Saturday, July 9, 2011

New Middle Class: potential for income redistribution and grabbing a share from the rich

By Doug Saunders, Globe and Mail, July 9, 2011
Chilean economist José Gabriel Palma has just produced an important study that looks at how income is distributed within countries. Using new data, he has been able to examine the fine grain of change. Inequality, he finds, is not so simple: In Latin America and sub-Saharan Africa, things are becoming more equal; in Asia, less equal (the rich are getting richer far more quickly than the poor are improving their lot). Little has changed in the Middle East.

But what’s interesting is what he finds about people with middle incomes – typically those just able to buy things such as housing and cars for the first time. These people generally have about half the income in almost every country.
Andy Sumner, a British scholar at the Washington-based Center for Global Development, looked at the political ramifications of Dr. Palma’s breakdown and asked a provocative question: “Are the middle classes the new revolutionaries?”
“The middle classes generally get half of the economic pie wherever you look, and are incredibly successful about protecting their half,” Dr. Sumner notes. As a result, he says, “politics is increasingly a fight for the remaining half between the richest 10 per cent and the poorest 40 per cent … between the very rich and the very poor over who can win over the middle classes.”
Before, much of the world had either the type of free-market, right-wing politics dominated by the wealthy – as found in Colombia, Mexico and Peru today – or the type of state-heavy, left-wing politics ostensibly aimed at the very poor, as found in Cuba, Venezuela and Belarus.
But increasingly, in countries where those fragile middle ranks are growing, we’re seeing a different sort of politics dominating – and taking hold in lasting ways. Turkey, Brazil, Chile and Poland, for instance, are seeing the dominance of a type of political party that has both free-market economics and activist tax-and-spend policies – with the tax coming from the established middle and upper classes, and the spending up for grabs.
“A growing global middle class does seem likely to reinforce effective government that manages moderate redistribution while retaining investor confidence in the likelihood of continuing growth and price stability,” Dr. Sumner says. One benefit is that such politics are actually better at helping the poor than the left-wing counterpart – and much better at grabbing a share from the rich than the right-wing counterpart.
The growing but economically punished middle classes, Dr. Sumner suggests, may well “lock in” this new politics – producing the long-term stability we’ve seen in Brazil and Turkey, as the people in the middle fight for their corner. It might be just what the world needs.
It is Dr. Sumner's observation that a growing middle class "seems likely to reinforce effective government that manages moderate redistribution while retaining investor confidence in the likelihood of continuin growth and price stability"...and Saunders conclusion: One benefit that such politics are actually better at helping the poor than the left-wing counterpart--and much better at grabbing a share from the rich than the right-wing counterpart:.... that exploded off the page for this reader/scribe.
If ever there were a time when both the right and the left needed to hear such observations, arguments and slaps to the sides of their collective heads, it is now.
And if all parties can and do commit to the cause of growing the middle class, everywhere, knowing their revolutionary power and their policital clout, then it would seem feasible that over a couple of decades we might be able to look back on the last thirty years as the worst we could have created with our "echoing chants from both extreme corners" and find the middle ground, because the middle classes lead us to our own reckoning and our own new collaboration and co-operation.

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