Asia’s rising middle classes champions for more inclusive societies

Are Asia’s rising middle classes champions for more inclusive societies?

By Antoine Bonnet, Junior Economist & Alexandre Kolev, Head of Unit, Social Cohesion, OECD Development Centre

Wealthier middle classes are emerging across Asia. While they are highly heterogeneous across the region, their improved economic status could translate into greater ability to engage in public life, exercise voice, and influence decision-making. However, would these middle classes, if truly empowered, push for a policy agenda that is well aligned with the interests of the more fragile communities? Our recent research suggests this cannot be taken for granted.

Understanding whether middle classes in emerging Asia could become champions for more inclusive societies is especially important in today’s context. Restrictive measures taken in response to the COVID-19 crisis have led to increases in poverty and inequality, with the world’s poorest 20% experiencing the biggest income loss. In 2020 alone, the pandemic pushed 49 million people in South Asia and 5 million people in East Asia and the Pacific into extreme poverty.

We know that the middle class often plays an important role in a country’s development. A larger middle class is associated with more robust democratic institutions, control of corruption, as well as higher public expenditure on education and health, thus possibly also resulting in higher economic growth. In Asia, middle classes are thought to increase aggregate demand for higher quality domestic products, in particular food products, thus progressively transforming a region traditionally referred to as a global manufacturing centre into a “consumption powerhouse”. And as the Asian middle classes grow, they also promote investment in human and physical capital.

To better understand middle classes in Asia, we studied six emerging economies: Cambodia, China, Indonesia, Pakistan, Thailand and Viet Nam. Our analysis looked at the characteristics of the middle classes, how they compare with other segments of society, and whether their needs and aspirations align with those of more vulnerable groups.

We found that, by measures such as number of children, level of education and incidence of informal employment, middle classes in all six countries are considerably closer to poor and near-poor households than to affluent ones. This resemblance between middle- and low-income groups could result in support from the former for a range of policies that would also benefit poorer segments of society. Investments in primary and secondary education, universal child benefits and the extension of social protection to informal economy workers are all policy areas where the interests of both the middle and the bottom of the income distribution seem to converge. The question of social protection extension is particularly salient, as low levels of coverage in Emerging Asia have threatened segments of the middle-class to fall back into poverty because of the fight against the pandemic.

In other areas, however, there are differences between middle groups and poorer groups. In particular, poor households’ participation in agriculture tends to be significantly higher than among the middle classes. In Thailand, for example, only 26% of middle-class households work primarily in agriculture, compared to 76% of poor households. The gap is even wider in Viet Nam, with 31% of middle-class households working in agriculture compared to 84% of poor households.

Related to this, the difference in urbanisation rates is also high: in Thailand, middle-class individuals are 26 percentage points more urban than poorer households; in Viet Nam the difference is 30 percentage points. To put this into perspective, Thailand and the Republic of Korea have a 30 percentage point urbanisation difference. These differences suggest that a number of pro-poor policies, such as investments in rural infrastructure and agriculture and support to small-scale farmers and local food systems, may not get strong support from people in middle-class groups and affluent households.

All in all, although there is empirical evidence of a positive association between the growth of the middle class and a series of positive institutional outcomes, it is not enough to address rising inequalities and to address the specific needs of poor communities. These results underscore the need for policy makers to better take into account the needs of poor and near-poor communities in policy discussions, especially in areas where their needs do not necessarily overlap with those of more affluent social groups. Looking forward, as more and more Asian countries embark on the green transition and seek to address the challenges of the 21st century, it is vital for policy makers to address the needs and aspirations of the most vulnerable communities.