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 outsiders

Strugglers: high probability of falling back into poverty Probability ty o of fa falling i g into to 0.7 pov overty y (i.e .e. b . below $ $4 PPP p per r $6 income = more than PER capit ita p a per d day ay) 40% chance of falling back 0.6 into poverty 0.5 $10 income = 10% chance CHL of falling back into poverty 0.4 0.3 MEX 0.2 0.1 0 0 2 4 6 8 10 12 14 16 18 20 Init itia ial h l household ld i incom ome p per c cap apit ita p per d day ( y (2005 P PPP) Source: Lopez-Calva and Ortiz-Juarez (2011).

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

The developing world: 60% are strugglers; still 60% in 2030 1990 2002 2010 2013 2020 2030 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 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). Strugglers and MC Share 60 50 40 30 Projections 20 10 0 1990 1995 2000 2005 2010 2015 2020 2025 2030 Strugglers: $4-$10 Middle class: $10-$50 Source: PovcalNet, using 2011 PPPs and UN World Population Projections under “medium variant” assumptions

Most strugglers live in middle-income countries: UMICs too 40 LMIC 35 UMIC Percentage of population that are strugglers 30 25 20 LIC 15 10 5 HIC 0 500 5000 50000 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 100 90 80 70 % share of country population 60 50 40 30 20 10 0 Ethiopia Tanzania Senegal Kenya Pakistan India Indonesia Poor <$4 (2030) Struggler $4-$10 (2030) Middle Class $10-$50 (2030) Wealthy >$50 (2030) 550 USD 3630 USD GNI per capita GNI per capita Source: Methodology based on Birdsall, Lustig, and Meyer (2014); data used are from Dykstra and Sandefur (2014), based on 2005 PPPs

Strugglers are the dominant group in Asian LMICs; middle class is larger in UMICs Thailand and Brazil. 60% Percent share in the total country population 50% 40% 30% 20% 10% 0% Strugglers Middle Class Source: PovcalNet, using 2011 PPPs

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 Strugglers work in sectors “between” agriculture and formal sector jobs 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 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 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 Developing world Strugglers: US ‘middle middle class: $2-$10 class’ (Pew) $10-$50 120 100 Income growth 1988-2011, as % 80 60 40 20 85th 90th95th 99th 100th 0 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 per day in 2011, 2011 PPP $ Source: Lakner and Milanovic (2015); Milanovic (2016)

But better data on global inequality suggest struggler gains are relatively smaller, less robust and durable. Strugglers: Developing world middle class: $2-$10 $10-$50 Nancy Birdsall | Date? | CGDev.org World Inequality Report via Justin Sandefur for CGD

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%) UMIC: <$12,236 100 CHE LMIC: FIN SWE AUT DNK NLD IRL NOR FRA BEL GBRUSA CAN LIC: AUS KOR CZE <$3,995 ITA <$1,005 % share of the middle class ($10+) in the population ISR ESP GRC 80 HRV HIC: $12,236+ 60 BIH HUN SVK URY BLR ARG CHL UKR 40 SRB CRI POL LVA RUS BRA MKD COL PAN MEX LTU PER TUR PRY ECU DOM 20 AZE VEN JAM SLV BOL MYS HND GTM JOR BGR KAZ TUN ZAF THA NIC MAR MDA ROM ALB KEN PHL CIV PNG GEO DZA CHN HTI LKA MRT EGY GHA CMR KGZ TKM VNM ARM NPL SLE UGA SEN IDN ZAR NER MDG BFA MLI ZMB TJK BEN UZB PAK MNG ETH MWI RWA CAF TGO GIN BGD TCD IND LAO NGA 0 BDI TZA Source: Loayza, Rigolini data 6 8 10 12 (2012 paper; 2010 data) on ln GDP per capita, PPP 128 countries.

Taxes and state accountability: When is the middle class large enough? 100 % share of the middle class in the total country population 90 80 70 60 50 40 30 20 10 0 Nigeria Ethiopia Papua New India Indonesia China Tunisia Thailand Brazil Chile Guinea Strugglers Middle Class Source: PovcalNet, using 2011 PPPs

Tax revenues per capita: low even in UMICs To 6,000 13,127 5,000 Tax revenues in US$, per capita 4,000 3,659 3,000 2,000 1,693 1,419 1,027 974 1,000 420 262 247 73 - Source: IMF, OECD, WDI

Brazil 2009: The median (voter) is a struggler. (Middle class is in blue.) Median: $7 (PPP) 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 Population 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 - $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 Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

Brazil: Strugglers (unlike the poor, under $4) are net taxpayers; taxes make them poorer in cash terms Brazil (2009) relative to market income Fiscal incidence (%) 9.4 -15.4 -1.0 -7.1 Net market Direct cash Disposable Net indirect Post-fiscal transfers taxes income income income

Indonesia 2016: The median (voter) is poor Median: $3.5 (PPP) 60,000,000 Natl. poverty line: $.82/day 50,000,000 40,000,000 Population 30,000,000 20,000,000 10,000,000 0 $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 Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

India 2010: A society still of the truly poor Median: $1.6 (PPP) 700,000,000 600,000,000 500,000,000 Population 400,000,000 300,000,000 200,000,000 100,000,000 - $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 Source: PovcalNet via Dykstra and Sandefur (2014) dataset (2005 PPPs)

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