Muhamad Chatib Basri: Middle Class and Economic Inequality
My study with Hal Hill from Australian National University shows: symptoms of dissatisfaction also occur in ASEAN, but on a much smaller scale compared to Europe or the US.
Night began to dissolve, cold piercing. The simple shop is still crowded, the sound of people mingling with the strains of “Take Five” – Dave Brubeck from the “jukebox” in the corner of the room. Next to me sat a young child. I don’t know him, but because the shop was full, we had to share a table.
To kill lonely, we engage in casual conversation. When I found out I was from Asia, he began to talk about the poverty he saw in Asia. Then he alluded to the issue of economic inequality in the United States (US). He talked about the magnificent apartment at Tribeca lower Manhattan in New York.
Then, with masygul – while quoting CNBC – he said the average income of the richest one percent population in the US is 1.32 million US dollars per year. While the remaining 99 percent earn an average of 50,107 US dollars a year. I don’t know how accurate that number is. But I can catch the turmoil.
Economic inequality in the City of Manila, Philippines, Sunday (1/12/2019). At the beginning of the 20th century, the Philippines had become the most developed country in Asia. However, because of one of the corruption scandals by the 10th president Ferdinand Marcos, the Philippines also fell into a country that faces a problem of extreme poverty.
He is not alone. These days we are dealing with a world that is anxious and so easily angered. Algeria, Bolivia, Chile, Ecuador, France, Hong Kong, Lebanon, and many more complete the story of the protest in 2019.
In Hong Kong, protests were triggered by anti-legislation that allowed extradition to China for criminals in Hong Kong; in Chile a large demonstration was triggered because of the government’s decision to raise metro tariffs “only” by 3 percent; in Lebanon protests were triggered over taxes on cellular phone services such as WhatsApp.
The trigger can be varied, there is no single explanation for this. However, we cannot negate economic factors as explanatory.
Christoph Lakner and Branko Milanovic (2015) in their seminal work Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession shows: income distribution patterns in the world in 1988-2008 resemble the shape of an elephant (elephant curve): rising from tail to body , down at the head, then up sharply like a trunk up.
Semi-permanent tents line up along Jalan Tenaga Listrik, Tanah Abang, Jakarta, against a backdrop of rows of skyscrapers, Friday (1/6/2017).
They point out: low middle income countries (which are in the 10-70 percentile income from the global income distribution) such as China, India, I suspect ASEAN, including Indonesia, are experiencing growth. In contrast, in the 80-90 percentile – reflecting middle class income in Europe and the US – experienced a decline and stagnation.
In contrast, wealthy groups in Europe and the US who are in the 90-99th percentile have experienced an increase in income. Remarkable: the top one percent income groups in the US and Europe have experienced very sharp increases in income – almost vertically. It is understandable why the middle class in Europe and the US are anxious and angry.
This anxiety may also be triggered by demographic factors. Just look: most protests in many countries are driven by young people. My guess, young people in countries in Europe and the US know: the problem of the elderly population will make the economy increasingly heavy. They will not enjoy the glorious times like their parents. There is anxiety there. Also anger at the situation. They go to high school, but there are no decent jobs available.
Passengers get off the Sun Princess Cruise Ship from Fremantle, Australia, while leaning on the Port of Gili Mas, Sheets, West Lombok Regency, West Nusa Tenggara, Tuesday (11/05/2019).
How about Asia? My study with Hal Hill from the Australian National University, entitled The Southeast Asian Economies in the Age of Discontent (forthcoming), shows: symptoms of dissatisfaction also occur in ASEAN, but on a much smaller scale compared to Europe or the US.
Why? Consistent with the findings of Lakner and Milanovic, relatively good economic growth in East Asia and ASEAN – compared to developed countries – has given rise to a new middle class in China, India, Southeast Asia, including Indonesia.
In contrast to the US and Europe, countries in East Asia and ASEAN have benefited relatively from global trade and industrialization. Maybe that’s why Asia is not as worried as Europe or the US. However, our study shows that there is no room for complacency. Economic growth in several ASEAN countries began to slow down or stagnate, social uncertainty increased.
Middle class vulnerability
How about Indonesia? Our middle class is increasing rapidly, poverty is decreasing. But there are some important things to note.
First, a World Bank study (2018) shows: economic growth in Indonesia has succeeded in reducing the percentage of poor people and vulnerable people. Not only that, “middle class” grew by 10 percent per year in the period 2002-2016.
I know, we have to be careful with the term “middle class”. How do we define it? In terms of income, type of work or other things? Apart from that he does not have a political cohesion that can represent his political behavior.
I am not interested in entering into the debate. It’s better if I refer to the consumer class based on expenditure. The World Bank (2018) makes the following definition: “middle class” are those whose per capita expenditure per day is 7.5-38 US dollars per day (2016 PPP adjusted term).
Yoga session on the Prana by Atzaro cruise ship that sailed to the waters of Labuan Bajo, East Nusa Tenggara, some time ago. Participating in various activities that prioritize mindfulness or awareness, such as yoga, has become an alternative activity for urbanites as a digital detox.
On top of that there is a group of “upper class” (upper class). And under the “middle class”, there is a group of “middle class candidates” (Aspiring Middle Class / AMC), that is, those whose expenditure per capita per day is 3.3-7.5 US dollars. Then the vulnerable group whose expenditure is between 2.2-3.3 US dollars and the poor (under 2.2 US dollars) per day.
Second, what is the impact of an increase in the “middle class” on our economy? Engle’s Law shows: in line with the increase in per capita income, the portion of non-food expenditure will be even greater than the total expenditure.
Consumption will shift from “needs” (such as food), to “wants” (non-food). This explains why in line with the increase in “middle class”, sales of cars, motorcycles, cell phones, homes rose sharply. Don’t be surprised if demand for education, health, recreation, lifestyle, creative industries services will be extraordinary in the future.
Third, although the “middle class” continues to grow, they are still vulnerable to economic turmoil. The World Bank shows: in Indonesia, only 50 percent of those who have become “middle class” in 2000, were able to survive as “middle class” in 2014. While the remaining 40 percent dropped to Aspiring Middle Class, and another 10 percent instead returned to being poor or vulnerable to poverty in 2014.
What does it mean? The middle class is also vulnerable to economic shocks. Ironically: Indonesia, and also many countries in the world, do not have special programs for the middle class. That’s why the young man beside me is worried.
Thousands of job seekers filled the first floor of Blok M Squared shopping area, Jakarta, Tuesday (11/19/2019).
Governments in many countries around the world have so far focused on providing protection for the poor. Then what can be done to help this middle class? We must think carefully. One policy that might be utilized is a pre-work card, or cash for training where workers are trained to increase their productivity when they prepare themselves for their next job.
Governments in many countries around the world have so far focused on providing protection for the poor. Then what can be done to help this middle class?
Third, I have written in this daily: although economic growth has succeeded in reducing youth unemployment (15-24 years), from 22 percent (2014) to 20 percent (2018), the percentage of unemployed young people with high school education and above has risen sharply.
Meaning: economic growth does not fully absorb young age groups with high school education and above. Why? Maybe not too many jobs with decent wages available.
Or maybe, because of rising job expectations. Yet as historian Niall Ferguson of Harvard University has said, young educated unemployed are one source of middle class dissatisfaction. What we need now is not just job creation, but decent jobs.
Political economic implications
Fourth, this is where the issue of political economy becomes very relevant. Educated young unemployed – also middle-class unrest – if not properly addressed, can turn into political problems. So far the conditions in Indonesia and ASEAN are still relatively good. But there is no room for complacency. We also know: the emergence of a new “middle class” has economic and political implications.
“Middle class” is a diligent professional complainer. They have high expectations for good quality public services. So far, they have only acted as professional complainers, not yet agents of change.
However, it is too early to conclude that his role does not exist. It is not impossible that complaints, or dissatisfaction are then transmitted in the form of public unrest. Here I think, the emergence of a new middle class or consumer class, can be a political pressure, if the government and politicians do not improve themselves for a just and clean government – for good public services.
Late at night, music from the jukebox playing Selling England by the Pound from Genesis. I looked at the disappointed face beside me. I know he is not alone. And in 2019 noted so much anxiety. The world is indeed worried. But we cannot be forever depressed. I am a pessimist because of intelligence, but an optimist because of will, writes thinker Antonio Gramsci. Happy new year 2020.
(Muhamad Chatib Basri, Lecturer at the Faculty of Economics and Business, University of Indonesia)