Martin Ravallion: “We have to get rid of the idea that wanting to reduce inequality makes you a communist”

Speaking to Australian economist Martin Ravillion, 67, for an hour is like reading a macroeconomics book on inequality and the failures of the capitalist system in the 21st century.

Father of the “One dollar a day” poverty line with which he and his colleagues at the World Bank measured global poverty, he wrote a paper in 2012 which became the basis for the World Bank and the UN’s development goal for eliminating the scourge by 2030. A year later, he took a post as professor of Economics at Georgetown University in Washington D.C. where he has worked since.

Recognized by Ideas-Repec as one of the most renowned development economists in the world, Ravillion was born into a low-income family and often had to go without, prompting him to realize he “didn’t want to be poor” ever again, as he said when receiving BBVA’s Frontiers of Knowledge award in 2016.

“All my papers are too boring,” he laughs in an interview with the business newspaper Negocios shortly after announcing his June 2019 public lecture at a conference at the prestigious school El Colegio de Mexico, organized by Oxfam.

It’s not true, of course. The Australian is an expert not only in his field but also in explaining in plain language why inequality is one of the biggest global problems facing us today.

Question: Extreme poverty has fallen sharply in the last few decades, but inequality has compromised the good news.

Answer: Global inequality, in relative terms and understood as that which exists between all the inhabitants of the planet, has also declined. Not to the same extent as poverty, but it has. And this is something that often confuses people.

Q: To quote a recent World Bank study: “The decline in poverty has slowed, raising concerns about achieving the goal of ending extreme poverty by 2030.” What is happening?

A: This is partly due to the [economic] slowdown in Africa and to the fact that the boom in raw materials, which was largely responsible for the fall in poverty levels, has been curtailed. But these are fluctuating factors and I believe that we should not turn them into a big problem. As long as there is not another global financial crisis, we are on track to achieving the World Bank’s goal of getting extreme global poverty down to 3% by 2030. Although, of course, I am biased because putting the figure at 3% was one of the last things I did at the World Bank (laughs). The UN’s sustainable development goal of reducing poverty to 0% is not going to happen without a huge shift in politics. At the rate we’re going, it will take 200 years.

Q: But eliminating extreme poverty doesn’t mean there won’t be millions of people still living in miserable circumstances.

A: No, not at all. The $1.90 target is really low. Imagine how little can be bought with that amount.

Q: Inequality has appeared on the agenda but are we talking enough about that?

A: No, we should be talking more about it and in more specific terms. We should focus less on statistics and more on concrete aspects that could get society to take note and mobilize us into action. Although inequality is getting more attention, poverty has always dominated the debate. ‘Poverty’ is a popular word and ‘inequality’ is not, but to some extent this is changing. Poverty is becoming a respectable theme in academic literature and society is becoming increasingly aware.

Q: Should we be concerned about recent developments in Latin America?

A: Yes. The situation regarding poverty is much better than in other regions such as Sub-Saharan Africa, but its evolution is worse. Levels of inequality in Latin America are very high and that is a problem both for economic growth and the fight against poverty. And the lack of consensus about this is a huge problem. There is a lot of complacency and false rhetoric. Is inequality always a bad thing? No, it’s not. There are levels of inequality that are positive regarding incentives, growth, and the reduction of poverty itself. But this [current] level of inequality, like racial and gender inequality, is unacceptable and we need to build a consensus on this.

Q: How?

A: People have to be shown how costly inequality is. It’s not just ethically and morally repulsive, it’s also bad news for economic growth. If you don’t manage inequality well, you won’t have much growth nor will you be able to take advantage of the benefits of growth. It’s all connected.

Q: There is almost a complete consensus on the idea that poverty is negative and should be tackled but there is not the same consensus about inequality. Why do some people still see inequality as a catalyst for growth?

A: Many people play up the idea that there would be no incentive in a world without inequality and, as I said, there is some truth in this statement. But the goal should not be zero inequality or zero poverty. The goal should be a manageable and acceptable level of inequality that doesn’t perpetuate itself. There are still economists who don’t take income distribution into account. You are never going to get everyone to agree. But I think that no one can look at the literature that is available today and disagree that inequality is putting the brakes on growth. Fifteen or 20 years ago, most economists only focused on efficiency and said that inequality was positive for growth. Again, this depends on the levels of inequality of those we are talking about. Now these [economists] are few and far between. The fact that the best-selling book ever on economy is Capital in the 21st Century by Thomas Piketty, which addresses inequality, is telling.

Q: What would be an acceptable level of inequality?

A: I don’t know. We know when it is very high, such as in many Latin American countries today, and when it is very low, such as in the former Soviet Union or in China before the 1980s. And also when we are moving in the right direction.

Q: In terms of the Gini coefficient [a number aimed at measuring the degree of inequality in distribution], what level should inequality be at to be “manageable”?

A: I would focus more on causes than on indexes. There should be good sanitary conditions, the nurseries and schools should be decent, young people should be able to study at university and develop all their potential. These are the things that really matter. We have to focus more on policies than indexes and rates. We also have to get rid of the idea that wanting to reduce inequality makes you a communist. I would like capitalism to work for everyone. And I don’t see that happening.

Q: The million-dollar question: how can we make capitalism work for everyone?

A: Above all, by making sure that the playing field is far more even. And by minimizing the disadvantages faced by children born into poor families, something that requires intervention at an early age. We need policies that address this inequality from the start.

Q: But do you think it is possible for capitalism to work for everyone?

A: Absolutely. Who was it that said capitalism was a terrible idea, but better than all the others? I don’t love capitalism, but I don’t believe there is any other system that can achieve the benefits of a market economy. Having said that, today’s capitalism is not the same as the one Adam Smith was talking about. It has become far less competitive and far more dominated by monopolies. And that should worry us. How can competition thrive in the technology industry, for example? The kinds of thing that a truly competitive capitalism can achieve are incredible, but for this to happen, we have to make sure that competitiveness is maintained and that inequality is managed well. And that requires good policies.

Q: Have we learned anything from the mistakes of past public policies?

A: No. It’s very frustrating to see the lack of attention to evaluating policies. This is partly because almost none of the politicians want to hear that their programs are not working and partly because these programs are often too rigid to adapt to the evidence. There has been a lot of progress in evaluating the impact of these programs in the last 20 years, but the greatest challenge is for this to be incorporated into the political process.

English version by Heather Galloway.