Strugglers: This Century’s New Development Challenge
KeynoteAustralasian Aid Society Conference
Canberra, February 13, 2018(modified for posting March 1, 2018)
Nancy BirdsallSenior Fellow and President Emeritus, Center for Global Development
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
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0 2 4 6 8 10 12 14 16 18 20Initial household income per capita per day (2005 PPP)
Probability of falling into poverty
(i.e. below $4 PPP per capita per day)
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 of 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($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
0
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
0
5
10
15
20
25
30
35
40
500 5000 50000
Perc
enta
ge o
f pop
ulat
ion
that
are
stru
ggle
rs
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
0
10
20
30
40
50
60
70
80
90
100
Ethiopia Tanzania Senegal Kenya Pakistan India Indonesia
% sh
are
of c
ount
ry p
opul
atio
n
Poor $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%
Perc
ent s
hare
in th
e to
tal c
ount
ry p
opul
atio
n
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)
0
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
Inco
me
grow
th 1
988-
2011
, as %
Income per day in 2011, 2011 PPP $
90th 95th 99th 100th85th
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-$50
III. Strugglers: Why they matter
Strugglers are not Aristotle’s middle class
It is manifest that the best political community is formed by citizens of the middle class, and that those states are likely to be well-administered in which the middle class is large, and stronger if possible than both the other classes [. . .] ; for the addition of the middle class turns the scale, and prevents either of the extremes from being dominant.
—Aristotle, Politics
Struggler “countries”: those with a small middle class (
Source: PovcalNet, using 2011 PPPs
Taxes and state accountability: When is the middle class large enough?
0
10
20
30
40
50
60
70
80
90
100
Nigeria Ethiopia Papua NewGuinea
India Indonesia China Tunisia Thailand Brazil Chile
% sh
are
of th
e m
iddl
e cl
ass i
n th
e to
tal c
ount
ry p
opul
atio
n
Strugglers Middle Class
Tax revenues per capita: low even in UMICs
Source: IMF, OECD, WDI
73247 262
420
1,6931,419
974
3,659
1,027
-
1,000
2,000
3,000
4,000
5,000
6,000 To 13,127
Tax
reve
nues
in U
S$, p
er ca
pita
-
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)
Popu
latio
n
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
Fisc
al in
cide
nce
(%)
rela
tive
to m
arke
t inc
ome
Net indirect taxes
-15.4
Disposable income
Direct cash transfers
9.4
Net market income
-1.0
Brazil (2009)
Chart1
-1.0156738282
-1.01567382828.3923575213
8.3923575213
-7.05441748428.3923575213
-7.0544174842
-7.054417484205.475375999717.7648733737
23.24024937340
Sheet1
-1.0156738282-1.01567382828.4-7.0544174842-7.1-7.054417484223.2
8.39235752138.39235752130
5.4753759997
17.7648733737
0
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
Popu
latio
nMedian:$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)
Popu
latio
n
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 tooBoth 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 dodgesTrade, migration, refugees, technology transferClimate and other global public goods
Global citizens everywhere: International NGOsSupport independent think tanks in developing countries
The development agenda is a global agenda: SDGs and the Paris Accord
Thank YouRemember Mohamed
Bouazizi’s sister
Strugglers: This Century’s New Development ChallengeSlide Number 2This talkStrugglers: high probability of falling back into povertyNew poverty lines from World Bank now acknowledge most strugglers are indeed “poor”. The developing world: 60% are strugglers; still 60% in 2030Why: As poverty fell (since 1990), the struggler group almost doubled (and better known, the middle class doubled).Most strugglers live in middle-income countries: UMICs tooIndia and Indonesia (LMICs) in 2030: 90% are still poor or strugglers Strugglers are the dominant group in Asian LMICs; middle class is larger in UMICs Thailand and Brazil.II Key characteristics of strugglers On average strugglers have completed primary education – the middle class secondaryStrugglers work in sectors “between” agriculture and formal sector jobsMost strugglers are informal workers – without a regular paystub The poor and strugglers in non-ag work make up 90 percent of informal workers in IndonesiaStrugglers are the group that benefited most from growth 1990-2011; they have high expectations and middle class aspirations�But better data on global inequality suggest struggler gains are relatively smaller, less robust and durable.III. Strugglers: Why they matterStrugglers are not Aristotle’s middle classStruggler “countries”: those with a small middle class (