Contributor: Marushia Gislen, Secretary’s Department
The East Asia and Pacific Region has come to symbolize how rapid growth can raise living standards. While expectations are high that growth will continue to deliver further significant increases, there are concerns about a growing divide between the prospering middle-class and those that are left behind.
Moderator:
Carolina Sanchez-Paramo, Practice Manager, Poverty Global Practice, World Bank
Panelists:
Sri Mulyani Indrawati, Minister of Finance, Indonesia
Nancy Birdsall, Center for Global Development, Senior Fellow and President Emeritus
Charles Abel, Treasurer and Deputy Prime Minister, Papua New Guinea
Dušan Vujović, Minister of Finance, Republic of Serbia
Key Points:
- -Defining the “middle class”. Birdsall argued that the middle class in East Asia is much smaller than generally claimed; the technical definition of the middle class—income levels between $2 and $13 according to the World Bank—includes segments of the population that could easily fall back into poverty if exposed to an economy-wide shock. Below $10, there is no resilience, and a more precise term would be “aspiring middle class”.
- -Increasing divide. Indrawati highlighted that many countries in the region are dealing with high poverty levels, rising inequality, and high wealth concentration. Abel said that driving the inclusive growth agenda can be hard for small countries that are undiversified, commodity exporters.
- -Fiscal and structural reforms. Indrawati and Vujović emphasized the importance of investing in education. In Indonesia, efforts are being made to use progressive taxation to tackle high inequality while targeted spending is aimed at strengthening the social safety net. Increased spending is not a silver bullet, and that the effectiveness of spending need to be ensured (Indrawati).
- -Climate change. A growing middle class implies higher energy consumption, even as countries are facing pressures to mitigate other risks such those from climate change (Abel and Birdsall). Promoting inclusive and sustainable growth at a country level is no longer just a domestic issue (Sanchez)
- -New model. Inclusive growth is the right goal, but it is much more politically demanding than simply “growth” (Birdsall). The future is in higher productivity agriculture and domestic services, and hence the need for more analysis of the impact of labor market policies on inclusion. Development partners should allocate concessional financing to solve collective action problems and ensure access to global public goods (Birdsall and Abel).
Quotes:
“This paradigm is enabling a lot of positives but it is also leaving a lot of us behind.” Charles Abel
“The development community has confused the rest of the world by assuming that life changes when you go from $1.9 to $1.91 a day” Nancy Birdsall
