efficient allocation of human capital isn't being achieved in the economy.
One example that we think is quite telling in this regard is an example from an experiment that was conducted with a number of children from villages in India, and it speaks to the influence of caste and stereotyping, according to a social category like caste, on performance. Let me tell you a little bit about this example.
Here, what they did was the experimenters got groups of children, six at a time, always three kids from a high caste and three kids from a low caste, and asked them to fill out a maze, and if you filled out the maze correctly, you got a rupee in the piece rate treatment; or in the determined treatment, you got 20 rupees if you were the guy who filled out most mazes.
The experiment consisted of doing this, sometimes telling the kids what their castes were and sometimes not telling them what their castes were. And the remarkable result is that when you didn't tell them what their castes were, the experimenters found that the high caste and low caste children did exactly the same; whereas when caste was made salient and announced, and the kids knew that they were high caste or they were low caste compared to others in the group, there was a statistically significant difference between the low caste and the high caste.
Notice that the high caste didn't go up very much; it's the low caste that lost. And therefore, in aggregate terms for this society, there is an aggregate loss. There is a loss in performance, there is a loss in productivity, that comes from the impact of stereotyping and segmentation.
If this happens outside the experiment--if it happens in school classrooms, if it happens in factories, shops, and in farms--there is an aggregate loss to productivity in India because of this. And there are experiments like this for other places as well, including the United States.
A second story we tell about why we should care about inequity instrumentally is a story about institutions, and given the time here, I won't get into details, but to tell you the essence of the story, it draws on recent work by various people like Stan Engerman and Ken Sokoloff, and by Darin Asimoglu and others, a number of academic studies, where the argument is that societies with extreme inequality in wealth generate also extreme inequality in power, and the most powerful people have then less of an incentive to create really good political institutions, which provide checks and balances to the power of the executive and which enforce property rights broadly across everyone in society and not just a little group.
If the president of the country always comes from within the same group of families, there is less of an incentive to design really good political institutions to control conflict in the country.
So worse political institutions lead to less good enforcement of personal and property rights and therefore to impaired development. And we illustrate that in the Report of a number of historical examples, including a comparison of the development of political institutions in North America and South America from colonial days, which I won't have time to get into detail now.
Let me move on now quickly--I am afraid I am already going to take up more of the time than I should--but let me move on quickly to the last part of the Report, which is the policies.
Here, we have divided our talk about policies into four chapters, and the main message here is that we hope we have persuaded the readers in the first part of the Report that there is a lot of inequality of opportunity around, and in the second part that we should be concerned about that, because excessive inequality of opportunity is bad for growth and development.
What are the implications? We group them into four main headings. Three are domestic, and they have to do with investing in people, they have to do with complementary assets like land, infrastructure, and the functioning of the justice system, and they have to do with markets. And the fourth one is international.
One example from each, given the lack of time here, although there are lots in the Report.
From investing in people, one example is early childhood development. We showed you earlier the Ecuadorian graph about those kids diverging and the poorer kids having lower cognitive ability from very early on. Here is an example of a policy in Jamaica where people provided a nutritional supplement, which was basically milk, and stimulation to very young children, and they had two groups of children--children of normal height, who didn't receive the benefit, and stunted children, children of very low height for age--where some kids got just the supplement, some kids got just the stimulation, some kids got both, and some kids didn't get anything and were a control group.
The evidence is that whereas the control group was very far from the normal kids after two years of the intervention, the kids who got the policy, the kids who got the package, were catching up. We see this as evidence that the policy can help narrow the economic gap, narrow the gap of opportunities between children who would otherwise have much lower chances in life than those who are doing well by themselves.
So there is a role for policy if implemented early on in reducing those gaps.
Now, investing in people is important, but it's not the only thing. Of course, there are inequities in the pattern of provision of infrastructure as well. Here, we've got a picture of the provision of water in Niger. And here, what we've got is how the bottom 20 percent, then the next 20 percent, all the way up to the top 20 percent, get their water in Niger, and the dark blue is the people who get water in the main system, piped water; so amongst the poor, that is only 3 percent, amongst the rich, it is 89 percent.
How do the poor get their water? Mostly from fountains and vendors. The problem is that the cost of water is higher when it comes from fountains and vendors, so this line is the average price the poor pay. And you see the average prices that the different quintiles pay, so you can see that the richest group not only gets cleaner water through the pipes but also pays much less for the water than the poor.
This is a pattern of inequitable infrastructure provision, and the message is that governments should really shift toward trying to allocate their investments in infrastructure toward the poor, who are paying much more for it.
In market terms, we highlight the fact that endowments aren't only about education and infrastructure; it is also about getting access to markets and getting equal treatment in markets--all kinds of markets--financial markets, access should be expanded to the poor; labor markets, where protection should be made intelligently and encompass the informal sector as well; product markets, where you want to prevent monopolies and ensure that entry is free to small entrepreneurs as well. And we have a long discussion of that in the Report as well.
The last chapter of the Report is about what the international community can do. Having looked at the policies that can be implemented by governments, what can be done at the international community. And here again, we argue that there is room for leveling the international playing field, both in terms of less distortion in trade, fewer subsidies, and less dumping in agriculture, for instance, by the United States, the European Union and Japan; possibly, greater scope for migration, in particular short-term migration which allows for more labor mobility and for the poorest countries to get a high return on unskilled labor, which they have in abundance.
We discuss issues around intellectual property rights, where the need is a need to find a good balance between protecting innovation, protecting incentives for innovation, through patents, but also protecting poor people in poor countries and giving them a right to get access to the drugs they need; and we have a specific proposal there on how that could be done.
On aid, we highlight that the volume of aid given by most developed countries is actually quite low. For instance, we compare it to their agricultural subsidies. Here, the blue bar for Japan, the European Union, the United States, and all the OECD countries, the blue bar is what percentage of GDP they spend on agricultural subsidies--and here is what they spend on aid.
So if you take the United States, for instance, it is less than 0.2 percent of their GDP spent on aid, in contrast to the UN goal of 0.7 percent, but almost 0.9 percent spent on agricultural subsidies.
Now let me conclude by giving you the three main messages that we have. First of all, as we have seen, opportunities are very unequally distributed around the world even from the opportunity to life itself, but also opportunities for education and investment, within countries as well as across them.
That is a matter of serious concern for developing country policymakers and for the international community because not only is equity desirable in itself, but equity and efficiency are complements. Fair societies, where most people have a chance at becoming productive at investing and innovating, do better than societies that restrict opportunities. And therefore, there is a role for public action to level the playing field by expanding access to opportunity to the poorest.
When doing so, we of course must recognize that there remain equity-efficiency tradeoffs at the individual policy level--we are not abolishing microeconomics--but when taking those tradeoffs, we must bear in mind the full benefits of equity in the long term from the policies that sponsor and promote equity.
I think I'll leave you there, and we'll take questions.
MR. NEAL: Thank you, Chico.
So, now we can go to questions. Who is first? I see one hand up.
You, sir, in the center.
QUESTION: [Inaudible], Press Trust of India.
I was wondering whether you have in your analysis given details of how each country stands in terms of equity; and secondly, in your opinion, does the political system of a country have to do with equality, inequality, equity, and so on? I have in mind socialism, capitalism, communism. Have you analyzed those and what impact those have?
MR. NEAL: Who wants to take that one?
Michael Walton is going to answer that question, a co-author of the Report.
MR. WALTON: Do we have a ranking by equitable countries? No, we don't. And the state of the science is that--
MR. NEAL: Microphone.
MR. WALTON: I did press the button, but then I switched it off.
First, the state of the science is that there is not the information to provide such a synthetic index of equity, and we avoided doing something half-baked precisely because we want people to focus on the way in which opportunities differ across different dimensions in different societies, both in terms of in these societies that primarily are gender- or caste-based inequality, that matters to opportunity, in that society, is it geography, and in terms of what is driving that inequality--is it economic structure or political structure.
Does political system matter? Profoundly, it matters. It is one of the messages of the Report. The extent to which different political systems are more or less responsive to all the population varies immensely, but here too, we do not see a neat allocation between, say, capitalists or socialists or democratic or authoritarian.
Take as one example the history of societies under communist regimes. Many of those, actually, from Cuba to Vietnam to the former Societ Union, did a very good job at social provisioning, which led to greater equity with respect to social capabilities--the capacity to lead a healthy life, educational status. It typically did a disastrous job in terms of broad-based opportunities for economic activity.
I'll give you one example. In our interpretation of China when it shifted from economic policies involving widespread central planning, we interpret that since 1979 to now as a significant broadening of opportunities even while there were sometimes shifts in outcomes in terms of differences in income.
MR. NEAL: A question from this lady here.
QUESTION: I am from Benin, and if you don't mind, I will ask my question in French.
[No interpretation for question.]
MR. NEAL: Maybe we can give an answer. She has asked about what do you propose to deal with inequities at the global level between countries. Maybe if you can answer it in both languages?
MR. BOURGUIGNON: Okay, I'm not sure, but let's start in English. Is this okay, ma'am, in English?
MR. BOURGUIGNON: Okay. I think this was one of the last slides that was presented about the policy instruments to promote more equity at the international level.
Of course, trade is a priority agenda, and from that point of view, as you know, the Bank is pushing very much the Doha agenda and has been advocating in favor of some real and substantive decisions being taken on promoting market access in developed countries, to agricultural output coming from the developing countries. And this is certainly a very important part of the agenda, and we are only at the beginning. After agricultural products, we also have to talk about migration. One word was said about this. Temporary migration is being discussed in the WTO under the heading of "Note 4", which is exchanges of services, and then there will be the big issue of the liberalization of services.
So this is a big agenda. But then, we also have other aspects. We talked about intellectual property, and lately, the issue of intellectual property rights on drugs, particularly anti-retroviral drugs, in the headlines in the press. This is an important issue because equity at an international level means that we want these drugs to be accessible by poor people in poor countries, and there is an issue in the sense that in terms of efficiency, we know that it is important to maintain some property rights in order to maintain some incentives for innovation.
So presently, there is some reflection taking place in the world and some proposals around about a way of resolving this kind of contradiction, making those drugs accessible to all poor countries, and at the same time maintaining and preserving the incentives for innovation.
And then, of course, a big issue is all the Global Commons. As you know, climate change has been put back into the forefront in Gleneagles, but it is quite clear that climate change has a huge impact--will have a huge impact--on all countries in the world, and here too, there is an issue of equity.
MR. NEAL: The gentleman over here. There are a lot of questions, so please try to be brief in the questions.
QUESTION: I'll try. While the Vice President tried to underplay the radical nature of these recommendations and findings, some of us feel that we have been fed the trickle-down theory over the years by many of the World Bank economists. We feel that it is quite radical. It reminds one of the old base of North-South dialogue around [inaudible], that kind of era.
Obviously, you will now expect a state to play a bigger role, and intervention for the poor in those policies and those development models, which have been followed by countries like India in the early years, will be validated by the findings of this Report.
Anecdotal evidence over the years has been there is something funny about the dynamics of growth. I think it sort of empowers the richer people, and over the years, we see that there is something so inherent about it that it cannot be negated even by government policies, because the policies are taken over by the richer factions.
So how do you solve the dilemma? And it may interest some World Bank economists that only about six months ago, one heard from an eminent economist of Indian origin who has been living in America, and their thesis was that there is no relationship between equity and growth. And this lecture was held in an American University. Of course, he has been away from India for many years.
MR. WALTON: I'll be quick.
The big message is...
MR. FERREIRA: Just to add very quickly to that, it's funny that you mention trickle down because we very much see this Report as a reversal of that and a proposal of trickle-up development which sees the poorest people in society not as the recipients of charity but people with enormous potential to contribute in this generation but perhaps in the next generation towards the development of their countries and we see retargeting and refocusing public subsidies and policies in the direction of the poorest people as a sensible investment in trickle-up development.
MR. NEAL: Thank you. Mr. Sotero had a question.
QUESTION: I'm Paul Sotero from Estado in Brazil. Since Brazil has been persistently one of the most unequal countries in the world, I assume that we have been working at making it unequal, and I would like you, since you have a box here on Brazil, I would like you, could you list what are the policies in Brazil that promote inequality especially in the social sector because I suspect that there are some also in the social sector that instead of promoting equality they promote precisely the opposite? I'm thinking about higher education.
MR. NEAL: I think that one is for Chico Ferreira.
MR. FERREIRA: I think we have described in this Report and in other reports the Brazilian state as a truncated welfare state in the sense that it's been very good at taxing people and redistributing only amongst the rich. So what we've chiefly failed to do in Brazil is to make sure that we spend on the things that the poor people need, and chief amongst them is education where the ratio of expenditure on a tertiary student to the expenditure on a primary student is much higher in Brazil than it is say in Korea. I don't have the exact numbers with me now, but there the order of magnitude is about three or four times larger, that ratio.
So we subsidize rich people who have gone to private school and are now going to free public universities as opposed to subsidizing the poor kids who are going to state schools very early on.
So that's one example, but that percolates through a range of types of public expenditure in Brazil. There have been improvements over the last 12 years, but they are small improvements compared to the nature of the problem. Bolsa Familia and a number of other interventions from both the last, the Cordoza government and from the Lula government, have moved in the right direction, but we still have a long way to go in terms of using the state's redistributive power to actually provide opportunities to the poor.
MR. NEAL: This lady right here.
QUESTION: I'm from Cameroon. I prefer to speak in French.
MR. NEAL: People can't understand. We don't have the interpretation, so if you can manage it in English, it would be better.
QUESTION: My English is poor.
MR. NEAL: Okay.
QUESTION: [In French.]
MR. NEAL: Maybe if I can just briefly translate. The question is what was your strategy in designing this report? It sounds a little bit like you're dreaming just by calling for transparency and accountability for politicians when in many countries we have dictatorships, and there just doesn't seem any way out of it. I wonder if maybe Francois Bourguignon, can you respond?
MR. BOURGUIGNON: Yes. No, I almost said in my initial presentation that don't take us for day dreamers and we really have in mind what can be done, and this also relates to a previous question about how come, how could you impose any kind of redistribution from the existing economic elites to the rest of the population in terms of opportunities or in terms of resources? But I really believe that the words that you use-- transparency, accountability--are the key words. I mean we are observing today that in many countries in the world because of international pressure, because of globalization, there has been very strong movement toward the representative democracy, toward voting, toward electing presidents on the basis of universal suffrage.
And this is a step. Now, at the same time that there is this promotion of voting, of electoral processes, we may have a promotion--we have already a promotion of transparency in terms of what is being recommended for improvement in governance in many countries, and this agenda on the governance and improved governance is not only an agenda which is pushed forward by international agencies like the World Bank or like the U.N.
This is something which is fully endorsed by many countries, by many constituencies in the countries. At the time they establish their Poverty Reduction Strategy Papers, they insist on these aspects.
So it is true governance reforms and promoting transparency, that progress will be made, and you'll see in the report examples of cases where transparency is definitely promoting equity and is definitely promoting efficiency. So I don't think that this is the last battle. On the contrary, the battle to some extent is only starting.
MR. NEAL: The gentleman at the back, right at the back.
QUESTION: Barry Wood, Voice of America.
What countries have made the most progress and which countries are paying the most attention to equity in development and which are not?
MR. WALTON: I'd like flag three categories of countries that are of interest. Some of the Report is based on actually long-run historical comparisons, and one of our central conclusions is that if you look at almost all now highly developed industrial societies, that at various points in the history, the 19th or the 20th century, they put in place political, social and economic institutions that are/were more or less equitable and substantially more equitable than the vast majority of developing countries.
A classic comparison is that between the United States and Canada and most of Latin America, the United States we think of as being relatively unequal amongst rich countries, but in a number of dimensions--access to land, access to education, access to the vote, with important exceptions of a delayed access to the vote and education of blacks, gender equality--was substantially more unequal, first category.
Second category we see is number of countries that successfully pursued a broad-based expansion of economic and social opportunities for all the population, and here some of the East Asian ones are classic examples of that--Korea, Indonesia, through to China and Vietnam today.
The third category I would flag, which I think is importantly interesting, are highly unequal societies who are making a major effort to combat their major political and social and economic inequalities. I think Brazil is one that we've touched on today. Chile and Latin America, highly unequal, but through varieties of means, both specific measures oriented towards the poor and measures that seek to do away with entrenched privileges, are in the middle of that long-run road to get greater equity for all.
MR. NEAL: Lady in the red shirt in the second to last row. Yes.
QUESTION: Hello. Sofia Hoffman from Emerging Markets. It does appear to me that the implementation of equity as defined at the beginning of Mr. Ferreira's speech would entail a social and political and economic revolution on a Cuban scale along with enormous public intervention to redistribute income. So I just would like to ask whether you could elaborate a bit further on what kind of policy recommendations you're giving to governments and whether equity does not automatically mean a call for the need of greater income equality as well?
Yes. That's my question. Thanks.
MR. WALTON: You said a revolution on the Cuban scale; did you? Yeah. Okay. It is true, if you look at the Cuban revolution, that it both got rid of an extraordinarily unequal society in terms of entrenched corruptly elite under the Batista regime, and it also then led to renown broadening of opportunities.
However, as we said earlier, it did an extremely bad job at the expansion of opportunities for all in addition to political restrictions.
But to answer the question of when you have the kind of inequality traps that Francisco laid out, the interactions between economic, social/cultural and political inequalities, what do we see can be done? And there we actually can look at a lot of contemporary and historical experiences of the circumstances in which change has occurred.
Two of the major motors that we've seen historically is where the expansion of voice, expansion of influence, which we see throughout European history, led to equitable policies, whether those were in the case of education, social provisioning, or indeed greater access to small scale entrepreneurs.
Second example is where greater competition leads to the breaking down of the proclivities of entrenched economic elites. And this is why while we vividly emphasize the institutionalized nature of inequality, when we look around the world, we look at Latin America, we look at Africa, in many parts of the world, we see increased political pressure coming from inside and economic pressure from outside for more equitable solutions to the problems we're concerned with.
MR. FERREIRA: If I could--oh, you want to go?
MR. BOURGUIGNON: No, go ahead.
MR. FERREIRA: If I could just add to that as well. I think we are asking for a revolution, but it's a revolution that has got to be patient, peaceful and pro-market. And if you look at that picture that we've got on the screen there, that's from Diego Rivera, the famous Mexican muralist, but in contrast to many of his earlier murals which depicted bloody battle scenes from the Mexican Revolution, in some of his later works called "Dream of a Sunday Afternoon in Alameda Park," where you've got the various players of Mexican society there strolling together, and what we're asking for is a joint resolve by developing countries to see their poor people and their masses as resources that are not getting a chance to contribute and to start investing in them in a major way.
It will require some measure of conflict because some of the current subsidies will have to be taken away from elites, but elites should see this as an investment in their children and grandchildren living in a more peaceful society where trust is greater and where more people are productive, and the key thing about being pro-markets is that we'd like, in fact, markets to be more competitive, not less, and by being more competitive, we mean that more people, often poor people, can have access to them and participate in them.
MR. NEAL: We have time for about two more questions. This gentleman here and then--
QUESTION: I'm with Finland. To what extent can these results be applicable in rich countries, meaning that there is stagnant growth in the European Union, for instance, can it be improved by concentrating on removing these inequalities?
MR. WALTON: Let me start and others may add. Very much so. Absolutely the same principles apply and if, as a non-expert on rich countries, and we look at the continental European structures, these have often been motivated by the very important social pact in Europe to have a more equitable society, but have often led to the design and then the entrenchment of mechanisms for protection of particular groups which have two problems:
One, they have been at the cost of flexibility; and second, they have not always reached out to some of the excluded, poorer, younger, recently arrived immigrant groups, and when you have both of those, you actually end up with a society that in some respects is less equitable, less equitable in terms of the broad-based expansion of opportunity.
MR. NEAL: Francois.
MR. BOURGUIGNON: Yes. I don't know much more than that, but it's difficult for me as a Vice President of the World Bank to say very much on rich countries, but I am a European and I'm coming from France so this is a topic that I know a little. Now, the only point I wanted to make is the fact that in terms of comparison within Europe, today it is quite clear that the Nordic countries are offering to the rest of Europe the example of equitable countries which are at the same time extremely efficient.
In several continental European countries, there are serious problems of unemployment today, and I am struck by the fact that in the literature in all the newspapers, the discussion that is taking place today in Europe about unemployment and reforming the employment system, the example is the Danish system, where you have a very strong social safety net which is in place and because of this strong social safety net, it is possible to leave market mechanisms in the labor market to play their role.
And I think it would be difficult probably for other countries to mimic and to get to that model, but it is quite interesting to see that very much of the debate is along this line.
MR. NEAL: We have time for one more question, and given the discourse on Mexican art, maybe we should go to a Mexican reporter, Alicia Salgado [ph].
QUESTION: Thinking about inequality, especially in a country like Mexico, Brazil or whatever in Latin America, is it possible to have a continuous intervention like Opportunidades, a program in Mexico for three governments in continuity, and not having a very good result in poverty reduction or inequality reduction?
MR. BOURGUIGNON: Okay. As a matter of fact, I was not a long time ago in Mexico and I had the opportunity of presenting some of the ideas in this Report in a meeting in Mexico.
And I think the fact that you underline this program in Mexico, Opportunidades in Mexico, is really very nice. This is something which is very much emphasized in the Report, and it is certainly not a coincidence that this program is called Opportunidades and that we are insisting on the equality of opportunities.
So certainly this is a program which is extremely interesting. This is being seen as a program that is a good configuration of what redistribution in terms of equity, in terms of opportunities, may mean in developing countries and there are several imitations of this program now going on in the world.
I don't know whether you have seen the last issue of the magazine "The Economist," but there is an article which is really on this so-called conditional cash transfer programs by which money is being transferred, cash is transferred to the household conditionally on the fact that, on the one hand, they are really in the poor category and on the second hand, on the other hand, they are sending their kids to school and they are sending their kids to some basic medical tests.
So this is a very important program. The fact that in Mexico, it has been going through administrations is probably the proof that it is a very efficient program which is well received from both the equity and the efficiency point of view.
MR. NEAL: Okay. Thank you very much. I remind you that there is an embargo until noon today, noon today, Eastern Daylight Time, so thanks very much for coming.