Pro-middle class is also pro-poor

1. Nancy Birdsall (2010). The (Indispensable) Middle Class in Developing Countries. World Bank.

“growth driven by and benefitting a middle class is more likely to be sustained –both economically, to the extent that the rent-seeking and corruption associated with highly concentrated gains to growth are avoided, and politically, to the extent that conflict and horizontal inequalities are easier to manage when not only is the size of the pie is growing but also everyone is enjoying bigger slices.”

Where a politically salient middle class supports in its own economic interests sound and stable political and economic institutions.

The real trade-off in many developing countries is probably not between benefits for the poor versus the middle class anyways but between benefits for the poor and the middle class together versus the rich. Trade-off is probably between the short-term political benefits of policies that preserve the status quo and the long-run growth associated with the financial, tax, business, and other policies that build a middle class and are, as it turns out, pro-poor as well.

Middle-class expansion: people who graduate from poverty and increase in “economic command” of the middle class.

An increase in size and command of the middle class is likely to signal that the underlying growth is based on wealth creation and productivity gains in private activities. That growth is self-sustaining and transformative (politically as well as economically, because the more powerful middle class demands government policies conducive to wealth creation), as opposed to being driven largely by exploitation of natural resources, by remittances, or by infusion of external aid.

In most developing countries, singular focus on the poor is likely to ignore trade-offs that matter for the incipient or small and fragile middle class. Choices on the expenditure side are the most obvious. One example is loss of political support for narrowly targeted cash transfer programs (Gelbach & Pritchett 2000). Biggest trade-off occurs when the middle class loses trust in government’s ability to spend effectively at all and withdraws support for tax collection in general (Birdsall, de la Torre, and Menezes 2008)

2. Nancy Birdsall (2007). Reflections on the Macro Foundations of the Middle Class in the Developing World. Center for Global Development

How does pro-middle benefit the poor? The experience of the mature Western economies suggests that the poor benefit when an economically strong middle class insists on accountable government and supports, through their willingness to pay taxes, universal and adequate public services.

3. Luckham, Boadi, Ahadzie & Boateng (2005). The middle class and their role in national development. Overseas Development Institute

Obama has argued that an empowered middle class bolsters entrepreneurship, promotes innovation, and values education, among others. But his main-selling point is that a strong middle class gives them political, and in turn economic, clout. They help promote better governance by supporting policies and programs that have widespread benefits; they also promote foresighted policies because their economic fate is more closely tied to the quality of public service than those of the wealthy. “Forced to make their system work”. Middle class can afford to take risks by starting businesses. Middle-income earner = job creator because that person fuels the consumption and consequently economic growth.

Unsure whether the middle income class is shrinking or expanding because there’s a need to update the statistics. Last study was done 2010, before the Aquino administration. What has been done by Aquino since then? Mainly targeted towards empowering the poor. CCT, Education reforms, and PPP, among others..but other factors conducive to making the country’s economic landscape more conducive to middle class still not addressed – electricity rates, competition via anti-trust, tax reform, etc.

2 concerns other than actually empowering the middleclass: defining middle class and providing a metric for defining the middle class.