Growth of the middle class in developing countries is
considered by political scientists to be the backbone of democracy and
economists consider this growth an important factor that drives economic
development, since the enlargement of the middle class allows for both an
increase and diversification in consumption.
Recent research by Joao Pedro Azevedo from the World Bank that has not yet been published but was presented last week by the author at the Bahçeşehir Center for Economic and Social Research (BETAM) offers new insight regarding issues of poverty and the middle class in Turkey.
Azevedo's paper ("Pathways to the Middle Class: How have reducing poverty and boosting shared prosperity helped?" a joint work with Aziz Atamanov) studies the evolution of income growth and income distribution from 2002 to 2011 based on government Household Budget Surveys (HBS) statistics. In line with Word Bank standards, the authors define three groups across income distribution: The poor have an income of less than $5 per day, those with an income between $5-10 per day are considered vulnerable, and, finally, the middle class earns more than $10 per day. Incomes in Turkish lira were converted to US dollars using the World Bank's scale of purchasing power parity (PPP) for 2008. The study contends that not only the evoluton the groups’ shares but also transitions in both directions.
The proportion of the poor in the total population in Turkey was 43 percent in 2002. This figure declined to 22 percent in 2011, while the proportion of the middle class rose from 20 percent to 40 percent. The vulnerable segment remained at around 37-38 percent. This is certainly a remarkable achievement in terms of poverty reduction and middle class growth, but it is not as bright a picture as our rulers try to convince us it is. Indeed, a comparison with Central and Eastern European countries shows that Turkey performed better than some countries like Croatia, Serbia, Georgia, Armenia, the Czech Republic and Hungary, but worse than countries like Romania, Bulgaria and Poland in the period 2006-2011.
As for the transition dynamics, they provide interesting insight regarding movements from one group to another. The data indicate that 41 percent of the poor moved out of poverty during the period and became members of the vulnerable category. None were able to jump straight to the middle class. Middle class category growth was the result of transfers from the vulnerable group to the middle class; 40 percent of the vulnerable category entered the middle class. Only 1 percent of the vulnerable group fell into poverty and no middle class individuals experienced the high income losses that would have pushed them down to poverty. It is also worth noting that only 2 percent of middle class individuals fell into the vulnerable group. These findings indicate that the decrease in poverty as well as the growth of the middle class was the result of a smooth process of increasing per capita incomes from the bottom to the top. Turkey did not experience strong volatility during the period of sustained high economic growth -- close to 6 percent on average -- during the period 2002-2011.
The striking feature of Turkey's poverty reduction achievement is that it was mostly due to an increase in per capita income rather than a redistribution of income. According to the paper's authors, 89 percent of poverty reduction in Turkey came from economic growth; in Latin American countries, the contribution of growth to poverty reduction has been limited to 47 percent, with the remaining 53 percent being the result of income redistribution. This comparison demystifies the "successful" redistributive policies claimed by the ruling Justice and Development Party (AKP).
Another interesting finding of the study appears when poverty reduction is analyzed according to various types of income. There are three major contributors to poverty reduction: an increase in real wages -- particularly the minimum wage increase in 2004, the increase in employment and pensions. The contribution of social assistance lags well behind these three majors contributors.
What can be drawn from the findings of this recent study in respect to the political economy? At first glance, I might assert that during its first decade of rule the AKP was able to enlarge its electoral base -- which reached 50 percent in the general elections of June 2011 -- mostly due to pro-poor and pro-middle class economic growth. However, given the fact that this growth was based on domestic demand fueled by foreign loans which led to a very high and unsustainable current account deficit, the limits of pro-poor growth might have been reached. Relevant income data for the last two years is not available yet, but we already know that the growth rate declined abruptly to 3 percent because of strict control of private consumption. We can predict that it will likely be quite difficult to reduce poverty and to continue the growth of the middle class in the context of a low growth regime without strong redistributive policies.
Recent research by Joao Pedro Azevedo from the World Bank that has not yet been published but was presented last week by the author at the Bahçeşehir Center for Economic and Social Research (BETAM) offers new insight regarding issues of poverty and the middle class in Turkey.
Azevedo's paper ("Pathways to the Middle Class: How have reducing poverty and boosting shared prosperity helped?" a joint work with Aziz Atamanov) studies the evolution of income growth and income distribution from 2002 to 2011 based on government Household Budget Surveys (HBS) statistics. In line with Word Bank standards, the authors define three groups across income distribution: The poor have an income of less than $5 per day, those with an income between $5-10 per day are considered vulnerable, and, finally, the middle class earns more than $10 per day. Incomes in Turkish lira were converted to US dollars using the World Bank's scale of purchasing power parity (PPP) for 2008. The study contends that not only the evoluton the groups’ shares but also transitions in both directions.
The proportion of the poor in the total population in Turkey was 43 percent in 2002. This figure declined to 22 percent in 2011, while the proportion of the middle class rose from 20 percent to 40 percent. The vulnerable segment remained at around 37-38 percent. This is certainly a remarkable achievement in terms of poverty reduction and middle class growth, but it is not as bright a picture as our rulers try to convince us it is. Indeed, a comparison with Central and Eastern European countries shows that Turkey performed better than some countries like Croatia, Serbia, Georgia, Armenia, the Czech Republic and Hungary, but worse than countries like Romania, Bulgaria and Poland in the period 2006-2011.
As for the transition dynamics, they provide interesting insight regarding movements from one group to another. The data indicate that 41 percent of the poor moved out of poverty during the period and became members of the vulnerable category. None were able to jump straight to the middle class. Middle class category growth was the result of transfers from the vulnerable group to the middle class; 40 percent of the vulnerable category entered the middle class. Only 1 percent of the vulnerable group fell into poverty and no middle class individuals experienced the high income losses that would have pushed them down to poverty. It is also worth noting that only 2 percent of middle class individuals fell into the vulnerable group. These findings indicate that the decrease in poverty as well as the growth of the middle class was the result of a smooth process of increasing per capita incomes from the bottom to the top. Turkey did not experience strong volatility during the period of sustained high economic growth -- close to 6 percent on average -- during the period 2002-2011.
The striking feature of Turkey's poverty reduction achievement is that it was mostly due to an increase in per capita income rather than a redistribution of income. According to the paper's authors, 89 percent of poverty reduction in Turkey came from economic growth; in Latin American countries, the contribution of growth to poverty reduction has been limited to 47 percent, with the remaining 53 percent being the result of income redistribution. This comparison demystifies the "successful" redistributive policies claimed by the ruling Justice and Development Party (AKP).
Another interesting finding of the study appears when poverty reduction is analyzed according to various types of income. There are three major contributors to poverty reduction: an increase in real wages -- particularly the minimum wage increase in 2004, the increase in employment and pensions. The contribution of social assistance lags well behind these three majors contributors.
What can be drawn from the findings of this recent study in respect to the political economy? At first glance, I might assert that during its first decade of rule the AKP was able to enlarge its electoral base -- which reached 50 percent in the general elections of June 2011 -- mostly due to pro-poor and pro-middle class economic growth. However, given the fact that this growth was based on domestic demand fueled by foreign loans which led to a very high and unsustainable current account deficit, the limits of pro-poor growth might have been reached. Relevant income data for the last two years is not available yet, but we already know that the growth rate declined abruptly to 3 percent because of strict control of private consumption. We can predict that it will likely be quite difficult to reduce poverty and to continue the growth of the middle class in the context of a low growth regime without strong redistributive policies.
(Published in Todays' Zaman, June 10, 2014)
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