income equality

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.