– World Bank report
The Latin America and Caribbean region saw a 50% increase in the number of people joining its middle class over the last decade, according to a new World Bank report, which sees them as the potential change agents in alleviating poverty.
The report, “Economic Mobility and the Rise of the Latin American Middle Class,” which was released yesterday, found that the middle class in the region grew to an estimated 152 million in 2009, compared to 103 million in 2003, representing an increase of 50%, the World Bank said in a news release yesterday.
It dubbed the growth an historic development rooted in government policies that married social programmes and economic stability. “The recent experience of Latin America and the Caribbean shows the world that policies balancing economic growth while still expanding opportunities for the most vulnerable can spread prosperity to millions of people,” World Bank
President Jim Yong Kim was quoted as saying.
While he said that the achievement should be celebrated and used as a lesson, he also noted that with one third of the population still in poverty, governments in Latin America and the Caribbean still need to do much more.
According to the World Bank, poverty reduction and middle class growth in the Latin America and Caribbean region moved at a very slow pace, as low growth and stubborn inequality held back progress for decades.
However, with “government policies that emphasised the delivery of social programmes alongside economic stability,” it said the region’s fortunes improved dramatically, with the middle class grow by a half to include 30% of the region’s population in 2009. Among the highest achievers were Brazil, it said, which comprised about 40% of the region’s middle class growth. In Colombia, it added, 54% of people improved their economic status between 1992 and 2008, while in Mexico, 17% of the population joined the middle class between 2000 and 2010.
‘A vulnerable class’
The World Bank said the middle class and the poor in Latin America now account for roughly the same share of the population, according to the report.
The report defined middle class in income terms of anyone making between US$10 and $50 per day, saying that this level of income provided an increased resilience to unexpected events and reflected a lower probability of falling back into poverty. It found that some of the key factors favoring the upward mobility in Latin America were higher levels of education among workers; higher employment in the formal sector; more people living in urban areas; more women in the labor force; and smaller families.
At the same time, the report described a fourth, vulnerable class, underscoring the need for countries to do much more to increase shared prosperity. “Members of this vulnerable class, representing 38 percent of the population, fared better income-wise than the poor, but lacked the economic security of the middle class. Sandwiched between the two, the vulnerable class makes between US$4 and US10 per capita, per day,” it said.
The report also determined that, with the exception of years of schooling, intergeneration mobility remains limited. As a result, young people’s parents’ economic and social backgrounds still play a substantial a role in determining their economic future.
But the World Bank noted that this may change, citing Augusto de la Torre, Chief Economist for Latin America and the Caribbean at the World Bank, who said a society with a growing middle class is more likely to reduce such inequalities. “It is widely recognised that the middle class is an agent of stability and prosperity. For a middle-income region such as Latin Americas, a larger middle class has crucial implications,” he was quoted as saying.
‘Greater buy-in’
The World Bank noted that around the world, a larger middle class can mean better governance, deeper credit markets, and greater spending in social sectors, such as public health and education. However, it said the report found that historically this has not been the case in Latin America.
“While this picture has been changing in the past 10 to 20 years, the region’s fragmented social contract often keeps the middle class opting out, and unwilling to contribute to the public purse. This in turn reduces the opportunities for those who remain poor to join the recent entrants into the middle class,” it said, while noting that the report identifies three strategies which governments could employ to gain the support of the middle class for a fairer and more legitimate social contract.
The report has recommended explicitly incorporating the goal of equal opportunities into public policy to break the perception that the system is rigged in favour of the most privileged. It also recommended embarking on a second generation of reforms to the social protection system—including both social assistance and social insurance—to overcome fragmentation and enhance fairness and efficiency.
The third recommendation is breaking the “vicious cycle” of low taxation and low quality of public services by investing some of the region’s commodity windfall to improve the quality of public services, service and administration.
According to the Bank, the social policy debate on how to achieve greater buy-in from the wealthier segments of society is likely to remain a key topic in Latin America for the foreseeable future. To drive such discussion, it said the report concluded that the right set of reforms will result in the middle class becoming an increasingly powerful agent of change to expand prosperity to those left behind.
