For a while now there has been glowing reports of the fall in extreme poverty figures and a rising “middle” class. Yet the Financial Times shows just how transient this progress can be. Decades of success have led to a tendency to think of the fight against poverty as a one-way path: people move up the economic ladder and rarely slip back. Yet in many developing countries there remains a huge churn between those above and just below the poverty line each year. Incomes in rural India remain vulnerable to a bad harvest, so the march in and out of poverty is linked intimately with the monsoons.
The Asian Development Bank has defined the entry point to the new middle class as the derisory $2 per day poverty line, adjusting for purchasing power, while other economists have argued that a more robust definition begins at $10 per day.
More than one-third of the world lives on between $2 and $10 a day, making this “fragile middle” the world’s biggest income group. Some 2.8bn people – 40 per cent of the world’s population – were earning $2-$10 a day in 2010, the latest year for which data are available from the World Bank’s income distribution database.
Adjusting for inflation and purchasing power, the share of those living below $2 per day has dropped markedly since 1981 from 70 per cent of those living in developing countries to two in five, but the bulk of those lifted out of poverty remain only just above the line. About 1.5bn people were earning between $2 and $4 a day in 2010, and this $2-$4 group has grown more quickly than any other across the income spectrum. There were 952m people earning $2-$3 a day in the developing world in 2010.
Yet a market slowdown could tip millions over the brink and back into destitution. The International Labor Organisation said it was already seeing the effect of slow growth in emerging economies, with the number of workers worldwide in extreme poverty declining only 2.7 per cent in 2013, one of the slowest rates seen over the past decade. In a recent paper, World Bank economists warned that “developing-country growth could be 2-2.5 percentage points weaker than it was during the pre-crisis boom period”.
Kaushik Basu, the World Bank’s chief economist, warned that many of those people who had emerged from poverty in recent years remained “very vulnerable” to slipping back. He also said the world economy faced risks, including the possibility that China’s growth could slow even more than it has already, something that would have big repercussions for the developing world. Even if that risk did not materialise, Mr Basu said, current growth would not be enough to return to the sort of poverty reduction seen in recent decades. How vulnerable would those who have risen out of poverty be to sliding back into it? “That’s a very good question,” Mr Basu says. “And I think they are still very vulnerable.”
The wealth gap in the world’s fourth most populous country is widening. Consumption by the poorest half of the country stagnated last year, according to the World Bank. The poorest half of Indonesians saw zero or slightly negative growth in consumption expenditure between 2012 and 2013, compared with 4 percent growth across the entire population and an average of 7 percent for the richest 20 percent, the Washington-based World Bank said in a 2013 report. The country’s gini coefficient, a measure of income inequality, widened to 0.41 in 2012, from 0.35 in 2005. That’s above the 0.4 level that the United Nations has said is a predictor of social unrest, and compares with China’s level of 0.47 the past two years. The number of Indonesians living below the government’s poverty line rose by half a million people in the six months to September to 28.55 million, or 11.5 percent of the population.
“The rate of poverty reduction has been slowing,” Matthew Wai-Poi, a Jakarta-based senior economist for the World Bank, said in an interview on April 10. “The distribution of economic growth has been much more to the richest 20 percent.” The decline in the poverty rate over recent years may be masking increases in inequality because about three times more people are now classed as “vulnerable” rather than poor, Wai-Poi said. About 16 percent of Indonesians lived on less than $1.25 a day in 2011, while 43 percent lived on under $2 a day, according to the World Bank. “There’s a bunch missing out in terms of growth,” Wai-Poi said. “There is a risk because higher inequality can lead to higher conflict.”
Keith Loveard, head of risk analysis at Jakarta-based security company Concord Consulting, explained “There is certainly the potential for local issues creating tensions and violence. The growth in inequality that has occurred over the years of ‘boom’ times have logically created a stronger sense of resentment.”
Muljoko, a 27-year-old cleaner who works in one of Jakarta’s gleaming office towers, has all the trappings of a newly minted member of the middle class. He owns a motorcycle, slings a Sony smartphone and has a futuristic-looking phone-watch strapped to his wrist that he uses to text friends during working hours. He is infinitely better off than he was growing up in an impoverished farming village in southern Sumatra. Like millions around the world over the past three decades, Muljoko has risen out of poverty and is now a proud member of Asia’s emerging urban middle class.
Muljoko earns Jakarta’s minimum wage of Rp2.4m a month, meaning he lives off the equivalent of $7 a day. Roughly half of that goes to pay for food and the small boarding-house room he shares with his younger brother. After covering fuel and maintenance costs for the motorbike, he is left with as little as Rp500,000 ($44) – or less than $1.50 a day – to cover any discretionary spending, send money home to his family in Sumatra, or save for an all-important wedding.
It is no wonder Muljoko frets about the future. He worries about what he would do if he were confronted with a family medical emergency and how his earnings would stretch if he were to marry and have a family. By the Asian Development Bank’s standard definition of middle class – earning between $2 and $20 a day – Muljoko is a member in good standing. Yet he feels anything but. “I don’t feel secure,” he says. Put into context, the number of solidly middle-class people remains small.
Four in 10 of the world’s people now live in this “fragile middle” as it is now newly termed.
“More of humanity lives in that grouping than any other grouping,” says Homi Kharas, an economist at the Brookings Institution think-tank, who is one of the world’s leading experts on the rise of an emerging-markets middle class, a status that he says really begins at $10 a day. “It is larger than the middle class. It is larger than the rich. It is larger than the poor.”
But extending the gains is becoming harder now that the great emerging-market growth spurt of the past 30 years appears to many to be coming to an end. As growth slows, the rise of an emerging-market middle class may look less inevitable.
Half of all Turks are out of work. Even the country’s 11 million registered workers are struggling to make ends meet because they earn less than minimum wage and are vulnerable to exploitation. According to the OECD, the gap separating the poorest and richest 10% of Turkey’s population has been growing steadily since 2008.
“Informal and unregistered labour is one of the main drivers of inequalities in income distribution,” Ozturk Turkdogan, secretary general of Turkey’s Human Rights Association told SES Türkiye. “But among the workers who are registered, only 10% of them are unionised. Hence the working class of Turkey cannot act together to push for improvements in their salaries and work conditions. For example, last year 1,500 workers lost their lives in work-related accidents. But since unionisation is very weak, most of these cases remained unheard.”
The Asian Development Bank has defined the entry point to the new middle class as the derisory $2 per day poverty line, adjusting for purchasing power, while other economists have argued that a more robust definition begins at $10 per day.
More than one-third of the world lives on between $2 and $10 a day, making this “fragile middle” the world’s biggest income group. Some 2.8bn people – 40 per cent of the world’s population – were earning $2-$10 a day in 2010, the latest year for which data are available from the World Bank’s income distribution database.
Adjusting for inflation and purchasing power, the share of those living below $2 per day has dropped markedly since 1981 from 70 per cent of those living in developing countries to two in five, but the bulk of those lifted out of poverty remain only just above the line. About 1.5bn people were earning between $2 and $4 a day in 2010, and this $2-$4 group has grown more quickly than any other across the income spectrum. There were 952m people earning $2-$3 a day in the developing world in 2010.
Yet a market slowdown could tip millions over the brink and back into destitution. The International Labor Organisation said it was already seeing the effect of slow growth in emerging economies, with the number of workers worldwide in extreme poverty declining only 2.7 per cent in 2013, one of the slowest rates seen over the past decade. In a recent paper, World Bank economists warned that “developing-country growth could be 2-2.5 percentage points weaker than it was during the pre-crisis boom period”.
Kaushik Basu, the World Bank’s chief economist, warned that many of those people who had emerged from poverty in recent years remained “very vulnerable” to slipping back. He also said the world economy faced risks, including the possibility that China’s growth could slow even more than it has already, something that would have big repercussions for the developing world. Even if that risk did not materialise, Mr Basu said, current growth would not be enough to return to the sort of poverty reduction seen in recent decades. How vulnerable would those who have risen out of poverty be to sliding back into it? “That’s a very good question,” Mr Basu says. “And I think they are still very vulnerable.”
The wealth gap in the world’s fourth most populous country is widening. Consumption by the poorest half of the country stagnated last year, according to the World Bank. The poorest half of Indonesians saw zero or slightly negative growth in consumption expenditure between 2012 and 2013, compared with 4 percent growth across the entire population and an average of 7 percent for the richest 20 percent, the Washington-based World Bank said in a 2013 report. The country’s gini coefficient, a measure of income inequality, widened to 0.41 in 2012, from 0.35 in 2005. That’s above the 0.4 level that the United Nations has said is a predictor of social unrest, and compares with China’s level of 0.47 the past two years. The number of Indonesians living below the government’s poverty line rose by half a million people in the six months to September to 28.55 million, or 11.5 percent of the population.
“The rate of poverty reduction has been slowing,” Matthew Wai-Poi, a Jakarta-based senior economist for the World Bank, said in an interview on April 10. “The distribution of economic growth has been much more to the richest 20 percent.” The decline in the poverty rate over recent years may be masking increases in inequality because about three times more people are now classed as “vulnerable” rather than poor, Wai-Poi said. About 16 percent of Indonesians lived on less than $1.25 a day in 2011, while 43 percent lived on under $2 a day, according to the World Bank. “There’s a bunch missing out in terms of growth,” Wai-Poi said. “There is a risk because higher inequality can lead to higher conflict.”
Keith Loveard, head of risk analysis at Jakarta-based security company Concord Consulting, explained “There is certainly the potential for local issues creating tensions and violence. The growth in inequality that has occurred over the years of ‘boom’ times have logically created a stronger sense of resentment.”
Muljoko earns Jakarta’s minimum wage of Rp2.4m a month, meaning he lives off the equivalent of $7 a day. Roughly half of that goes to pay for food and the small boarding-house room he shares with his younger brother. After covering fuel and maintenance costs for the motorbike, he is left with as little as Rp500,000 ($44) – or less than $1.50 a day – to cover any discretionary spending, send money home to his family in Sumatra, or save for an all-important wedding.
It is no wonder Muljoko frets about the future. He worries about what he would do if he were confronted with a family medical emergency and how his earnings would stretch if he were to marry and have a family. By the Asian Development Bank’s standard definition of middle class – earning between $2 and $20 a day – Muljoko is a member in good standing. Yet he feels anything but. “I don’t feel secure,” he says. Put into context, the number of solidly middle-class people remains small.
Four in 10 of the world’s people now live in this “fragile middle” as it is now newly termed.
“More of humanity lives in that grouping than any other grouping,” says Homi Kharas, an economist at the Brookings Institution think-tank, who is one of the world’s leading experts on the rise of an emerging-markets middle class, a status that he says really begins at $10 a day. “It is larger than the middle class. It is larger than the rich. It is larger than the poor.”
But extending the gains is becoming harder now that the great emerging-market growth spurt of the past 30 years appears to many to be coming to an end. As growth slows, the rise of an emerging-market middle class may look less inevitable.
Half of all Turks are out of work. Even the country’s 11 million registered workers are struggling to make ends meet because they earn less than minimum wage and are vulnerable to exploitation. According to the OECD, the gap separating the poorest and richest 10% of Turkey’s population has been growing steadily since 2008.
“Informal and unregistered labour is one of the main drivers of inequalities in income distribution,” Ozturk Turkdogan, secretary general of Turkey’s Human Rights Association told SES Türkiye. “But among the workers who are registered, only 10% of them are unionised. Hence the working class of Turkey cannot act together to push for improvements in their salaries and work conditions. For example, last year 1,500 workers lost their lives in work-related accidents. But since unionisation is very weak, most of these cases remained unheard.”
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