Development as building middle-class societies

Employment & Income,Inclusive Economy27 Jun 2014Evert-jan Quak

The Broker had the pleasure of interviewing Nancy Birdsall, president of the Centre for Global Development, at the EADI conference. She has often asked herself  who you call middle class? And what does the rise of the middle class mean for development? Birdsall now comes up with some answers.

On Wednesday evening Nancy Birdsall gave a lecture to celebrate 40 years of EADI. In her speech she referred to Mohamed Bouazizi, the Tunisian man who set himself in fire because the police took away his fruit and vegetable cart when he could not show them his vendor’s license. His act not only sparked the Arab Spring, it also raised the question about how to define and see the middle class. Bouazizi, Birdsall explained, earned around 4 dollars a day. Did that alone make him middle class? He was living above the poverty floor, but he did not consider himself middle class.

Thinking about development in this way is completely different to helping lift the poor out of poverty. There must be something between the poor and the middle class; development cannot stop while people are struggling. Development means arriving at something positive, Birdsall said, not only about leaving something behind us, in this case absolute poverty.

Birdsall called this large group between the poor and the middle class ‘strugglers’ or ‘strivers’. She argued that development should therefore change course and aim to achieve a middle-class society. A society in which the majority of the population can pay taxes, votes, and enforce a behavioural change in their governments to fight corruption, to represent them better, and to renegotiate the social contract.

Birdsall immediately continued that middle-class societies also have problems like poverty and exclusion. However, there is a growing acknowledgement in these societies that things have to be changed for the better. There is an understanding that these problems are not permanent, and a sense of future. And that, said Birdsall, is why Bouazizi could not see himself as someone from the middle class. He could not see a brighter future for himself and his family. He was a struggler, or striver. Speaking to The Broker, Birdsall explained more about the meaning of all this for development studies.

The middle class seems be a hot item, or is at least gaining momentum as a research area in development studies. Why is this?

I would not say it is a hot item just because it is one of the main topics at the EADI conference. But of course I am glad there is a lot of discussion about it here at the conference. In general, however, there has still been only a limited amount of work done in the development community to address the middle classes . The focus, in development economics at least , was initially on growth, then shifted to pro-poor strategies and, more recently, to inequality. Re-framing development to include inequality also puts the issue of the rising middle classes on the agenda. Two views on the middle classes have dominated in recent years. First there is the Western perspective that the middle class is a necessary counterbalancing force for democracy. Secondly, there is the debate about people’s increased consumption power when they move out of poverty into the middle class. For me, it is important to be clear that people who rise out of absolute poverty are still poor, have no stability or resilience, and can fall back into poverty again any time. From that perspective, I can only be glad that there is now growing acknowledgement of the position of the strugglers and that they are not yet middle class.

There have been many references during the EADI General Conference to the World Bank study that defines middle class as having a daily income of 10 to 100 international dollars, while the more vulnerable group that you call ‘strugglers’ or ‘strivers’ earn 2 to 10 dollars a day. Is this really an innovative way of looking at this group?

Yes, I think so. What I mean is that ideas matter, and defining a group in such a way opens new windows of opportunity and ways of looking at citizenship and who citizens are. It is not only about income levels, but when their income is above the 10 dollars a day level people build up rights and responsibilities. In development economics at least, this way of thinking did not exist before, and even now it is still relatively remote from it.

Does looking at the middle classes as a new area in development economics open the way back for Latin America in development studies? In the last 10 years, this region has been moving rapidly towards the periphery of attention in the discipline. Will that change now?

I really hope so, because there are so many important lessons to learn from Latin America. How a middle class can emerge due to equal opportunities, and create opportunities to renegotiate social contracts. And how people can participate in social movements. Latin America can show us the way along the bumpy road of developing into middle class societies.

How can you measure this path to middle-class societies? In your speech, you referred to median income people earn per day on the country level – why is this such an important measure for you?

I like it because it is simple. In very poor countries it is low, reflecting reality. In Tanzania, for example, the median is below 1 dollar a day. That shows directly that this is a country that is still far from becoming a middle class society. Secondly, I like it because it is distribution-sensitive. It does not measure inequality itself but, if the median is low and the average GDP per capita much higher, everyone understands that there is something wrong, that there is a concentration of wealth at the top. Thirdly, it does not underestimate the income and wealth of the rich as much as data that depends on tax records. So even if the income of the rich is underestimated, the median is still reliable.

Measured in this way, combined with the 10 dollar a day threshold, what countries are becoming middle class societies?

First of all countries in South-East Asia and Latin America. Chile, Brazil, Thailand, Malaysia, for example. These countries have an advantage in already having important institutions in place for education and governance for many years, which makes it easier for them to become middle-income societies. But some countries in Eastern Europe, like Poland, or others, like Morocco, are heading in the right direction.

So you can measure development and distinguish countries that are doing well. But how can a society become middle class? And even more importantly, why are these policies different from policies to lift people out of poverty?

That is a very good question. What a focus on turning strugglers into a middle class does first of all is move away from the world of aid. It is about thinking about our own role in globalization, including issues like trade, migration, taxes and crime. This is a shift in the direction of global rules. For the many developing countries it is about redistribution, social insurance policies, and focusing on their tax systems. It should be clear that there are middle classes in all countries, but what makes the middle class as an emerging group within society different is that they decreasingly benefit directly from the state and are less likely to be linked to state’s elites. That is still the case in many African countries, where a small middle class depends on the elite, and will never be change agents.

Redistribution is often put forward as a solution. But is it not overemphasized?

Redistribution if often seen as direct cash transfers – and indeed if we take this narrow view of redistribution, there is a danger of making the system ineffective and expensive. We have to move away from this view. There are many other ways of achieving redistribution. For instance, changes in the tax system, programmes in housing and education, etc. Much depends on the local situation. Take for example India and Tanzania. You cannot do a lot by way of redistribution in the narrow sense in these countries. If you want to tax the rich to pay the bill for allowing strugglers to become a middle class, there will not be enough money to pay for it. Redistribution on the global level can help, but this is not yet on the agenda.

Is this what should be on the agenda of academics and policy-makers more often?

It is important to accept that we should allow development to be driven more by local needs and let the growing middle class take the space that they are trying to fill to renegotiate social contracts and fight corruption. From the Western perspective, I would say that we best help people to move into middle classes when we look at ourselves: what can we do? We should focus on global rules and should wish these countries good luck, and let them work on their constitutions and institutions themselves. That is in their hands and out of ours. Demand comes from within, and from the rising middle classes especially. And I hope that countries can learn lessons from others.