Opening statement by ADB Vice-President for Knowledge Management and Sustainable Development Ursula Schaefer-Preuss at the workshop on Developing Asia's Emerging Middle Class on 27 May 2010 in Manila, Philippines
Introduction
Participants, colleagues, ladies and gentlemen: Good morning. I am pleased to address you all in today's Workshop on Asia's Middle Class. With poverty reduction being ADB's overarching goal since 1990, this event is important for us to understand what happens as the poor achieve such advancement, and what some of the broader implications are.
I understand that this is the first time that such a workshop has been organized to develop and improve the special chapter of the Key Indicators for Asia and the Pacific, one of ADB's flagship publications. I congratulate the Economics and Research Department for continually improving their processes in order to strengthen analytical research and knowledge sharing on important development issues and challenges.
We have often described the Asia Pacific region as one with "two faces" — on one hand, the region has witnessed the most vibrant growth in the world, and using the $1.25 poverty line, absolute poverty has significantly declined from 52.3% in 1990 to about 27.1% in 2005. On the other hand, there are still around 900 million people in this region that live below the $1.25–a–day absolute poverty line. This constitutes about half of the world's absolute poor. This is why poverty reduction remains high on our agenda as the overarching goal of ADB's Strategy 2020 and inclusive growth as one of its main pillars.
The challenges in the Asia Pacific region continue to be significant. Last year, we saw the effects of the global financial and economic crisis, particularly as regards unemployment and some of the long–term effects of climate change. And it has become quite apparent that our region may not be able to meet some important targets of the Millennium Development Goals by the year 2015. We must, therefore, persevere in our mission. Under Strategy 2020, we must work together with our government counterparts and the development community to help alleviate poverty and improve the living conditions of people in our region. In so doing, through policy research, we must continue to look for viable approaches to reducing poverty and to better understanding what that brighter future may look like.
Importance of the Middle Class
One of these approaches is the study of the class which the poor aspire to — the middle class. Becoming a part of the middle class captures their dreams of leading a comfortable life, in which they would enjoy stable housing, healthcare, and educational opportunities for their children. The middle class also tends to have reasonable retirement and job security, and discretionary income that can be spent on vacation and leisure pursuits. How can we help the poor achieve their dreams of advancing to the middle class? We can find this answer by studying the middle class more closely.
It is the middle class that runs the bureaucracy, as well as manages businesses, offices, and factories. The middle class is usually well–educated, highly skilled, and well–informed. It is also known for its more progressive values. For example, in countries where gender and other biases are deep-rooted, the middle class seems to be at the forefront of changing old attitudes and beliefs and embracing the notion of equal opportunities for all, regardless of gender, class, caste, religion, and even family background. Moreover, it is through an expanding middle class that political stability and better governance are believed to be nurtured.
There have been many expectations for the middle class. For example, many believe that the middle class holds the key to the future of the People's Republic of China or PRC, the world's biggest country in terms of population. One eminent economist observed that countries with a larger ethnically homogeneous middle class tend to grow faster. The middle class is considered by many with varying perspectives to be a critical factor in the success of a country's economic development.
One view is that the middle class is the source of the most innovative entrepreneurs who can create employment and productivity growth for the rest of society. A more traditional notion, however, is that the middle class is primarily a source of vital inputs, such as skilled workers, investment, and work ethics for the entrepreneurs to combine with their ideas to propel the economy ahead.
Yet another view is that because middle class consumers are willing to pay slightly more for better quality products, the range of goods that is produced and consumed in a country grows considerably. Consequently, investment in production and marketing increases, which in turn raises income levels for everyone, including the poor.
Importance of the Workshop
It is very timely that we are holding this workshop when there are many indications that the world is at the threshold of a major expansion in the middle class and that most of this expansion will come from Asia. This workshop can distill from the interesting but sometimes opposing ideas about the middle class, those that are relevant to our development contributions. I expect that this workshop and the next special chapter of the Key Indicators can identify policies that help the poor advance to the middle class, factors that characterize the middle class, and pathways through which they become effective contributors to growth. Also in this context one should not lose sight of the gender perspective.
I am aware that this is not a straightforward process. There are many diverse views and issues as well as varying experiences by countries. These different views about the middle class probably emanate from different definitions that are applied. Some delineate the middle class by income or consumption expenditure; others by occupation; and others by values and political structure. To have clear answers and recommendations to the questions that we are posing, it is vital that this workshop discusses whether it is possible to agree on a common definition that can be consistently applied across countries.
Beyond establishing the class boundaries, however, we must also grapple with issues about social mobility, and the balance between development and inequality. I appreciate the diverse country studies that I was told were chosen to represent different growth patterns and degrees of success in poverty reduction. The lessons learned from these country studies will be instrumental to providing a clearer focus on which characteristics of the middle class are relevant to inclusive growth.
Another key feature of this research is the use of survey data for cross country comparisons and country studies. The results of these data-intensive analyses provide sound evidence that can inform policy and resolve conflicting views.
ADB's Role
The success of ADB Strategy 2020 is anchored on supporting three complementary development agendas, the foremost of which is inclusive economic growth. Inclusive growth depends on the creation of — and equal access to — opportunities. It has three dimensions: 1) high and sustainable growth to create productive jobs and economic opportunity; 2) expansion of opportunity to ensure equal access; and 3) social protection to prevent extreme poverty and alleviate transitory livelihood shocks and vulnerability.
The results of this workshop and the special chapter of the Key Indicators 2010 can provide inputs to all these three dimensions. They will help us to have a clearer view of how the middle class can contribute to long term inclusive growth and generation of broader access to economic opportunities. They will also help us better appreciate the role of social protection in ensuring that new entrants to the middle class — individuals who are typically vulnerable to falling back into poverty — are able to build on the gains they have made in getting out of poverty and into the middle class. Indeed, we must recognize that efforts at rebalancing growth towards domestic consumption will be successful if they are undertaken together with the provision of social safety nets, medical insurance schemes, and better public education services. And, as I have mentioned earlier, not to lose sight in this important exercise of the gender-dimension of the manifold aspects of a growing middle class in Asia and the Pacific.
In this context, it is worth noting that there are already ADB projects that deal with expanding social protection systems in the PRC and India, the two biggest potential contributors to Asia's middle class. In the PRC, an ADB technical assistance is supporting the creation of an effective rural pension scheme that can help the PRC meet its goal of universal coverage by 2020. ADB is also providing technical assistance in India for the establishment of a broad-based income security system through pensions, especially for the informal sector workforce. This should help ease the fiscal burden of the government, and contribute to the development of the national capital market, as pension funds are important sources for long-term funding.
Conclusions
Ladies and Gentlemen, colleagues and friends: let me express my appreciation for your participation in this important workshop. I look forward to reading the workshop proceedings and the special chapter of the Key Indicators 2010. I wish you all a stimulating and fruitful discussion!
Thank you.