Interview with Francisco H. G. Ferreira, The World Bank

Poverty and Inequality

Francisco H. G. Ferreira,  Lead Economist, the World Bank, explains equity and equality as defined by the World Bank and the progress made in terms of measuring inequalities of opportunities.  We find out about the roles of equity in current World Bank lending policies. He further goes on to elaborate what he believes to be the major challenges faced by the donor community in advancing equity.

Interview conducted in May 2013 || New York, NY

Q: How does the World Bank define equity and equality, and the relation between those two concepts? A: In the World Development Report of 2006, entitled “Equity and Development”, the World Bank defines equity in terms of two principles: Equality of opportunity and the avoidance of absolute deprivation. Equality of opportunity is the idea that outcomes (such as income, levels of education, health, or political participation) should not depend on predetermined circumstances (such as race, gender, family background). The idea is that those predetermined circumstances (the family you come from, how rich your parents were) should not affect the outcomes people have. That is the space in which equality is defined for us. But even if opportunities are equal, so that any differences in people’s outcomes depend only on their own efforts (even if that were to happen, and we are very far from that, of course, anywhere in the world), we still want to have a minimum floor in the space of outcomes. We think of equity as equality in the space of opportunities, and a minimum floor in the space of outcomes. Even if somebody were to be deprived through his or her own fault, society would still provide a minimum floor in the space of outcomes. Q: Has there been a change of that understanding since the publication of that report you mentioned?  A: The Bank doesn’t have another big study that changes that. There has been more progress in the direction of measuring inequality of opportunity. This is mostly because when we used the idea of equality of opportunity as a crucial component of equity, we realized of course that we didn’t really measure inequality of opportunity, as we did with inequality of income or education. So, if the concept that we wanted to address is that of opportunity, we needed ways to measure it. We have, since then, created a number of indicators that can be used to do that, like the Inequality of Economic Opportunity Index (IEO) and also the Human Opportunity Index (HOI) Those indices measure slightly different things, but they both try to capture the idea of how far we are from the ideal of equal opportunities, a world in which children and adults have the same chances as everybody else regardless of their family circumstances, their race, gender, where they were born, or how rich their parents were. Q: Are children considered any differently within these frameworks? I suppose the key concept here is that of age of responsibility, which philosophers often talk about. Under this concept, people of certain age—between 15 and 18, and I guess it would vary depending on the thinker—are not really held to be responsible for their outcomes. They are not held responsible for their outcomes necessarily in a court of law, for example, and neither are they in the assessment of personal responsibility. In that sense, any inequality amongst children may be considered inequality of opportunity, whereas some inequality amongst adults may not be considered inequality of opportunity if it reflects different actions, choices and responsibilities. In this sense then, sometimes all inequality amongst children reflects inequality of opportunity. This point is sometimes overlooked, however. For example, in the Human Opportunity Index (HOI) we measure only part of inequality amongst children as being associated with opportunities. Q: You have published a lot on the lower middle class in Latin America. Can you give us some insights on equity for children in the region? Over the last 10 to 15 years, there has been a coexistence of two important phenomena in most countries of the region. This is the coexistence of a fair amount of economic growth with the reduction in inequality, and with this of course there was considerable movement of people out of poverty and into either the middle class itself or a position just short of the middle class, which we call the vulnerable group—people who are no longer poor, but not quite part of the middle class either. For children in the region, economic growth and poverty reduction represent real improvements. School enrollment rates and school attendance are improving, health care is improving, often access to basic services of water and sanitation is improving for them as well. Thus, leaving poverty has had dramatic positive effects in the lives of these children. Yet, there is still an enormous amount of inequality in the chances those children have in life as compared to the richer ones. The quality of schooling, for example, is very different between the public schools that many of these children attend and the better, private schools that some of the more affluent attend. The quality of that education also later affects their chances to enter university and this will affect their earning power in the labor market. The picture in Latin America in general, and Brazil specifically, is therefore a mixed one, with nuance. Q: What is the role of equity in current World Bank lending policies?  In the recent Spring Meetings, World Bank President Jim Yong Kim announced two basic targets. In the past, for example, we use to talk about reducing poverty, now we are talking about eradicating extreme poverty, by which we mean helping our client countries reach a global level of extreme poverty of 3.0% by 2030. At the moment, we are near 20% of the world’s population below $1.25 per day, which is the extreme poverty line we use. The second target is one of shared prosperity which is being defined as seeking the largest possible growth for the incomes of the bottom 40% of the population in each country. These matters are closely related to equity. The first target is related to the basic floor in the space of outcomes—the avoidance of absolute deprivation. And in some sense, promoting the growth of the bottom 40% is quite close to promoting the opportunities of the children of the poor, which has a lot to do with equality of opportunity. Thus, the language is not exactly the same as the one we used in 2006, but I think the same priciples are guiding our work. And I am hopeful this will be increasingly seen in the Bank’s operations. The fact that the president of the Bank and senior management have reiterated those goals as the guiding principles for the institution is a very positive thing. It keeps our eyes firmly fixed on the ball. The ball being the well-being of the poor and the opportunities of those at the bottom of soceity. Q: I think you responded to this question already, but has the equity approach also influenced the non-social branches of the World Bank? A: Lending for infrastructure, rural or urban development projects, or improvements in the regulation of financial sectors may be less visibly related to matters of poverty reduction and equal opportunity than building a school or investing in an early childhood development intervention. Yet, they can be equally important. Without good roads, poor people cannot go and sell their products in the market; and without good ports, farmers are less competitive than those in other countries. Thus infrastructure and what you call the non-social sectors can be of tremendous importance in poverty reduction and the promotion of opportunity. The challenge is really assessing which projects are best in helping the poor. I think there is still room for improvement in this area, in trying to assess the distributional consequences of individual lending projects. Q: How do you see the possibility to move the equity agenda forward in the context of the global economic crisis? A: Well, the global economic crisis was deeper in the richer countries this time around. For the poorest people in the world, the crisis was less serious. This is after a decade in which Africa, most of Latin America and most of Asia grew fairly steadily, with just a few blips in 2008 and 2009. Thus from the perspective of the poorest countries in the world, the crisis was not as big a deal as it was in the richer countries. There is probably more child poverty in Europe and North America today than there was before the crisis. Inequality of opportunity then is not something that only affects poor countries; it also affects some of the rich countries. As a result, in those countries were there is inequality of opportunity, the worsening of child poverty is something that one should be very concerned about. Recent initiatives by the United States’ Administration focusing on children ought to be very strongly welcomed. Q: What would you say are the major challenges you face in advancing equity in general and within the donor community?  A: For the rich countries themselves, if we are talking about equity within these countries, the main problem is often political. There is reluctance in some countries in directing public resources that do exist to those most in need. There is often a policy bias towards the middle class, towards the people who have the greatest voting influence. This is not true in every donor country, but it is true in some. These countries typically have the resources to invest massively in, say, early childhood intervention that we know will help promote opportunities for children later. This is very different from the poorer countries where the resources, sometimes even the human resources, aren’t really there. Even if aid were to arrive, you may not necessarily have all the trained social workers that you would need to deliver a mental stimulation intervention to young children, for example. Thus it really is a question of investing in those resources and making them available, particularly human resources and skills in the delivery of those services. It is a matter of capacity development for these poorer countries. Of course, there are huge political problems in poor countries too. But one can begin by addressing the shortage of resources, human and financial.


Francisco H. G. Ferreira is a Lead Economist at the World Bank’s Research Department and a Research Fellow at the Institute for the Study of Labor (IZA, Bonn). During his World Bank career, he has also served as Deputy Chief Economist for Latin America and the Caribbean, and as co-Director of the World Development Report 2006, on Equity and Development. Francisco has published widely in the fields of poverty and inequality in developing countries. He is currently the editor-in-chief of the Journal of Economic Inequality, and also serves on the editorial boards of the Review of Income and Wealth, the World Bank Economic Review and the Economic Analysis Review. Francisco has taught at the Catholic University of Rio de Janeiro and at the Paris School of Economics. He was born and raised in São Paulo, Brazil, and holds a Ph.D. in Economics from the London School of Economics.


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