According to UN estimates, the world’s population reached 7 billion in late 2011.

It took all of human evolution until approximately the year 1800 to reach the first 1 billion — and now we have seen an extra billion added in a mere 12 years. World population growth peaked at a little over 2 per cent per annum in the 1960s and has declined steadily to half that today. The annual increase in absolute numbers peaked in the early years of this century; and although that too is now declining it is still close to its peak of 80 million a year (roughly the size of Germany). With about 1.6 billion people living today in East Asia and another 0.6 billion in Southeast Asia, this region accounts for nearly one third of the world’s 7 billion people. How is population growth playing out in this region, and what are the policy implications of the underlying dynamics?

The world is demographically divided and population growth is unevenly distributed. The so-called more developed regions (MDRs) — Europe, North America, Australia/New Zealand and Japan — went through their demographic transitions (from high to low birth and death rates) much earlier than the less developed regions (LDRs). In the 40 years between 2010-50 the developing countries will probably grow by more than 2 billion, the developed by less than 40 million. East Asia accounted for 26 per cent of the world’s population in 1950, 24 per cent in 2000 and is projected to represent only 17 per cent by 2050; the corresponding figures for Southeast Asia are 7, 8 and 8 per cent, respectively. By mid-century Southeast Asia’s population may have almost stopped growing, while that of East Asia is expected to show negative growth.

But each grouping of countries is far from homogeneous. East Asia grew by a little over 120 per cent between 1950-2000, but is expected to grow by less than 10 per cent between 2000-2050; Southeast Asia grew almost 200 per cent between 1950-2000 and will still grow by another 50 per cent by 2050. These differences in growth rates are due mainly to variations in fertility. Fertility in East Asia declined between 1950-2000 from a total fertility rate (TFR), that is, the average number of live births per woman, of more than 5 to less than 2; the TFR is less than 1.5 in Japan and South Korea. The TFR has also declined in Southeast Asia but it is still close to 2.5 (although well below 2 in Singapore and Thailand). Population growth in East and Southeast Asia in the coming decades will be due largely to population momentum (the large proportion of women of child-bearing age), not because of high fertility levels in the present.

A major consequence of low fertility, combined with improvements in health and life expectancy, is population ageing. The proportion of the population aged over 65 in East Asia represented just 4 per cent of the total population in 1950; by 2000 it was 8 per cent and by 2050 it will likely be 25 per cent. In Southeast Asia the corresponding figures are 4, 5 and 17 per cent, respectively. In Japan the size of the working-age population (15-64 years) is already declining, and the same will happen in China by the 2020s. Maintaining equitable economic development in a rapidly ageing country requires new institutional arrangements.

Most portentous perhaps are trends in urbanisation. In 1950 just over 50 per cent of the MDRs’ population was urban, but in the LDRs it was less than 20 per cent; today the figures are close to 75 and 45 per cent, respectively. And by 2050 we can expect more than 85 per cent of the population to be urban in the MDRs and at least 65 per cent in LDRs. Cities are important engines of economic growth but they can — and often do — have deleterious social and environmental impacts as well. In most countries of East and Southeast Asia over the next 40 years the urban population will swell and the rural will decline. In East Asia the urban population will grow by more than 420 million, in Southeast Asia by about 260 million.

Ongoing changes like these in the relative size, structure and distribution of national populations have important implications for the region’s policy makers, especially in the context of overall population growth. The challenge is to fashion new development paths for these changing populations to make it possible to raise prosperity and reduce poverty, while at the same time introducing more pollution abatement measures and significantly expanding environmental protection. The end of population growth in the region may be in sight, but past and present growth means this challenge will need to be accomplished on a scale and at a speed unprecedented in human history.

Adrian C. Hayes is Adjunct Associate Professor and Zhongwei Zhao is Professor at the Australian Demographic and Social Research Institute, Australian National University.

1. Bearing the consequences of population policy in Thailand
2. Australia’s population policy and the resources boom
3. South Asia and Asia’s middle-class future

Thailand went through its fertility transition more quickly than almost any other country, with the average number of children born to the average woman declining from about six to two in little more than two decades, between about 1970 and 1990.

Fertility rates have since gone still lower, now standing at around 30 per cent below replacement level (the level that would lead to long-run population stability). This does not mean that Thailand’s population has stopped increasing. Population momentum — resulting from a continued relatively high concentration of people in the childbearing ages – may result in slow population increases for up to 10 more years. But after this Thailand’s population will begin to decline unless fertility rates increase substantially from their current level, or there is net immigration.

What are the issues, then, that Thailand faces in relation to population change? One is rapid population ageing, and another is urbanisation. The latter is concentrated on Bangkok and its surrounds, but increasingly also on regional cities such as Chiang Mai, Korat and Hat Yai. Equally, the international migration balance appears to be lowering the labour force’s average education and skill levels, as Thais moving abroad tend to be better-educated than migrants coming to Thailand from neighbouring Myanmar, Laos and Cambodia.

Still, Thailand has profited in recent decades from a demographic dividend, where its earlier decline in fertility has subsequently led to a population age structure in which the proportion of working-age people is very high. Such an age structure is favourable to rapid economic growth, something which Thailand has certainly achieved over recent decades. This demographic dividend is now drawing to a close, and the proportion of working-age people is beginning to decline, albeit slowly.

Thailand is fairly well placed to deal with the additional challenges this transition will pose for economic growth in coming years. Its education system has (rather belatedly) managed to achieve a much higher proportion of students completing their upper-secondary education. But the situation is not yet satisfactory. Thailand’s National Economic and Social Development Board reported that in 2008 the retention rate in primary education, from entry to the highest grade, and in upper secondary from entry to the highest grade, was 88 per cent and 53 per cent, respectively. A further problem will be Thailand’s ageing labour force, with a declining number and proportion of workers under the age of 29.

Considerable publicity has been given to the ageing issue in Thailand. The proportion of those aged 60 and above will increase from about 13 per cent at present to about 24 per cent in 2030. Most of Thailand’s elderly are healthy and able to look after themselves. Though the proportion living with children is declining, the proportion living with children or in close proximity to children remains quite high — 71 per cent in 2007. Therefore, despite a substantial flow of younger adults to the cities, the proportion of the elderly living alone is not high, and close contact can be maintained with absent children through the ubiquitous cell phone. Material support from children has declined only modestly, some workers are insured under the social security system, and the new National Saving Scheme is designed to provide a government contribution if fund members save until they reach retirement age. The greatest challenge is the provision of long-term care for severely disabled people and those suffering from serious chronic illness, especially in view of the increasing share of never-married Thais in the elderly population — a group that will become more apparent over the next two decades — who will have no children to rely on.

Thailand’s population policy focused on reducing fertility from high levels for almost three decades. Now Thailand must consider following the example of its low-fertility East Asian neighbours — Japan, South Korea, Taiwan and Singapore — in introducing policies designed to encourage marriage and childbearing. Though the policies elsewhere in East Asia do not appear to have been particularly successful, some have been in place for too short a time to make much impact. At a minimum, Thailand should be considering more generous maternity-leave provisions than are provided at present, more flexible working hours and improved subsidised childcare.  Merely copying other countries’ policies is unlikely to serve Thailand well, as its circumstances differ considerably from its neighbours.

Population projections for Thailand suggest that fewer than five million people, and very likely only one million (less than 2 per cent), will be added to the population before growth ceases. Bearing in mind continued population movements from rural to urban areas, this means that some regions will witness a drop in population because the growth of towns and cities in these areas will not fully compensate for rural depopulation. Planning for population decline is important to any country’s future, and Thailand can profit from the experience of European and East Asian countries that have had to manage population decline in rural and regional areas.

Gavin Jones is the Head of the Division of Demography and Sociology, Research School of Social Sciences of the ANU and was the Coordinator of the Demography Program of the ANU’s College of Arts and Social Sciences from 1990 to 1996.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Where is Thailand Headed’

1. Population prospects in East and Southeast Asia
2. Australia’s population policy and the resources boom
3. Paying for higher education in Thailand

Thailand is caught in a middle-income trap of its own creation. How did this come about?

Are current policies making it better or worse, and what needs to be done to escape the trap?

The ‘middle-income trap’ is an empirical generalisation based mainly on East and Southeast Asian experience: once a country reaches middle-income levels the growth rate often declines and graduation from middle-income to higher-income levels stalls.

During the decade of economic boom ending in 1997 Thailand’s average annual growth rate of real GDP per person was a remarkable 8.4 per cent. Like most booms, this one ended badly. It collapsed with the Asian Financial Crisis of 1997-99. Since 2000 the corresponding growth rate has been 4.1 per cent. The immediate culprit was a contraction of private investment, which declined as a proportion of GDP from an average of 30 per cent to 18 per cent over the same two periods. The effect of lower investment was twofold: it reduced aggregate demand, lowering income in the short run; and it reduced the rate of capital formation, lowering long-run growth prospects.

A decline in this investment ratio occurred in all of the crisis-affected Asian economies, including Indonesia, Malaysia, the Philippines and South Korea. The decline in Thailand was one of the largest. The contraction of investment occurred primarily among Thai-owned, rather than foreign-owned, firms. Put simply, after the crisis Thai firms became less confident about their prospects and hence less inclined to invest. An expectation of this kind is self-fulfilling. It reduces investment, which does indeed ensure that growth will be lower.

Beneath these short-term macroeconomic events lies a deeper and longer-term phenomenon. Between the 1960s and 1990s Thailand achieved the transition from a poor, heavily rural backwater to a middle-income, semi-industrialised and globalised economy. The transition was primarily market-driven and the central policy imperative was to avoid those policies that impeded absorption of low-cost labour into export-oriented labour-intensive manufacturing and services. This transition required some elementary market-supporting policy reforms: promoting a stable business environment (not necessarily meaning stable politics); open policies with respect to international trade and foreign investment; and public provision of basic physical infrastructure, including roads, ports, reliable electricity supplies, telecommunications and policing sufficient to protect the physical assets created by business investment.

This transition has now occurred in most of East and Southeast Asia and the pattern was similar in all countries that undertook the basic policy reforms listed above. During this transition average real incomes rose significantly, the share of the workforce employed in agriculture contracted and the incidence of absolute poverty fell.

The core of this growth process is expansion of the physical capital stock, resting overwhelmingly on private investment. The private financial system facilitates the link between private savings and business investment. But the process is self-limiting. As labour moves from low-productivity agriculture to more rewarding alternatives elsewhere, wages are eventually driven up. As wages rise, the profitability of labour-intensive development declines. As the return to investment in physical capital falls, the rate of private investment slackens and growth slows.

The frontier for further expansion of labour-intensive export-oriented development soon moves to other, lower-wage countries. The result is the dreaded ‘middle-income trap’. This describes Thailand and Malaysia today and China in the very near future.

Progress from middle-income to higher-income levels requires a different kind of policy reform, addressing a market failure that the private financial system cannot resolve: the undersupply of human capital. Human capital is a crucial input, created primarily by investment in education, broadly defined. But it differs from physical capital in that it does not provide the collateral that can ensure repayment of loans. Unlike physical assets, human beings can walk away. The private financial system is therefore unable to support investment in human capital. Individual families can and do invest heavily in the education of their own children, but because their resources are limited and because the recipient of the educational investment reaps only part of the returns it generates this is insufficient to prevent the overall underinvestment in human capital.

Increasing the supply of human capital is central to overcoming the middle-income trap. It raises labour productivity directly and raises the return to physical capital, encouraging greater investment in physical capital as well. In Thailand, as in many other middle-income countries, the problem lies in the quality of education and not just the bare numbers of total school enrolments. And the problem is primarily not at the tertiary level but at the primary and secondary levels. Massive public investment and reform of the education curriculum is needed to redress these problems, requiring the raising of sufficient tax revenue to finance it and combating the backward and self-serving practices of the ministry of Education and the teachers’ unions. These are formidable obstacles.

During Thailand’s boom almost everyone gained, including the poor, though not all at the same rate. Economic expectations rose, even among groups like lower-income rural people, who previously benefited only marginally from economic growth. But when the boom collapsed in July 1997, the new opportunities vanished and the newly-expanded expectations were crushed. A sense of economic and political injustice, latent for decades, then became more acute. For large numbers of people redistributive politics then became more appealing as a focus for their anger and as a vehicle for collective economic advancement. Opportunities arose for political entrepreneurs who could mobilise the frustration and use it to capture power.

Enter Thaksin Shinawatra. He had made a fortune by exploiting government-granted concessions in the telecommunications industry and had been a deputy prime minister under two conservative governments in the 1990s. But around the year 2000 Thaksin saw the political opportunity created by the frustrated expectations of many low- and middle-income people, especially those in the predominantly rural north and northeast regions. He articulated the discontent felt by these people and offered hope. According to his new rhetoric, Thailand’s problem was not a flawed macroeconomic strategy that had strangled growth, but injustice inflicted on ‘the people’ by their fellow Thais, ‘the elite’. Thaksin would look after them. This was standard Latin American-style populism and it worked. Thaksin’s new party won an unprecedented election victory in 2001 and repeated the achievement in 2005.

What is wrong with that? At one level, it is simply democracy in action. But a problem remains, in that Thaksin’s populism fails to address the sources of the middle-income trap and distracts attention from it. The policy platform successfully taken to the 2011 elections by the Pheu Thai Party, led by Thaksin’s sister and in absentia by Thaksin himself, illustrates this point. There were two economic components: capital-intensive mega-projects and redistributive initiatives, each designed to attract new sources of political support.

Each of the mega-projects appealed to a significant segment of the population and, like all large construction projects in Thailand, offered the prospect of huge kickbacks for politicians, bureaucrats and others. The redistributive initiatives were similarly designed to appeal to specifically targeted groups. They included a three- to five-year debt moratorium for people owing 500,000 to 1 million baht; a 10 million baht minimum revenue guarantee for local administrative organisations; a farmers’ credit card project, backed by the government; a 15,000 baht per month minimum salary guarantee for bachelor’s degree graduates; a 1 billion baht education fund for state and private universities; a tax-cut for first-home buyers and another for first-car buyers; free wi-fi in public areas; a guaranteed price of 15,000 baht per tonne for unmilled rice; and an increase in the minimum wage to 300 baht per day.

Aside from the problem of paying for these initiatives, the important point is what the policy did not contain: anything about reforming Thailand’s antiquated systems of primary and secondary education, the single greatest impediment to long-term economic progress in the country; anything else about raising the long-term productivity of Thailand’s masses of unskilled and semi-skilled workers; anything about reforming the country’s regressive and inadequate tax system; or anything about reducing corruption.

Thailand’s version of economic populism wastes public revenue, feeds corruption, ignores the sources of long-term improvements in human productivity and diverts attention from them. Until this changes the jaws of the middle-income trap will surely remain closed.

Peter Warr is John Crawford Professor of Agricultural Economics and Head of the Arndt-Corden Department of Economics in the Crawford School of Economics and Government and Executive Director of the National Thai Studies Centre at ANU.

This article appeared in the most recent edition of the East Asia Forum Quarterly, ‘Where is Thailand headed?‘

1. Where is Thailand heading?
2. Paying for higher education in Thailand
3. Thailand in 2011: a year of surprises

There are many who consider urban agglomeration — the concentration of a population in a continuous urbanised area — as synonymous with a country’s engine of growth, owing to the advantage of higher productivity rates.

And this is certainly true in the case of India. Agglomeration effects are measured through the interaction of market size, transportation costs and increasing returns at the firm level — that is, lowered average costs due to the sharing of fixed costs. These effects emphasise the interplay of agglomeration and dispersion forces, and their role in determining urban systems.

Urban agglomeration has a positive impact on urban economic growth, and it is now well and truly driving India’s overall economic growth. India’s total real urban NDP has increased by about 761 per cent, while the share of urban NDP in total NDP increased from 38 per cent to 52 per cent from 1970–71 to 2004–05. And the service sector’s contribution, standing at 72 per cent, was higher than both the industrial and agricultural sectors in 2004–05, accounting for 26 per cent and 2.4 per cent, respectively. It is interesting to note here that while in 1971, the total number of towns in India stood at 2590 (accounting for 19.91 percent of the country’s total population), by 2001 the number increased to 4368 (accounting for 27.78 percent of the total country’s population).

Urban concentration is a process in which an increasing proportion of a country’s population is concentrated in urban areas. Locations with large net labour inputs such as these produce a greater variety of goods than places with a smaller labour input. This should not be surprising, as most economic activity take place in cities, and growth in productivity and income is easier to achieve in an urban context. The ratio of export value to gross state domestic product (GSDP) also helps determine a state’s level of trade openness, and, for India, a higher ratio is often associated with a much larger degree of trade openness.

But a 10 per cent increase in state capital expenditure on transport decreases trade openness and urban concentration by 0.4 per cent and 3.6 per cent, respectively. This means that an increase in the share of state government expenditure on transportation combined with an increase in the ratio of trade to GSDP ultimately reduces the size of big cities. The percentage of a country’s urban population living in a city’s surrounding districts also has a significant effect on urban population concentration. Taking this into account, a 10 per cent increase in the urban concentration of big cities increases city output by approximately 2.2 per cent.

Applying these figures to India, the resulting scenario suggests the economics of agglomeration are policy-induced (the government’s Jawaharlal Nehru National Urban Renewal Mission program being one example) and market-determined. Other research by Marthur, Narayana, Mills and Becker equally supports the claim that towns with a population of over 100,000 inhabitants are experiencing the lowest population growth when compared to other smaller cities. This implies that bigger city size is directly associated with lower population growth.

But environmental and social problems, including the provision of basic services to city-dwellers, urban inequality and poverty, bring to the fore an important question about the inclusiveness of higher urban economic growth. India’s government must accept the responsibility of gathering and generating more data on the country’s massive and rapidly growing urban areas in order to facilitate better analysis. This will ultimately allow for more appropriate policy design and aid India throughout the large-scale demographic transition it is currently experiencing.

Sabyasachi Tripathi is a Research Scholar at the Institute for Social and Economic Change, Bangalore, India.

1. The route of urbanisation in China
2. Coping with unprecedented urbanisation in India
3. The myth of China’s urbanisation

Asia is not without notable examples of women who have made it to the top in the political arena, but this does not mean the gap between male and female participation in politics is anywhere near being closed.

And while many women have played a pivotal role in the modern politics of various Asian countries, it would be wrong to think that the ability to reel off a list of political stars is an indicator of wider participation. China’s political structure has not limited women’s access to politics, business or social affairs since its 1949 revolution. In fact, access for women is widening; a phenomenon supported by the nation’s relatively inexpensive childcare system and broad educational opportunities. But this easy access has evolved in different ways for women in the private and public spheres.

Female business leaders have thrived in recent decades. The 2010 Hurun Report’s List of Self-Made Women Billionaires noted that 11 of the world’s top 20 independently wealthy women are Chinese. Yet the percentage of women among the Chinese government’s top leaders, especially members and alternate members of the Central Committee of the Chinese Communist Party, shrank from 11.4 per cent in 1977 to 7.6 per cent in 2002. While women serve as officials in more than 80 per cent of the country’s provincial-level governments, only about 8 per cent have a woman in the top position. This gender discrepancy between private and public sectors partly illustrates the unbalanced development pattern in China: the nation now has a rapidly maturing market economy alongside a political system that has shown relatively slow progress on reform.

In general, two obstacles stand in the way of real progress for women in China’s political sphere. One is perception, and the other is reality. Many Chinese men tend to think that women lack the capacity to engage in politics. But this field is about people who take the lead in making collective decisions; a process which requires wisdom, vision, management skills and the ability to lay, execute and revise plans. These abilities are not gender-specific. And today, as more women undertake higher education and hone their professional skills, this demographic is more prepared than ever to take on political responsibility.

But sometimes misconceptions about women are a result of how women see themselves. In many places, women accept traditional, secondary roles in the context of family and society, as they believe that being attentive and obedient are virtues. This perception can be altered when female role models become more visible in political, business and social circles, and as more women assume active roles in day-to-day business and social affairs. At Caixin Media, women account for more than 60 per cent of newsroom staff. Their achievements have put them at the top of China’s journalism industry.

The second obstacle is the reality of the system. We can hardly expect that situation to change overnight, despite well-intentioned legislation and regulations. India adopted a constitutional amendment in 1994 that stipulates one-third of seats in village-level government bodies must be reserved for women. This raised the ratio of female village heads — but the official posts won by women in India are not necessarily powerful. And in many cases, seats reserved for women are left unfilled, or are eventually assumed by men.

In reality, it can take a long time to change minds in a traditionally patriarchal society. Even in Kerala, the Indian state that successfully broke the caste system and whose Human Development Index is comparable to that of developed nations, female leaders more often serve as representatives of parties and their policies, not as advocates for women. Besides, only a minority of Asian women are conversant with their legal rights. This lack of awareness about the rights and privileges available to women hinders the impact of legal remedies.

Georg Simmel wrote in Female Culture that the world has no neutral, ungendered culture because, ‘with the exception of a very few areas, our objective culture is thoroughly male’. He also said that outstanding performances by women are celebrated as ‘thoroughly manly’. Modern progress in Asian societies has disproven this. Female characteristics are increasingly recognised and included in common notions of leadership. For instance, micro-finance banks often lend to women, as they tend to be less selfish as family leaders, fairer and more resilient to outside pressure. This same conclusion is reflected in a lower corruption rate for female leaders and a higher probability that a government will adopt people-oriented policies while giving proper attention to social welfare and public benefits.

Women are accepting multiple roles in society and in their families. Sometimes these roles conflict, usually due to friction over social norms and popular expectations. For Asian women to participate more actively and widely in politics, to make having female leaders at the top the norm rather than the exception, and to broaden the horizons of the political scene, we need new thinking within and across borders. That can only happen if we make the voices of women heard, ensure women’s actions are visible to the public, and approach political participation with firm determination.

Hu Shuli is Editor-in-Chief at Caixin Media, publisher of Century Weekly, China Reform and the English-language Caixin Weekly: China Economics & Finance.  An earlier version of this article was published by Global Asia

1. Will China change the region or end up changing itself?
2. China’s changing intergovernmental relations
3. China’s rising sex ratio at birth

Despite the Philippine economy having enjoyed one of its best growth periods in recent years, the poverty rate continues to rise, putting a strain on achieving the Millennium Development Goal targets the country has vowed to achieve come 2015.

Inequitable growth across sectors and geographical units combined with various natural and man-made crises have produced some damaging results. Likewise, poverty-reduction programs designed without taking into account the characteristics of poverty have not helped.

The Philippines’ GDP grew no less than 4 per cent in six consecutive years, averaging 4.6 per cent from 2003 to 2009. The experience that comes closest to this was during the Ramos administration in 1994 to 1997 when the country sustained a growth rate of 4 per cent and above for four consecutive years. Poverty rates for the first time went up continuously, from 24.9 per cent in 2003 to 26.4 in 2006, and then to 26.5 in 2009. This rise amidst high economic growth is puzzling. Even when the economy performed sluggishly, poverty rate was on a downward trend. So what factors accounted for the rise in poverty during faster economic growth?

First, significant economic growth happened in sectors and areas far from where the poor are. Poverty in the Philippines is still very much an agricultural phenomenon. Unfortunately, the agricultural sector continued to decelerate while industry and especially services sectors took centre stage. The sector slowed down consistently to 3.3 per cent and 2.4 per cent average annual growth during 2003–2006 and 2006–2009 respectively. The majority of the households who experienced a fall in real income were engaged in agricultural activities.

Economic growth did not happen in the poorest regions in the country. If it did, it happened in regions where there are no concrete redistributive efforts (none that make marks on the charts) that can complement the growth effects, rendering these useless in terms of poverty reduction. Take for instance Central Luzon Region, a largely-urban area north of Manila. It contributed to over one-tenth of the total increase of poor individuals during 2003 to 2009. Although, at some point, real income growth helped this region’s poverty rate to decline, the resulting redistribution of income worked the opposite way, cancelling out the effects of growth to poverty. On the other hand, persistent poverty in Mindanao like the Autonomous Region in Muslim Mindanao (ARMM) and Caraga continue to make an impact on the aggregate poverty rate. ARMM alone was responsible for 17 per cent of the increase in the number of poor in the entire country during 2003 to 2009. This is too big for a region that barely contributes 5 per cent of the total population.

Various kinds of man-made and natural crises have also struck the country recently. The food crisis in 2008 pulled the poor into an even more desperate situation, and those on the periphery into poverty, because food is the most basic of all needs. A price increase in rice, the Filipino staple food, can send an ordinary Filipino earning minimum wage into poverty. At the same time, the country suffers from the effects of typhoons year after year, bringing constant struggle to farmers.

These crises, combined with poverty reduction programs that come only in bits and pieces lacking effective convergence across and within sectors, have resulted to this major setback that we are facing right now. One problem is that these efforts do not consciously take action targeted to address the type or nature of poverty the Philippines is facing. The poor is not a homogeneous group. There are chronically poor people and there are those who were previously not poor, but, because of certain shocks or crises, fell into poverty (transient poor). The majority (52 per cent) of the poor are transient poor. The chronic poor need more long-term interventions that would give them the capacity and opportunities to move out of poverty. For a large segment of the population, appropriate safety nets during times of crises may prevent them from falling into poverty. It is essential to take this into account in designing policies and programs to significantly reduce the poverty rate.

The bottom line is this: growth alone is not sufficient to lift the poor out of poverty. The Philippines’ so-called ‘growth elasticity’ of poverty reduction is not only way below international standards but also below the average for developing countries. Higher income growth is of little help in reducing poverty because of the relationship between growth and poverty in the country.

The nature of growth must be inclusive, with the poor participating and benefiting from the growth, in order for poverty to decline significantly. And appropriate safety nets that can be quickly implemented would help avoid the number of poor to swell during times of shocks.

Celia Reyes is a Research Fellow at the Philippine Institute for Development Studies (PIDS). Aubrey Tabuga is Supervising Research Specialist at the PIDS.

1. Accelerating growth, reducing poverty and using regional cooperation in Bangladesh
2. Under SBY, Indonesia grapples with the issue of poverty
3. Why has the Philippines lagged?

There are two diametrically opposed narratives about the Chinese middle class.

In the mainstream views of what many call ‘the West’, its growth represents the inescapable sign that China is destined to converge, bend its ways and eventually become like us, adopt the universal values of our superior civilisation and finally provide us with a way to understand it in the familiar language of democracy.

In the idiom and ideology of the autocratic rulers of China’s capitalism there is an alternative story: the middle class is seen as the lynchpin of political stability, the staunchest and most rational, self-interested supporter of China’s new (urban) way of life, the foundation of its advanced economy, whose social position was fostered by 30 years of economic development and guaranteed by an unlikely champion, the Communist Party.

Both visions appear to be supported by historical precedents (including in Asia), as middle classes have revealed themselves to be revolutionary social formations in some cases and status quo watchdogs in others. Yet the determinism of both narratives might be fundamentally wrong.

The prior question to ask, however, is: what is the Chinese middle class?

It is, in fact, a fuzzy social formation, with no horizontal homogeneity, bordered north and south by other fuzzy social groups. If we adhere to Marx’s analysis, a class would need a consistent consciousness and a stable relationship to the means of production, something hard to find in the segregated, high-rise residences of China’s middle-income urban families. If we take note of Weber they would need to share consumption, lifestyles (and values). Whichever way one looks at the Chinese middle class, it is almost impossible to grasp what it really is without accepting that a definition is only a convention, a simplification.

Attempts, often sophisticated, at defining an acceptable understanding of the Chinese middle class are indeed broadly available in the newly rediscovered Chinese social sciences.

Relying on numbers — such as the 150 million credit cards in circulation in 2008 or 26 million cars sold in 2009 despite China having one of the lowest consumption rates and one of the highest saving rates in the world — one can explain the global appeal of the middle class and the awe inspired in many commentators by its growth. Whether defined by employment or by education, by lifestyle and values, by income or by a combination of these factors, middle-class citizens are said to constitute between 3 per cent and 40 per cent of the Chinese population. Most scholars agree to disagree on what the middle class is although Cheng Li’s recent Brooking’s Institution volume provides the best survey of definitions to date.

Sometimes the urge to define says more than the definition itself. The bean-counting exercises around finding the Chinese middle class are not only a sign that something real is changing in Chinese society, but also that many different identities are becoming visible and that social complexity is becoming harder to describe and therefore to govern. This frenzy of definitions occupies the Chinese mainstream media and has an osmotic effect on social and cultural policies, especially in large cities faced with rapid stratification of interests and clustering of their population into interest groups.

The ‘model’ role of the middle class is a crucial element of the dominant social and cultural discourses that the Chinese government promotes in pursuit of the political imperative of social stability. In an age when harmony is the centrally-defined goal of policy, what group is better equipped to become the exemplar of social behaviour than the educated, well-off, responsible, self-interested and propertied middle class? Who is more suitable to be made into the prototype of China’s modern citizens than those who display economic dynamism, enjoy success and have a vested interest in the existing social order that made them so?

The behaviour of the middle classes thus features prominently, for example, in the textbooks distributed to migrant workers who arrived in Shanghai on the eve of the 2010 World Expo, to be taught how to walk, dress, eat and use the restrooms. The ‘harmonious’ (hexie) and ‘civilised’ (wenming) lifestyle of the successful, well-off, educated urbanites becomes a benchmark for both the advertising campaigns of real estate companies and the modernisation and civilisation campaigns of the local governments.

This exemplarism, and its central role in advancing social stability, is made manifest by the existing structure of China’s labour market inequality, one where, despite 33 years of economic reform, the most efficient and rewarding components of the labour market remain in the hands of the state, and working for the public sector (or ‘within the system’, as it is normally referred to) is still the top desiderata of Chinese graduates.

The middle class is therefore as much a social structure (constructed by the state and reproduced by the market) as it is an object of political discourse. As a publication of China’s Police Academy reveals, it is also becoming a symbol of all that China wants to be.

Our country needs the middle strata because it is the political force necessary to stability, it is a regenerative force of production, it is the scientific force behind creativity, it is the moral force behind civilised manners, it is the force necessary to eliminate privilege and curb poverty, it is everything.

Luigi Tomba is a Fellow at the Department of Political & Social Change, School of International, Political & Strategic Studies, Australian National University.

This article was published in the most recent edition of the East Asia Forum Quarterly, ‘Governing China’.

1. Can the Asian middle class come of age?
2. Asia’s middle class on the rise
3. South Asia and Asia’s middle-class future

The Chinese government faces some major challenges as the country’s economy enters a transitionary period.

Chinese leaders have realised that as the country moves toward domestically-driven growth, and away from the predominance of heavy industry and exports, its social welfare system will need to be developed significantly. A comprehensive welfare system as in OECD countries is still a long way off, but there are good reasons to alleviate the disparities between urban- and rural-registered workers. Following the recent increase in labour mobility, traditional family support networks are unable to perform the welfare role they have in the past due to the rising cost of living and the persistence of very low incomes in rural areas that migrant workers have returned to in tough times.

Significant variations in the generosity of welfare schemes for urban-registered workers already exist between provinces and coverage in the private sector remains low in many places. As a result of the national residential registration scheme, migrant workers are treated differently from urban residents and are often largely excluded from even these benefits. In combination with the high level of rural poverty, this suggests that it is the extension of welfare coverage to migrant workers and the rural population that could most improve the effectiveness of the system.

Such reform would significantly improve the standard of living for a large proportion of Chinese society. About half of China’s population continue to live in rural areas. Much of this population is engaged in small-scale agriculture and their ability to participate in existing contributory welfare systems is limited. In addition, according to some estimates there were about 225 million migrant workers in Chinese cities in 2010. Given their lack of access to equivalent welfare these workers effectively provide artificially cheap labour to industry. According to Yiping Huang, ‘if urban employers made social welfare contributions on behalf of their migrant workers, their payrolls could rise by 35–40 per cent, which includes contributions to pensions (20 per cent of payroll), medical insurance (6 per cent), unemployment benefits (2 per cent), work injury insurance (1 per cent), maternity benefits (0.8 per cent), and housing entitlements (5–10 per cent)’.

The implications of such an imbalance for China’s development are significant. By providing cheap labour it extends benefits to heavy industry at the expense of domestic consumption. This in turn affects development objectives such as the central government’s aim to improve the energy efficiency of the Chinese economy. National efficiency targets have forced provincial governments to resort to dramatic state-intervention in the form of factory shut-downs, causing chaos in certain sectors. If Huang is correct then one of the most significant contributions to reducing the energy intensity of China’s economy would be to gradually phase out this artificial ‘subsidy’ that industry receives by foregoing social welfare obligations to their rural migrant workers by 35–40 per cent.

In 2009 the government began phasing in a universal program of pension coverage starting with a small number of rural counties and gradually extending across the country. The 12^th Five-Year Plan stated the government’s intention to extend eligibility to all of the rural population by 2015. The scheme attempts to maximise coverage by requiring a low level of contribution from rural workers.

Regardless of how low the contribution level is set, China still has a significant rural population living in poverty, some of whom will find it difficult to maintain contributions for the stipulated 15 years. In the case of those already aged 60 and above the individuals are not obliged to make contributions but their children are required to commit to the program. This requirement will place additional stress on extremely poor families and further reduce coverage.

While the national rural pension scheme is undoubtedly a step forward, a basic change could further improve its effectiveness. Rather than relying solely on co-contributions from both workers and government, a non-contributory pillar could be added. In addition to providing better coverage of the extremely poor, such a system is easier to implement for local government as it does not require the same level of administration as the private account-based contributory system. Analysis by Yinan Yang et al suggests that a modest program of this sort should be affordable for China, especially if initiated in the short-term while the economy continues to grow at a rapid rate.

Simultaneous to the roll-out of the national rural pension scheme, the government has signalled that it will liberalise welfare in small- to medium-sized cities but not in larger cities already struggling with the massive cost of integrating migrant labour. Under this initiative, migrant workers will be allowed to settle in cities and enjoy access to the same services as those registered locally. Rather than relying on the development of the entirely new pension scheme for those registered in rural areas, such an approach instead does away with discrimination based on residential registration. The reform has the support of Premier Wen Jiabao but remains at a very early stage.

The drawback to this piecemeal approach to reform is that local government may struggle to meet the increased cost of welfare payments if not supported by the central government. Given the high proportion of the population that remains in China’s rural areas it is likely that significant rural–urban migration will continue for some time. For governments at the city level this is a daunting prospect. As reform progresses it will be important to share the costs of the scheme nationally rather than relying on local government to pick up the tab.

Huw Slater is an Australian Volunteer for International Development based in Beijing.

1. A tale of two cities: Chinese labor market performance in 2009 and reform priority in 2010
2. China’s migrant problem: the need for hukou reform
3. Chinese wages and the turning point in the Chinese economy

In the popular media and the business world, urbanisation is often cited as the fundamental driver of global economic growth, especially for the next few decades.

The assumption is that a rural–urban shift will transform poor farmers into industrial and office workers, raising their incomes and creating a massive consumer class. Imagine farmers who once led simple, subsistence lives becoming workers in the city, buying up apartments and furnishing them with appliances.

Not surprisingly, China has been considered the poster child for this linear model of rural–urban shift and accompanying inexorable consumption growth. To the China ‘boomsayer’, even more impressive consumption is yet to come: another 300–400 million rural dwellers will be converted into city folks in the next 15 years. Prepare for China’s urban billion, advises McKinsey & Company. Think about how many millions of new apartments and how many cities like Shanghai will be needed for all these new arrivals; how many more Ikea-like home furnishing stores? The list goes on.

If one simply looks at the number of people relocating, China is indeed undergoing rapid urbanisation. But while its epic rural–urban shift has many of the trappings of what amounts to contemporary urbanisation elsewhere in the world, urbanisation in China is a more complicated phenomenon that requires a deeper understanding beyond the superficial, one-dimensional narrative.

Present-day China’s urbanism can be quite deceiving as the statistics are often misleading, and city bureaucrats excel at choreographing window-dressing ‘image projects’ and sequestering poverty. Most important of all, behind China’s sparkly modern, urban facade there is one crucial foundation of its prosperity that is unique in modern times and continues to be largely ignored by the business literature: China remains an institutionalised two-tier, rural–urban divided society. This is a consequence of Mao-era social engineering that continues to this day. This division not only manifests itself in economic and social terms, as in many Third World countries in the throes of urban transition, but is also tightly enforced, mainly through a system of hereditary residency rights, called the hukou.

The hukou system has created two classes: on the one hand, an urban class whose members have basic social welfare and full citizenship; on the other, an underclass of peasants with neither of these privileges. In Mao’s era, peasants, forbidden to go into the cities, were confined to tilling the soil to grow food for urban workers. With China’s opening up and participation in the global economy, peasants have been allowed to come to the city where they are compelled to take up low-paid factory and service jobs. Many of these are dirty and dangerous. At the same time, peasants are denied access to urban welfare programs and opportunities because the great majority of them are not allowed to change their hukou from rural to urban.

‘Rural migrants’ work and live in the city but they are not part of the urban class — not now and not in the future, no matter how many years and how hard they have worked in the city. This group now numbers about 160 million and continues to rise. The fact that they are purposely held down as a massive permanent underclass is precisely what supplies China with a huge, almost inexhaustible pool of super-exploitable labour. Little wonder that China is the world’s largest — and the most ‘competitive’ — manufacturing powerhouse!

China’s rapid urban population growth trend, as represented by the blue line in the graph below, is all too familiar. But that single-line description has left out an important point: the majority of migrants to the city do not have urban rights. Alarmingly, the gap between the total population living in cities and the number of those who possess urban rights (the red line) has widened as the country moves forward.

That expanding gap represents the great number of people who are in the city but not of the city. They receive nothing from the ‘benefits package’ assumed to be associated with urbanisation: better housing, better educational opportunities and health care. With meagre wages and no chance of legally settling in urban areas, they also lack an incentive to invest in a future in the city. They will not spend on major appliances in a place that does not want them. In fact, most migrant workers do not have the purchasing power that would position them even to dream of any decent housing in the city. Most remain crammed into dormitories or consigned to the Chinese equivalent of slums — the ‘villages in the city’, where they must eke out their living on the urban fringes.

Far from becoming the new consumer class, they form a mammoth underclass whose size will easily swell to 300–400 million in a decade. This will have serious implications. For the moment, it must be understood that this class has nothing to do with China’s recent housing boom other than by providing muscle power at building sites.

When examining the notion of urbanisation as the path to rapid consumption expansion, it is clear that its relevance to China, under its current configuration of economic and legal inequities, has to be hugely discounted. There are many myths behind the perception and sustainability of China’s recent economic rise. Urbanisation remains one of the biggest.

An earlier version appeared in China-USA Focus on 16 July, 2011. Kam Wing Chan is Professor at the Department of Geography, the University of Washington. Visit his home page for more commentaries and articles.

1. The route of urbanisation in China
2. Urbanisation: the driving force behind India’s growth
3. Coping with unprecedented urbanisation in India

In 1950, when newly-independent India adopted a democratic constitution, it formally abolished the seemingly atavistic institution of caste.

Under the Constitution’s terms, the age-old practice of ‘untouchability’, that had helped create and sustain a hierarchical social order with religious sanction, was officially drawn to a close. Subsequently, the Indian state also launched the world’s most extensive affirmative action program (referred to as ‘positive discrimination’) designed to bring redress for more than a millennial-span of discrimination. Later, in 1993, it attempted to implement the recommendations of the Mandal Commission Report of 1980 which had called for sweeping reservations in government employment quotas for the socially-disadvantaged castes.

These efforts to bring about social change through constitutional design and enabling legislation did not prove to be a panacea in addressing this social ill. Still, coupled with powerful social movements during the 1960s, in several of India’s southern states, most notably in Tamil Nadu, a virtual non-violent social revolution took place, dramatically challenging sacerdotal authority.

The arc of that movement, for complex sociological reasons, did not include much of northern India. Caste prejudice proved to be deeply entrenched and inscriptive identities far more resilient in those areas. In fact, the Mandal Commission Report, while well meaning, actually triggered a significant social and political backlash as it threatened the long-held privileges of many.

The movement did increase, along with the political participation of lower castes at the ballot box, the power of the hitherto marginalised. In turn, a host of state legislatures became far more representative of the citizenry of these states. Sadly, once in office, many elected officials proved to be populist leaders at best and utterly venal individuals at worst. They seemed more interested in the perquisites of office rather than the amelioration of the lot of the downtrodden. Many of their ardent followers who had reposed a great faith in their leadership steadily saw their hopes and dreams of social change dashed. Once again they turned to the ballot box to express their discontent.

One prime example of such change came about in 2005 in Bihar, one ofIndia’s most impoverished states, with a population of 90 million. After 15 years of rank misrule under a low-caste leader, Laloo Prasad Yadav, the voters resoundingly ousted him from office. The new chief minister, Nitish Kumar, who did not make caste a central platform issue, won with a respectable margin. But in 2010 he dramatically transformed his electoral performance, stressing economic growth and governance. Consequently, though caste remains a critical factor in politics, it is not impossible to escape its stranglehold.

Despite the political advances that lower castes have made they have not been equally successful in achieving substantial socio-economic progress. In considerable part this stems from the terrible legacy of widespread discrimination, the fragmentation of caste-based appeals, limited access to primary education and, of course, populist but insincere leadership. In addition to these hurdles, the practice of affirmative action inIndiahas ironically reified caste. Caste-based quotas have generated considerable hostility from members of higher castes especially when the designated slots remain vacant for years thanks to the unavailability of qualified candidates. Worse still, recent demands for extending such reservations for lower castes to the private sector have generated further resentment and anger.

Will this uniquely Indian dilemma continue to stalk the land indefinitely? If politicians, regardless of caste, continue to embrace existing policies in the quest for electoral advantage, the prospects of significant socio-economic transformation will remain weak. If they can devise more imaginative policies then this ‘mind forged manacle’, to borrow that evocative expression from William Blake, might be broken.

What might some of these policies entail? Instead of the mechanical application of caste status it may be more productive and beneficial to extend the benefits of school, university and employment quotas in a manner based upon need. Such a policy shift could have two important advantages. First, it could address the plight ofIndia’s economically disadvantaged citizenry regardless of their caste background. Since a significant segment ofIndia’s poor is composed of low-caste individuals, they would stand to benefit from a needs-based approach to affirmative action. Second, the move away from caste-based reservations would steadily erode the significance of caste and thereby reduce its social salience.

Obviously, no social policy can be a universal panacea. Given that a system that has been implemented for over six decades has only generated mixed results at best, and perverse ones at worst, it may indeed be a moment to re-visit the fundamental assumptions undergirding one of India’s key social policies.

Sumit Ganguly, Professor of Political Science, holds the Rabindranath Tagore Chair in Indian Cultures and Civilizations at Indiana University, Bloomington.

1. Caste and modern India
2. Targeting by social background vs. economic status in anti-poverty programs in rural India
3. The evolution of good governance in India