Will the middle class be the country's agent of change?

Mustafa K Mujeri | Published: October 10, 2018 21:30:54

The world is reaching a tipping point, where the global middle class will expand dramatically over the next several years. The global middle class, numbering 3.2 billion people in 2016, is likely to grow at 170 million per year in the coming years; and nearly 88 per cent of the next billion people in the middle class will be from Asia. The middle class market is also growing at about 4.0 per cent per year in real terms, faster than global GDP (gross domestic product) growth. China and India are at the forefront of the expansion of the global middle class. As for Bangladesh, more than 20 per cent of Bangladesh's total population belong to the middle class category (defined as having income ranging between $2.0 and $3.0 per day). The share is likely to reach 25 per cent by 2025 and 33 per cent by 2030.

The expansion of a country's middle class is often regarded as a sign of development, resulting in economic prosperity, as well as a potential for more social security. Rapid growth in middle class clearly has economic consequences as well as social fallouts. The middle class is important for growth as income elasticities of demand by these people are usually greater, especially for durables; their preference for product differentiation leads to value added in branding; they nurture 'middle class values' such as hard work, meritocracy, savings, and education; their impetus to growth is more sustainable than export-led growth; and there is less risk of falling into the middle income trap. Cross-country empirical evidence shows that a larger middle class influences consumption growth primarily through higher levels of human capital accumulation.

The middle class also has growing expectations regarding quality health care, good education, social protection, affordable living and other social services. They no longer remain satisfied with simply having access to public services; they are increasingly concerned with their quality. This, in turn, may have implications for poverty reduction, assuming that the government is able to meet public demands. It is well known that the causes of poverty include, among others, insufficient access to public resources such as education and healthcare, especially for the rural people.

Providing quality services that the middle class demands is far more complicated than providing access and this can be a source of friction and conflicts. With rapid growth of the middle class, the demand for public services soars, the capacity of the government to respond to these demands also expands, but at a slower rate.

Bangladesh's emerging middle class can be a critical factor because of its potential as an engine of growth. History tells us that those belonging to the middle class vigorously accumulate capital, both physical and human, so that a stable middle class can provide a solid foundation for economic progress by driving consumption and domestic demand.

The experience of Brazil and South Korea illustrates major differences in the role of the middle class. In the 1960s, both these countries had similar levels of income and economic growth rate; but by the 1980s, middle class made up only 29 per cent of the population in Brazil due to high income inequality; in contrast, South Korea's share of middle class was 53 per cent. The high share of the middle class enabled South Korea to shift away from export-driven growth towards domestic consumption, a transition that did not happen in Brazil.

Moreover, middle class is not only a driver of consumption and domestic demand, its social role is equally important. Middle class is usually progressive, supports democracy and moderate political platforms. A strong middle class can therefore influence inclusive development through more active participation in the political process, expressing support for inclusive political programmes and electoral platforms.

Although a larger middle class may imply a happier population, this may also create pressures for better delivery of public services or for more democratic governance as middle class citizens recognise their potential to bring about positive changes. Strength often comes in numbers as well.

However, despite having incomes above the poverty line, some middle class segments are quite vulnerable. Many of them work in the informal sector, their education and skill levels do not permit them to move up to better occupations, and social protection systems fail to reach these vulnerable groups. Their susceptibility to economic shocks is striking. This vulnerability is especially worrying, since if they have vulnerable incomes and unstable employment, their consumption levels may not support sustainable development and stable social progress.

Usually, middle class possesses rising expectations, which follow Hirschman's 'tunnel effect'. The tunnel effect highlights initial tolerance of increased inequality resulting from uneven economic growth processes on the part of relatively disadvantaged members of the society,  who,  expecting  to  catch  up  and  benefit  in  the  near  future,  draw  satisfaction  from  the improved  income  situation  of  others.  If the moment of catching up does not arrive, initial tolerance may switch, giving way to feelings of falling behind, resulting in social upheaval.

The government's role is to put policies in place to fight the vulnerabilities of the middle class and benefit from middle class support. These policies should promote upward social mobility such as quality education, and provide safety nets that protect the vulnerable segments while facing risks. If high quality of publicly provided services can be ensured, a constituency for comprehensive contribution-based social protection system can be built with support from the middle class. However, if publicly-provided services are of low quality, the middle class will perceive themselves as losers in the fiscal bargain and may not be willing to finance the public system.

No doubt, the concept of middle class is somewhat vague and corresponds to different lifestyles; and it may be hard to see how this heterogeneous group would position itself in society. Moreover, it is widely noted that the people belonging to the group are driven mostly by self-interest; they strongly feel that their interests should be protected and are likely to oppose even good reforms that affect them in any negative way. They are extremely unwilling to compromise their group's interests and privileges.

People also cite evidence for representatives of the middle class who are more likely to guard their relative privileges against the incursions of poorer classes than champion alternatives that would help reduce poverty. The middle class is often branded to be more concerned with retaining its privileges and remaining loyal to the government that made its social advancement possible than with greater social justice and equality. The middle class helps a regime to maintain the status quo.  Thus, they may not become progressive drivers of social reforms that would benefit the majority.

Despite these structural limitations of the middle class, the rising expectations of the expanding middle class in Bangladesh signal its awakening with its own specificities; and the key question is: will this middle class be the country's agent of change?

Dr. Mustafa K. Mujeri is Executive Director, Institute for Inclusive Finance and Development (InM).  mujeri48@gmail.com




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