Poverty reduction does not always mean less inequality, experts argue

This and related issues were discussed by Martin Ravallion from Georgetown University and Marcelo Medeiros from Columbia University (USA) during the 13th FAPESP 60 Years Conference.

By José Tadeu Arantes  |  Agência FAPESP – Poverty and extreme poverty reached unprecedented levels in Latin America in 2020, as inequality widened. Brazil continues to be one of the countries with the highest levels of income inequality, ranking second on this criterion in the G20. These points were stressed by Ronaldo Aloise Pilli, Vice President of FAPESP, on opening the 13th FAPESP 60 Years Conference. The online event was entitled Poverty and Inequality.

Pilli ended his remarks with a question: “Will it be possible to reduce this inequality in a reasonable timeframe and, if so, how?”

The event featured two leading experts on the topic: Martin Ravallion, Edmond D. Villani Professor of Economics at Georgetown University in the United States and former head of the World Bank’s research department; and Marcelo Medeiros, currently a visiting professor at Columbia University. Medeiros was previously with the Institute for Applied Economic Research (IPEA), a Brazilian government think tank, and the United Nations Development Program (UNDP). The moderator was Marta Arretche, a member of FAPESP’s Adjunct Panel on Human and Social Sciences.

In a presentation about poverty and inequality in China, Ravallion noted that the spectacular economic growth triggered by Deng Xiaoping’s reforms starting in 1979 significantly reduced poverty but also greatly increased inequality.

According to a 2021 paper by Ravallion and Shaohua Chen entitled “Fleshing out the olive? On income polarization in China”, President Xi Jinping is committed to achieving a less polarized distribution of income by reducing the extremes and expanding the middle portion of the income structure. 

Ravallion said a key factor in China’s inequality and income polarization is the huge gap between urban and rural areas, and within the former, between coastal and inland cities. “All three periods in which inequality has declined since 1980 coincided with significant reforms in rural areas,” he remarked. These reforms encouraged individual production, lowered taxes, and protected prices of agricultural products such as rice and wheat. 

Speaking next, Medeiros focused on Brazil and emphasized that poverty reduction does not necessarily reduce inequality. “To think about poverty, look at the bottom of the pyramid. To think about inequality, look at the top,” he said.

The extreme inequality of Brazilian society, he added, reflects a large number of factors and cannot be corrected by a few measures. Hence, “there shouldn’t be an inequality reduction policy, but all policies should take inequality into consideration. All policies have an effect on inequality,” Medeiros stressed.

This calls for a new way of thinking and a different vocabulary. “We should stop talking about aggregate growth and realize that growth isn’t about the entire country. In a society based on private property, it’s individuals who grow. You can have growth only of the rich, where the economy grows strongly, and growth only of the poor, also with economic growth, but they’re two entirely different kinds of growth and involve completely different policies,” Medeiros said.

There is no such thing as the right policy. Every policy is an investment. Policy design should consider time to implementation, risks, costs and benefits. The details also matter a great deal. “Minor design differences can lead to major differences in results,” he said. “In the Brazilian case, it’s easy to see that a conditional cash transfer program like Auxílio Brasil, the successor to Bolsa Família with a similar design, is leading to very different results.”

A recording of the 13th FAPESP 60 Years Conference is at: www.youtube.com/watch?v=WK70Pfe5dyU. 

The previous events in the series are at: 60anos.fapesp.br/conferencias.