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

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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 (