MIDDLE CLASSES, MOBILITY,
ECONOMIC GROWTH AND
DEMOCRACY IN LATIN AMERICA
Guillermo Perry
Universidad de Los Andes, CGD
Second CAF-OXFORD UNIVERSITY Conference
Oxford, October 2014
THIS PRESENTATION
•
¿ Why we care about the size and growth of the middle class?
–
–
–
–
•
Economic growth
Public goods
Social and political stability
Democracy and human rights
But (discriminating among competing hypothesis):
–
–
–
–
¿Is it the size or share of the Middle Class?
¿Or is it the poverty rate?
¿Ot the Concentration of Income and wealth at the top?
¿Or inequality in general? ¿Or inequality of opportunity and social mobility?
•
¿How to define and measure the Middle Class?
•
The Middle Class in LAC:
–
–
–
•
Size and growth
Characteristics: human capital, occupation, location
Attitudes and values
Issues and Future Research
¿WHY DO WE CARE ABOUT THE MC?
¿Why do we care about the middle class?
•
The Aristotelian Dream: quoted in Easterly, 2001):
– the best political community is formed by citizens of the middle class
– those states are likely to be well-administered, in which the middle class is large
– where middle class is large, there are least likely to be factions and dissension´
•
The American Dream: The American Middle Class, Inequality, and the Strength of our Economy; Boushey, H. and A. Hersh,
Center for American Progress, 2012 ; Alan Krueger, Land of Hope and Dreams: Rock and Roll, Economics, and
Rebuilding the Middle Class, Alan B. Krueger, Chairman, Council of Economic Advisers,2014)
– Human capital: accumulates human capital and support quantity and quality improvements in
public education.
– Domestic market: economies of scale, technologically sophisticated goods and services
– Entrepreneurship
– Support of inclusive political and economic institutions: democracy, property rights, levelled field
regulation.
•
The OECD Dream: How Middle class is Latin America, Latin American Economic Outlook 2011
–
–
–
–
Correlated with long term growth.
Evidence of the success in reduction of both poverty and inequality´
Have historically favoured economic growth through physical and human capital accumulation,
Support progressive social policies in education and labour rights that promote inclusive growth.
Why do we care: ¿evidence?
Source: The Middle Class and Economic Consensus (Easterly 2001)
But, ¿competing theories?
Variable/
Channel
Size and
share of MC
Poverty
Share of top 1%
or 0.1%
Inequality
Equality of
opportunity
xx
(xxxxx)
(xxxxx)
xx??
(xxx)
(xxx)
(xx)
xxxxx
xxx
(xxxxx)
(xx)
(xx)
xxxxx
xx
(xx)?
(xxxxx)
xxxxx
Property Rights
xxxxx
xxx
(xxxxx)
xxxxx
Political Rights
xxx
(xxx)
(xxx)
xxxxx
Human Rights
??
(xxx)
(xxx)
xxxxx
Pro macro
stability
xx
(xx)
xx
(xxx)
xxx
Pro-market
xx
(xx)
xxxxx
(xxx)
xxx
Investment rate
and productivity
Human Capital
Domestic Market
Crime and
Violence
xxxxx (size)
DEFINING AND MEASURING THE MIDDLE CLASS
From Marx to the World Bank
•
Marx: class defined by common economic interests under the prevalent mode of
production: a minor role for the small burgoisie (independent entrepreneurs ,
bureaucrats and intellectuals) vis a vis two defining classes (capitalists and workers).
–
–
Poulantzas: new small burgeoisie: white collar workers
Dahrendorf and Wright: managers and technical experts that exert control, though they
are not owners
•
Weber: class defined by common life copportunities (skills, education)
•
Modern sociologists and political scientists:
–
–
•
Class based on education (Giddens: tertiary) and/or occupation (Goldthorpe and Mc
Knight: professional, managers).
Class positions and their type of contracts affect risk (economic security and
stability) and opportunities.
Modern economists: class based on income (absolute , relative, polarization);
income and occupation (Hoppenhayn) and economic security (Lopez-Calva et al;
World Bank: Economic Mobility and the Rise of the Latin American Middle Class
Modern economists definitions and
measurement of Middle Class
Four economic classes, according to
income distribution, in selected Latin
American Countries.
Source: Down and Up or Up and In? Polarization-Based Measures of the Middle Class for Latin America
(World Bank 2013)
Source: Economic Mobility and the Rise of the
Latin American Middle Class (World Bank 2013)
Share of Self-Defined Middle Class vs
the WB vulnerability-based definition
60
50
40
WB 2009
30
LB 2013
20
10
0
0
5000
Source: The Emerging Middle Class, Lagos CAF (2013)
10000
15000
20000
25000
The importance of ´economic security´ for the Middle Class
American Dream (Center for American Progress)
´When we say middle class, we mean
• more than just families who are, broadly, in the middle of the income distribution… we
mean
• families with enough financial security to …provide investments in the next generation´s
success
• A middle class family has some economic security..a good job with health insurance and a
retirement plan, ..some savings in the bank to tide them over in an emergency, send a
child to college, ..or float a loan to a member that wants to start up a new business´
• Economic security permit long term planning and risky investments:
•
•
•
Human capital:
– Time with children and use of early childhood programs.
– Keeping children in school and tertiary education until investments in education pay
handsomely;
– Changing careers to look for a better match.
Domestic market development:
– Investments in housing and durables
– Consumption of technologically more sophisticated goods and services
Promoting entrepreneurship:
– Taking the time and risks for creating new businesses and financing them.
– Higher education provide the training and skills necessary to start a business.
SIZE, GROWTH AND CHARACTERISTICS OF
THE LATIN AMERICAN MIDDLE CLASSES
Relative Size
(WB vulnerability based definition)
Growth (WB)
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Relative Size in selected Emerging Markets
(WB)
Middle Class Share
60
50
40
30
20
10
0
India
(Urban
only)
Indonesia
(Urban
only)
China
(Urban
only)
Honduras
Thailand
South
Africa
2005-06
Source: A Note on the Middle Class in Latin America (Birdsall 2012)
Turkey
2008-09
Mexico
Brazil
Russia
Chile
Relative Size and Income Share Trends
in selected LAC countries (WB)
Source: A Note on the Middle Class in Latin America (Birdsall 2012)
Growth and the Growth of the Middle Class
(WB)
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Social mobility across Classes (WB)
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Characterizing the Middle Class
in Latin America
Middle Class: differences in
Education, Urbanization and Migration
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Middle Class diffferences:
preference for private Education
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Class and occupation:
few employers in the Middle Class
Percentage of Employers, Aged 25-65
Poor
Vulnerable
Middle
Rich
Honduras
11,4
10,5
5,8
29,5
Dominican Republic
2,1
3,4
7,8
19,6
Peru
3,3
4,7
7,9
21,4
Mexico
4,2
3,2
13,0
20,6
Colombia
3,0
3,2
5,7
12,0
Costa Rica
5,2
4,5
7,6
18,4
Brazil
0,9
1,7
6,3
20,5
Chile
1,4
0,7
2,8
15,3
Source: A Note on the Middle Class in Latin America (Birdsall 2012)
Higher Women labor force participation
(c.2009)
90
80
70
60
%
50
40
30
20
10
0
Honduras
Dominican
Republic
Peru
Mexico
Poor
Source: A Note on the Middle Class in Latin America (Birdsall 2012)
Vulnerable
Colombia
Middle
Rich
Costa Rica
Brazil
Chile
¿Are Middle Class Values different in LA?
Middle Class Impact in Education,
Health and Infrastructure (Easterly)
5
2
4
1
0
3
Life Expectancy (Years)
-1
2
-2
-3
1
-4
0
-5
Secondary
Enrollment
(%)
Tertiary
Enrollment
(%)
Infants with Immunization Immunization Paved roads Acces to
low weight
DPT (%)
Polio (%)
(%)
sanitation (%)
(%)
-1
Source: The Middle Class and Economic Consensus (Easterly 2001)
-6
Infant Mortality (deaths per
1000)
Middle Class Impact on economic policies,
rights and political stability (Easterly)
5
4
3
2
0
1
Revolutions and Coups per Year
-0.002
0
-1
Log Overvaluation Index
Log CPI Inflation
Financial Depth
-0.004
-2
-0.006
-3
-4
-0.008
-0.01
-0.13
-0.135
Political Rights (1-7 1 most
rights)
Civil Liberties (1-7 1 most Free)
-0.012
-0.014
-0.14
-0.016
-0.145
-0.15
-0.155
-0.16
-0.165
Source: The Middle Class and Economic Consensus (Easterly 2001)
-0.018
Constitutional _Changes per Year
¿Are Middle Class Values really different in LAC?
(WB)
0.3
0.2
0.1
0
Trust in
Institutions
Political
Alienation
Perception of
Opportunity
Support
Individual
Rights
Legitimization
of Political
Violence
Voted
Social
Tolerance
-0.1
-0.2
-0.3
Vulnerable
Lower Middle
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
Upper Middle
Nationalism
Left Right
Political
ideology
Interpersonal Interpersonal
Trust
Alienation
¿Or, are country differences more important?
Source: Economic Mobility and the Rise of the Latin American Middle Class (World Bank 2013)
ISSUES AND FUTURE RESEARCH
Issues for further research
1.
Measures: need for more objective criteria to set the cutoff point between Middle Class
and the rich.
2.
Use of (panel ) household surveys to deepen our knowledge about class values and
attitudes:
–
–
–
–
3.
The MC in LAC appear to educate more their children, but in private schools: eg, they would be an
unlikely source of support for better bassic public education! ¿What about public health? ¿Pension
systems? ¿Unemployment insurance? ¿Massive urban transport vs roads for cars?
The MC in LAC seem to care more about political rights and stability, but not so much about civil
liberties and social tolerance. Eg, ¿a source of support for democracy, but not necessarily for human
rights?
¿Does the MC in LAC support macro stability? ¿pro-market policies? ¿trade and financial
integration? ¿Do we observe changes over time? ¿Over the economic cycle?
Panel: ¿Do we observe changes across the life cycle? ¿With increasing or decreasing income and
when crossing class boundaries?
Many of the arguments/channels through which the share of MC may have a causal
effect on growth (and democracy and social tolerance, etc) have been advanced in
relation to inequality, equality of opportunity and social mobility, the share of the poor
or the share of the super-rich
–
Most of the available empirical studies do not test these hypothesis against each other. An urgent
task
END