The Problem of the Rising Middle

Anyone traveling through this country of ours will be struck by the stark contrast between the haves and have-not’s. Squatter colonies sit alongside gleaming high rise condos. Street hawkers peddle their wares on Manila’s major arteries clogged up by expensive cars and SUVs.

It provides fodder for those who believe that the Philippines is an Asian backwater, stagnant and not creating enough opportunity or wealth to be shared equitably. The development question as most economists would pose it is how to reduce the level of poverty that exists in the country.

In actual fact, it is more complex than that. It is how to cope with the burgeoning middle class and the demands they are placing on our resources. I know it might sound silly to some. In the last six years of the Arroyo regime, a narrative had been worn out about how the poverty rate did not go down despite the nearly ten years of sustained growth. So “what burgeoning middle class?” might be the question on their lips.

Shouldn’t it be called a “dwindling” middle class as official statistics point to a meager decline in the poverty rate from 27.5 per cent in 2000 to 26.9 per cent in 2006 of the number of families living beneath the poverty line, a measly 0.6 percentage point reduction? The sad thing is that due to population growth, the number of families deemed poor increased by over half a million from 4.1 to 4.7 million.

This is where the old rhetorical line about the rich getting richer and the poor getting poorer often enters the conversation. But what often gets overlooked by the commentators and pundits is the fact that while population growth drives up the number of poor families, it also drives up the number of households belonging to the middle class as well.

Using reported statistics of the government, the total number of households in the Philippines grew from 15 to 17.3 million or an increase of 2.3 million households. The growth of the number of poor households was 530 thousand which implies that the number of middle class households grew by 1.8 million!

If we assume an average of six individuals per poor household and five for middle income ones (since the poor tend to have larger families), it means that out of the 12 million people added to the population between 2000 and 2007, 3.2 million were poor while 8.9 million were middle income. That is roughly equivalent to two cities the size of Singapore or the whole of Manhattan being added to the middle class in our country during this time.

Although not as dramatic as developments in Vietnam or China where new cities are literally rising out of rice paddies, this growth is quite remarkable nonetheless. It helps us understand why congestion in our cities has worsened and why generating enough power and water is becoming a challenge for us and why the government struggles to keep up with the demand for schools, hospitals and roads. It is in other words a classic case of emerging markets.

It explains why hot money is being poured into our stock market which has doubled in value already from a few years ago. Investors are fleeing the mature and ageing markets of the West in search of bright spots in which demographics is working in their favor. The challenge therefore is how to manage this growth given the demands it puts on our natural resources.

With the effects of typhoon Ondoy still ringing in our collective memories, we need to think of managing the urban sprawl and the transportation system of our urban centers. The restoration of once pristine places like Baguio and Tagaytay need attention.

Many development theorists believe that Third World countries must sacrifice ecological sustainability in their quest towards lifting millions out of poverty. The idealistic Jeffrey Sachs wants to end poverty in our lifetime. I look at the United States which has a child poverty rate of 20 per cent, not far removed from ours.

There is no doubt that programs that help alleviate poverty such as the conditional cash transfers program need to be promoted. But in our march towards development, we also need to pay close attention to how we are affecting our natural habitat. The challenge of the rising middle class is the biggest one facing this nation in 2011 and beyond.

Doy Santos aka The Cusp

Doy Santos is an international development consultant who shuttles between Australia and the Philippines. He maintains a blog called The Cusp: A discussion of new thinking, new schools of thought and fresh ideas on public policy (www.thecusponline.org) and tweets as @thecusponline. He holds a Master in Development Economics from the University of the Philippines and an MS in Public Policy from Carnegie Mellon University.

  • Joe America

    Yes, the more we consume, the more we take minerals from the mountains and emit carbons to the atmosphere. So there are three ways to go, (1) retreat to the stone ages, (2) continue consuming in chaos, and (3) applying our brains to new technologies to manage our consuming inputs and outputs. I favor the latter, and look with hope at developments in solar energy, nuclear fuel disposal, energy efficient homes and the like.

    However, I can’t help but think that those families birthing 10 kids into a zero income household are more dangerous than my middle class wife buying a new blouse.

    • GabbyD

      right. just because one person consumes more resources than another doesnt mean that person is worse.

      thats just one side of ledger. what about the other side? the benefits of the action?

      as i told cusp, the carbon footprint, resource cost of different income segments is an empirical question.

  • Joe America

    Yes, the more we consume, the more we take minerals from the mountains and emit carbons to the atmosphere. So there are three ways to go, (1) retreat to the stone ages, (2) continue consuming in chaos, and (3) applying our brains to new technologies to manage our consuming inputs and outputs. I favor the latter, and look with hope at developments in solar energy, nuclear fuel disposal, energy efficient homes and the like.

    However, I can’t help but think that those families birthing 10 kids into a zero income household are more dangerous than my middle class wife buying a new blouse.

    • GabbyD

      right. just because one person consumes more resources than another doesnt mean that person is worse.

      thats just one side of ledger. what about the other side? the benefits of the action?

      as i told cusp, the carbon footprint, resource cost of different income segments is an empirical question.

  • Anonymous

    Household (6 people) making less than P120,000 a year would be poor. (Rough computation: UN-poverty-metric of US$1.50-a-day-per-capita becomes US$9.00-a-day per poor household (of 6). $9-a-day is very roughly about $3,000-a-year or P120,000 a month.)

    Magic ingredient — OFW income. A household with 2 working adults (for combined yrly income above P150,000) AND receiving US$150/month from their OFW son or daughter would be middle-class.

    BPO jobs, because they are jobs, should be welcomed. The issue is less the BPO jobs, the issue (in my opinion) is that there are no BPO jobs in Ilocos, in Nueva Ecija, nor in Bicol and Agusan. The issue (in my opinion) is job-creation, and the more non-metro-Manila jobs created, the better.

    CCT is good because CCT is incentive against child-labor and CCT keeps children in school to develop marketable skills that allow them (hopefully) to do better than their parents. [PS: There will probably be 15% to 20% graft/corruption-leakage for CCT but that’s a small price to pay to get more children away from hacking away in cane fields or earning a few pesos as garbage-dump scavengers. Children should be in schools where they can study.]

    • Bert

      Totally agree with UP n.

  • Anonymous

    Household (6 people) making less than P120,000 a year would be poor. (Rough computation: UN-poverty-metric of US$1.50-a-day-per-capita becomes US$9.00-a-day per poor household (of 6). $9-a-day is very roughly about $3,000-a-year or P120,000 a month.)

    Magic ingredient — OFW income. A household with 2 working adults (for combined yrly income above P150,000) AND receiving US$150/month from their OFW son or daughter would be middle-class.

    BPO jobs, because they are jobs, should be welcomed. The issue is less the BPO jobs, the issue (in my opinion) is that there are no BPO jobs in Ilocos, in Nueva Ecija, nor in Bicol and Agusan. The issue (in my opinion) is job-creation, and the more non-metro-Manila jobs created, the better.

    CCT is good because CCT is incentive against child-labor and CCT keeps children in school to develop marketable skills that allow them (hopefully) to do better than their parents. [PS: There will probably be 10% to 20% graft/corruption-leakage for CCT but that’s a small price to pay to get more children away from hacking away in cane fields or earning a few pesos as garbage-dump scavengers. Children should be in schools where they can study.]

    • Bert

      Totally agree with UP n.

  • Nothing new, just another subtle push for the CCT program of PNoy and blaming poverty on the population growth eh?

    As long as this administration is happy with putting up more BPOs to dumb down our labor force and doubling the stock market which again benefits only the middle and upper classes, the so-called rhetorical line “the rich getting richer and the poor getting poorer” stops becoming one does it not?

    • Jhay, who suffers most from typhoons, flooding, water shortages and power outages? Isn’t it the poor. This isn’t about class warfare. That is old hat. And where in the article did I blame population growth for poverty?

      My reasoning is rather the opposite: a growing middle class has taken place alongside population growth, which is why our natural habitat is being threatened (because of the increased consumption by this growing middle).

      As for the CCT, it is part of providing a basic social safety net and a way of breaking the cycle of low educational attainment-low employment prospects-low incomes. What is your alternative?

  • Nothing new, just another subtle push for the CCT program of PNoy and blaming poverty on the population growth eh?

    As long as this administration is happy with putting up more BPOs to dumb down our labor force and doubling the stock market which again benefits only the middle and upper classes, the so-called rhetorical line “the rich getting richer and the poor getting poorer” stops becoming one does it not?

    • Jhay, who suffers most from typhoons, flooding, water shortages and power outages? Isn’t it the poor. This isn’t about class warfare. That is old hat. And where in the article did I blame population growth for poverty?

      My reasoning is rather the opposite: a growing middle class has taken place alongside population growth, which is why our natural habitat is being threatened (because of the increased consumption by this growing middle).

      As for the CCT, it is part of providing a basic social safety net and a way of breaking the cycle of low educational attainment-low employment prospects-low incomes. What is your alternative?

  • GabbyD

    Virola has his own defition on what middle class is. he says that having income of at least 280k is middle class.

    i cannot past the link (how can i do that, moderator?). just google virola middle class.

    • I understand the statistical need of economists to split our population by quintiles and deciles. There are many ways to define social disadvantage actually, not just through income. However from the planet’s point of view, it doesn’t matter what level of income a family has whether they are lower income or middle income. The fact that as populations start to move above a basic level of subsistence, they start to have a significant environmental footprint on the planet is a more important point in my view.

      • GabbyD

        ” it doesn’t matter what level of income a family has whether they are lower income or middle income. The fact that as populations start to move above a basic level of subsistence, they start to have a significant environmental footprint on the planet is a more important point in my view.”

        the first sentence contradicts the second. if it doesnt matter, why would u then say that moving beyond a basic level has a “significant” effect?

        your key question (i think) is: who creates more pollution. people who are very poor. not so poor, etc.. up the ladder. i think the rich (but not necesarily the most wealth) generate the bulk of pollution.

        • GabbyD let me reverse the argument. If a lower proportion of our people are being classified as poor, and the population is growing as well, it connotes that a growing proportion and number of people are non-poor. Ergo, if they are living above the poverty line, that means they are consuming more. That is the basic point of the article.

          All this quibbling about the minutiae of detail is simply clouding the issue that with a growing number of people with higher living standards, it necessarily puts additional demands on our natural surroundings that have not been witnessed before. That is the biggest problem confronting our polity in years to come.

          People are entitled to a basic level of living, but concurrently as we figure out how to provide for social safety nets, we have to contend with the issue of environmental sustainability.

          • GabbyD

            i’m afraid its not that simple. more consumption (in peso value say) doesnt translate into greener behavior.

            for example, u can use gas guzzling 2T tricycles VS more efficient vehicles.

            the devil is in the details, sadly.

    • cocoy

      GabbyD,

      Hmm. you should be able to paste links here. Could you try it again, and if not, let me know, and i’ll try to figure it out.

  • GabbyD

    Virola has his own defition on what middle class is. he says that having income of at least 280k is middle class.

    i cannot past the link (how can i do that, moderator?). just google virola middle class.

    • I understand the statistical need of economists to split our population by quintiles and deciles. There are many ways to define social disadvantage actually, not just through income. However from the planet’s point of view, it doesn’t matter what level of income a family has whether they are lower income or middle income. The fact that as populations start to move above a basic level of subsistence, they start to have a significant environmental footprint on the planet is a more important point in my view.

      • GabbyD

        ” it doesn’t matter what level of income a family has whether they are lower income or middle income. The fact that as populations start to move above a basic level of subsistence, they start to have a significant environmental footprint on the planet is a more important point in my view.”

        the first sentence contradicts the second. if it doesnt matter, why would u then say that moving beyond a basic level has a “significant” effect?

        your key question (i think) is: who creates more pollution. people who are very poor. not so poor, etc.. up the ladder. i think the rich (but not necesarily the most wealth) generate the bulk of pollution.

        • GabbyD let me reverse the argument. If a lower proportion of our people are being classified as poor, and the population is growing as well, it connotes that a growing proportion and number of people are non-poor. Ergo, if they are living above the poverty line, that means they are consuming more. That is the basic point of the article.

          All this quibbling about the minutiae of detail is simply clouding the issue that with a growing number of people with higher living standards, it necessarily puts additional demands on our natural surroundings that have not been witnessed before. That is the biggest problem confronting our polity in years to come.

          People are entitled to a basic level of living, but concurrently as we figure out how to provide for social safety nets, we have to contend with the issue of environmental sustainability.

          • GabbyD

            i’m afraid its not that simple. more consumption (in peso value say) doesnt translate into greener behavior.

            for example, u can use gas guzzling 2T tricycles VS more efficient vehicles.

            the devil is in the details, sadly.

    • cocoy

      GabbyD,

      Hmm. you should be able to paste links here. Could you try it again, and if not, let me know, and i’ll try to figure it out.

  • GabbyD

    What does middle income mean? what is the income range? for that matter, what is the income of a poor person? where did u get these stats? the nscb’s page are only for 2006

    • GabbyD, the NSCB contains stats on the income levels below which a family is considered poor. The article is quoting this directly from one of the tables. The statistics on poverty is only up to 2006. The population figures however go up to 2007.

  • GabbyD

    What does middle income mean? what is the income range? for that matter, what is the income of a poor person? where did u get these stats? the nscb’s page are only for 2006

    • GabbyD, the NSCB contains stats on the income levels below which a family is considered poor. The article is quoting this directly from one of the tables. The statistics on poverty is only up to 2006. The population figures however go up to 2007.