The Rise of Asia’s Middle Class

Every good ex-pat reads the local national newspaper to understand both what is going on in the country and what is important.  In yesterday’s Philippine Inquirer, Jong-Wha Lee, the chief economist for the Asian Development Bank, penned an op-ed discussing an alternative way of looking at the problem of poverty in Asia.  In the opening paragraphs, he explains the issues:

THE MANTRA across developing Asia since the 1960s has been poverty reduction. Huge strides were made during the Asian “miracle.” Yet two-thirds of the world’s poor remain in Asia. More needs to be done, but how?

Perhaps we need to flip the coin. Instead of just “pushing” people out of poverty, we should also aim at bolstering the rapid expansion of the middle class as a magnet to “pull” people out of poverty, providing an anchor for sustained and more inclusive economic growth.

This is good global economics as well. As households in advanced economies get a handle on excessive debt and start to save, developing Asia’s rising middle class holds the key to rebalancing the region’s economies more toward consumption. Asia’s emerging consumers are likely to assume the traditional role that the US and European middle classes played as global consumers.

The rationale behind this theory, as I understand it, is that a rising tide lifts all ships.  So a growing middle class with higher incomes and greater purchasing power will increase domestic demand for consumer products and services, which will have the compounding effect of creating more jobs and lift more people out of poverty and into the middle class.  Here is what Lee has to say:

As Asia continues on the path of rapid poverty reduction over the next 20 years, the middle class is expected to grow commensurately. ADB estimates the size of the Asian middle class will expand to 2.7 billion by 2030. China and India will see the largest number of graduates to middle class status.

But defining Asia’s middle class is more than just numbers. With better income, people’s attitudes move away from the poor’s survival instinct to the “luxury” of being able to plan ahead. Permanent jobs provide stable incomes that can finance stable consumption patterns. It also creates a class that increasingly demands good governance and better social safety nets that ensure higher quality education, health care and pension systems. The middle class is more likely to have values aligned with greater market competition, greater gender equality, perceptions of upward mobility and more investment in science and technology than those of the poor.

So the middle class are more demanding and expect more from their politicians.  They expect better social services and adequate support, and have a stronger and louder voice than before when it comes to politics.  The poor are easy to marginalize in politics, which is as much about money as anything else.  It is easier to manipulate and take advantage of the poor than it is a more financially independent and established middle class.  This mix of increased government accountability and a more robust economy fueled by the mutually-reinforcing tandem of increased domestic demand and growth in the infrastructure to support it will create more opportunities for the poor.  In other words, instead of empowering the poor and trying to create opportunities for them to improve their situation organically – the “push” approach to poverty alleviation – a more prudent approach would be to nurture and foster growth among the burgeoning middle class, which will produce the macro-level changes a country needs to improve its poverty situation.  The improvement in the environment of the country will pull its poor out of poverty in a self-reinforcing pattern of improvement.

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2 comments for “The Rise of Asia’s Middle Class

  1. September 1, 2010 at 10:01 am

    This approach sounds at once common sense and suspect.

    Of course sound macroeconomic action in developing nations must focus on increasing the middle class. This is not so much of an ‘aha’ moment as a ‘duh’ statement. If countries are able to push or pull the poor out of poverty, where do they go? They jump an economic rung into the working, or lower middle class. In the Philippines, this means people who still struggle financially, but have security in shelter, food and clothing. All poverty reduction work implicitly means middle class growth.

    The suspicious part comes from the policy implications. By focusing on middle-class growth, does that mean that economic policy will neglect the poor (not that there is so much focus on them now) and turn toward benefiting the middle class? Is the idea the creating policies that support middle class households, for example, low and middle income tax reduction, will somehow create room in the middle class for poor people to leap into? How? This sounds like the reframing of policy that continues to entrench economic and social class in the Philippines.

    For the poor to move into the middle class, they need access to one or more of the following: living wage jobs, capital and quality education. Proper medical care and a safety net in times of personal or community disaster are secondary key components.

    I enjoyed your discussion/debate with “Staying for Tea” about private microfinance institutions which have begun to make bigger loans at higher interest rates to more established entrepreneurs, and in the process, are perhaps abandoning the destitute poor that were the original focus of microfinance. Supporting the middle class to ‘pull’ the poor up from poverty sounds like a similar approach that abandons those that need the most opportunity and support.

    Jhong-Wa Lee employs a clever turn of phrase that will do nothing for poverty eradication. He’s pulling our legs about the impact that middle class support will have on the poor.

  2. September 22, 2010 at 9:30 pm

    hey ed – sorry it has taken so long to get back to you. first, thanks for reading and commenting. I actually don’t know enough about macroeconomic policy to give you a really cogent response. I would assume that what Lee is talking about is making sure that the government focus both on helping the poor to cope with day-to-day living, but also be mindful of that fact that the real way for a country to lift its citizens out of poverty is to create jobs. I think the best way to do that is to attract foreign investment, leverage your comparative advantage (in the philippines, that is low-cost labor coupled with exceptional english skills), and make it a place where businesses can grow and thrive. But I wouldn’t necessarily think about the way you think about it in the United States (i.e. rich get richer at the expense of the poor). that dynamic is there, but the issue of poverty is much different in developed countries and the implications of macroeconomic policies are not the same.

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