Strugglers: This Centurys New Development Challenge Keynote - - PowerPoint PPT Presentation

Strugglers: This Century’s New Development Challenge

Keynote Australasian Aid Society Conference Canberra, February 13, 2018 (modified for posting March 1, 2018)

Nanc ancy B Birdsal all Sen enior F Fellow a and Pr Pres esiden ent Emer eritus, C Cen enter er for G Global Devel elopmen ent

This talk

• Strugglers: a (crude) income classification

($4-$10 day)

• Some characteristics of strugglers
• Why strugglers matter: governance and

the middle class

• What to do: development policy; role of
• utsiders

0.1 0.2 0.3 0.4 0.5 0.6 0.7

2 4 6 8 10 12 14 16 18 20

Init itia ial h l household ld i incom

• me p

per c cap apit ita p per d day ( y (2005 P PPP) Probability ty o

• f fa

falling i g into to pov

• verty

y (i.e .e. b . below $ $4 PPP p per r capit ita p a per d day ay)

CHL MEX PER

Source: Lopez-Calva and Ortiz-Juarez (2011).

$6 income = more than 40% chance of falling back into poverty $10 income = 10% chance

• f falling back into poverty

Strugglers: high probability of falling back into poverty

New poverty lines from World Bank now acknowledge most strugglers are indeed “poor”.

The developing world: 60% are strugglers; still 60% in 2030

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2030 2020 2013 2010 2002 1990 Poor(<$2) Strugglers ($2-$10) Middle class: $10-$50 Wealthy: >$50

Source: PovcalNet, using 2011 PPPs and UN Population Projections

Why: As poverty fell (since 1990), the struggler group almost doubled (and better known, the middle class doubled).

Source: PovcalNet, using 2011 PPPs and UN World Population Projections under “medium variant” assumptions

10 20 30 40 50 60 1990 1995 2000 2005 2010 2015 2020 2025 2030

Strugglers and MC Share

Strugglers: $4-$10 Middle class: $10-$50 Projections

Most strugglers live in middle-income countries: UMICs too

LIC LMIC UMIC HIC 5 10 15 20 25 30 35 40 500 5000 50000 Percentage of population that are strugglers GDP per capita (2010 constant $)

Source: PovcalNet, using 2011 PPPs and World Bank World Development Indicators using 2013 GDP per capita

India and Indonesia (LMICs) in 2030: 90% are still poor or strugglers

550 USD GNI per capita 3630 USD GNI per capita 10 20 30 40 50 60 70 80 90 100

Ethiopia Tanzania Senegal Kenya Pakistan India Indonesia % share of country population Poor <$4 (2030) Struggler $4-$10 (2030) Middle Class $10-$50 (2030) Wealthy >$50 (2030)

Source: Methodology based on Birdsall, Lustig, and Meyer (2014); data used are from Dykstra and Sandefur (2014), based on 2005 PPPs

Source: PovcalNet, using 2011 PPPs

0% 10% 20% 30% 40% 50% 60% Percent share in the total country population Strugglers Middle Class

Strugglers are the dominant group in Asian LMICs; middle class is larger in UMICs Thailand and Brazil.

II Key characteristics of strugglers

• Urban and peri-urban
• Primary schooling – and sometimes more
• Informal workers: informal the new normal through

2030

• High expectations; high stress

On average strugglers have completed primary education – the middle class secondary

Strugglers Strugglers

Strugglers work in sectors “between” agriculture and formal sector jobs

Strugglers Strugglers Strugglers

Most strugglers are informal workers – without a regular paystub

Source: Charmes, J. (2009) ‘Concepts,

The poor and strugglers in non-ag work make up 90 percent of informal workers in Indonesia

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Percent of non-agricultural workers in informal employment Poor: $0-$4/day Strugglers: $4-$10/day Sources: PovCalNet and ILO Report, “Statistical update on employment in the informal economy,” 2012

Strugglers are the group that benefited most from growth 1990- 2011; they have high expectations and middle class aspirations

Source: Lakner and Milanovic (2015); Milanovic (2016) 20 40 60 80 100 120 0.9 1.4 1.8 2.1 2.4 2.8 3.3 3.8 4.4 5.3 6.4 7.7 9.4 11.7 14.4 18.8 24.3 32.5 47.8 79.2 177.9

Income growth 1988-2011, as % Income per day in 2011, 2011 PPP $

90th95th 99th 100th 85th US ‘middle class’ (Pew) Developing world middle class: $10-$50 Strugglers: $2-$10

But better data on global inequality suggest struggler gains are relatively smaller, less robust and durable.

Nancy Birdsall | Date? | CGDev.org

Strugglers: $2-$10 World Inequality Report via Justin Sandefur for CGD Developing world middle class: $10-$50

• III. Strugglers: Why they matter

Strugglers are not Aristotle’s middle class

It is manifest that the best political community is formed by citizens of the middle class, and that those states are likely to be well-administered in which the middle class is large, and stronger if possible than both the other classes [. . .] ; for the addition of the middle class turns the scale, and prevents either of the extremes from being dominant. —Aristotle, Politics

Struggler “countries”: those with a small middle class (<25%)

ALB DZA ARG ARM AUS AUT AZE BGD BLR BEL BEN BOL BIH BRA BGR BFA BDI CMR CAN CAF TCD CHL CHN COL ZAR CRI CIV HRV CZE DNK DOM ECU EGY SLV ETH FIN FRA GEO GHA GRC GTM GIN HTI HND HUN IND IDN IRL ISR ITA JAM JOR KAZ KEN KOR KGZ LAO LVA LTU MKD MDG MWI MYS MLI MRT MEX MDA MNG MAR NPL NLD NIC NER NGA NOR PAK PAN PNG PRY PER PHL POL ROM RUS RWA SEN SRB SLE SVK ZAF ESP LKA SWE CHE TJK TZA THA TGO TUN TUR TKM UGA UKR GBRUSA URY UZB VEN VNM ZMB

20 40 60 80 100 % share of the middle class ($10+) in the population 6 8 10 12 ln GDP per capita, PPP

LIC: <$1,005 LMIC: <$3,995 UMIC: <$12,236 HIC: $12,236+

Source: Loayza, Rigolini data (2012 paper; 2010 data) on 128 countries.

Source: PovcalNet, using 2011 PPPs

Taxes and state accountability: When is the middle class large enough?

10 20 30 40 50 60 70 80 90 100 Nigeria Ethiopia Papua New Guinea India Indonesia China Tunisia Thailand Brazil Chile % share of the middle class in the total country population Strugglers Middle Class

Tax revenues per capita: low even in UMICs

Source: IMF, OECD, WDI

73 247 262 420 1,693 1,419 974 3,659 1,027

• 1,000

2,000 3,000 4,000 5,000 6,000

To 13,127

Tax revenues in US$, per capita

• 2,000,000

4,000,000 6,000,000 8,000,000 10,000,000 12,000,000 14,000,000 16,000,000 18,000,000 20,000,000

$1 $2 $3 $4 $5 $6 $7 $8 $9 $10$11$12$13$14$15$16$17$18$19$20$21$22$23$24$25$26$27$28$29$30

Median: $7 (PPP)

Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

Population

Brazil 2009: The median (voter) is a struggler. (Middle class is in blue.)

Brazil: Strugglers (unlike the poor, under $4) are net taxpayers; taxes make them poorer in cash terms

Post-fiscal income

• 7.1

Fiscal incidence (%)

relative to market income Net indirect taxes

• 15.4

Disposable income

Direct cash transfers

9.4 Net market income

• 1.0

Brazil (2009)

10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000

$1 $2 $3 $4 $5 $6 $7 $8 $9 $10$11$12$13$14$15$16$17$18$19$20$21$22$23$24$25$26$27$28$29$30$31$32$33$34

Population Median: $3.5 (PPP)

• Natl. poverty

line: $.82/day

Indonesia 2016: The median (voter) is poor

Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

• 100,000,000

200,000,000 300,000,000 400,000,000 500,000,000 600,000,000 700,000,000 $1 $2 $3 $4 $5 $6 $7 $8 $9 $10$11$12$13$14$15$16$17$18$19$20$21$22$23$24$25$26$27$28$29$30

Median: $1.6 (PPP)

Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

Population

India 2010: A society still of the truly poor

IV What to think? What to do?

What to think: Economic growth matters – so macro fundamentals are necessary (if not sufficient) Inclusive growth matters – so micro fundamentals matter too Both require an active, effective state

Policies to ponder in a struggler world

• The future of work when informality is “normal”: how make informal work

more productive

• Social insurance for workers without paystubs (ie beyond cash transfers)
• Beyond indirect taxes to more progressive tax policy: taxing property, capital

and personal income

• Automatic stabilizers to support strugglers’ own investment in tough times
• Cross-subsidies that ease the pain of higher prices of energy and waterfor

strugglers

• Short term transfers to strugglers when eliminating fuel subsidies
• Focus any “UBI” and distribution of natural resource rents on stugglers too

What to do: The role of outsiders

Australia and other rich countries: Aid as a supplement for limited tax revenue in low-income countries Beyond aid to support for a just global system: Tax evasion and legal tax dodges Trade, migration, refugees, technology transfer Climate and other global public goods Global citizens everywhere: International NGOs Support independent think tanks in developing countries The development agenda is a global agenda: SDGs and the Paris Accord

Thank You Remember Mohamed Bouazizi’s sister