In his State of the Union Address 2015, President Barack Obama urged building of a 'Strong America.' He affirmed: “This country does the best when everyone gets their fair share, everyone plays by the same set of rules. Everyone needs to contribute to the country's success.” His 'mantra' of middle class economics seemed to be working as per the statistics presented in the address. It is indeed a contradiction of Kuznets' hypothesis that the income inequality tends to decrease if income per capita increases. Indeed, global income inequality has been mounting in a never ending process that cannot be reversed automatically through increasing income; it has to be tamed through invigorating something like middle-class economics.
In a report titled “Wealth: Having It All and Wanting More,” Oxfam mentioned that only 85 individuals possessed wealth equivalent to that of half of the world's population. Now, 1% of the world population has 48% of world income, which will be 50% by 2016 as per projection. Income gap between women and men has also been widening sharply. Such extreme economic inequality is a stumbling block in alleviation of global poverty.
Even though recent World Bank estimates provide conservative figures of income inequality, national reports paint a dismal picture. Bangladesh Bureau of Statistics reports Gini index of income inequality to be 45.8 in 2010, which was 46.7 in 2005. That means, annual rate of reduction of inequality was a minuscule 0.18 percentage point even though macroeconomic and development policies were claimed to be pro-poor in nature. With the same database the World Bank's conservative estimate of Gini index is only 32.1. If Bangladesh's estimate is taken as baseline, the distribution of global inequality would reveal a much worse scenario.
The gap between income group at the bottom (lowest 5%) and their richest counterpart (top 5%) is extremely high; the correspondent figures were 0.78 and 24.61%, respectively in 2010. Top 10% households had as high as 35.9%, while their corresponding bottom households had only 2% share in total income. World Bank had conservative estimates of these numbers too, but the huge disparity is quite vivid across the world. Even Sweden, one of the most equalising countries, could not bring income of top 10% households to 20%. The income of bottom 10% also does not make a difference as it is 3.8% of its total income.
In response to Oxfam's report, Bill Gates responds quite correctly that market economy creates space for abnormal extraction of income ('high success,' in his words) of a few people. However, his solution to the problem is 'charity' as he believes that “philanthropy is part of how we deal with those inequities.” Now a million-dollar question to the multi-billionaire: what do statistics tell about this claim? They show that charitable spending is high in the countries with high inequality.
In his address, Obama emphasised that many corporations give low to no tax and he wanted to bring them in the tax net for spending on the middle-class. Areas of increased spending would be, among others, on helping middle-class families, childcare, schooling, retirement benefit, and community college from where 40% of the graduates would be from the US. At the same time he made a commitment to develop a competitive economy, promote smart leadership and invest on quality infrastructure. This is the essence of middle-class economics for a 'strong America.' Indeed, middle-class is the bearer of social values, creativity and strength of the society. They also have been instrumental in driving civilisations as Arnold Toynbee mentioned in A Study of History.
Is there a middle-class economics in Bangladesh? Do we have strong commitment of public spending on and redistributive priority for the middle-class? During his last visit to Bangladesh, Professor Nurul Islam urged crafting of a strong, educated and hardworking middle-class for intellectual development, creativity and driving the society. Bangladeshi middle-class has been struggling and decaying between 'ends and scarce means.' In the last decade, we promoted pro-poor growth; we changed it to inclusive growth and shared prosperity for this decade to become a middle-income country, maybe without adherence to the needs of the middle-class.
The dream of an American lies in the middle-class economics for a strong America. Conversely, the dream of a strong Bangladesh dries in the desert of diminishing middle-class aspirations. Indeed, the middle-class helped the formation of Bengali nationalism, and was at the forefront in the War of Liberation. They have been forgotten since the third five-year plan and thus have become a real 'missing middle.' The seventh five-year plan is currently being prepared. It is now imperative to place strategies and policy priorities for invigorating them again, fulfilling their hopes and desires.
The writer is an Economist and Senior Research Fellow, Bangladesh Institute of International and Strategic Studies (BIISS).
The Daily Star, 27 January 2015