ADB Report Shows Pakistan Offers Higher Upward Mobility Than India

Over the last two decades, Pakistan has continued to offer much greater upward economic and social mobility to its citizens than neighboring India. Since 1990, Pakistan's middle class had expanded by 36.5% and India's by only 12.8%, according to an ADB report on Asia's rising middle class released recently.

The simplest definition of the middle class is a group of people in a society who are neither rich nor poor. The middle class has always been considered vital to a country's political stability and economic growth. The rich and the poor simply distrust each other too much to let the other govern. Nations with large middle class populations find it easier to reach consensus on sustaining good, democratic governance.

Unfortunately for Pakistan, the size of the middle class was very small when it came into existence, and the country was dominated by a small powerful feudal elite created by the British rulers to sustain their colonial rule. And the urban middle class remained small for decades. The situation has, however, finally begun to change in the the last decade of 1999-2009 with a combination of increasing urbanization and faster economic expansion that fueled significant job creation in the industrial and services sectors to enable middle class growth.

An ADB report on Asia's rising middle class released this month confirms that Pakistan's middle class has grown to 40% of the population, significantly larger than the Indian middle class of about 25% of its population, and it has been growing faster than India's middle class. The other significant news reported by Wall Street Journal today says the vast majority of what is defined as India's middle class is perched just above $2 a day, making it vulnerable to various shocks. This is also true of Pakistan.

Here are the details of income levels in India, Pakistan and China as reported by ADB:

Daily Income......$2-$4.......$4-$10........$10-$20.....Over $20

India...............20.45%......4.15%........0.45%........0.10%

Pakistan............32.94%......6.56%........0.62%........0.15%

China ..............33.97%......25.17%.......3.54%........0.68%

Pakistan has continued to offer much greater upward mobility to its citizens than neighboring India. Since 1990, China's middle class population has expanded by 61.4%, Pakistan's by 36.5% and India's by 12.8%.

In terms of education, average number of years of schooling in Pakistan is 13 years, 3 years more than India's 10, according to an education comparison published by Newsweek recently. An average Pakistani is, therefore, better educated and more capable of earning higher income than an average Indian.

In terms of absolute numbers in millions of people, China and India are naturally the biggest contributors to the rising population of Asia's middle class that is driving increasing consumption. They are followed by Indonesia and Pakistan vying for the third place.

The ADB report discusses in some detail the impact of Asia's rising middle class on a whole range of social, political and economic developments in the world. The report argues that "Asia’s large population and the rapid expansion of its middle class during a period of global economic rebalancing is fundamentally important as a driver not only of the Asian economy but also the global economy. However greater middle class wealth and consumption is only one factor in the region’s increasing importance. The rise of its middle class is likely to aid not only the growth process, but also result in substantial social, political, and environmental changes. Thus, the contention is that, building on strong growth and continued progress in reducing poverty in Asia, developing a stable middle class requires governments to formulate and implement middle class-friendly policies. In turn, this requires understanding and analyzing the characteristics of the middle class, the factors contributing to its growth, and the various implications—positive and negative—of its rise. These are some of the issues this special chapter addresses".

Here are some of the key points of the ADB report:

1. While 56% of developing Asia’s population, or nearly 1.9 billion people, were already considered part of the middle class based on an absolute definition of per capita consumption of $2–$20 per day in 2008, nearly 1.5 billion Asians were still living on less than $2.0 per day. Moreover, the majority of the Asian middle class still falls in the $2–$4 range, leaving them highly vulnerable to slipping back into poverty due to economic shocks. Thus, for the middle class to become a prominent force it will likely depend on its size and spending levels and characteristics. It will require governments to introduce policies that bolster the incomes of those already in the middle class. It will also require social policies to expand the middle class—such as through greater spending in education and health. Through these, it is possible to build a strong and stable middle class that continues to grow.

2. According to the “political economy” argument, societies with a small middle class are generally extremely polarized, and find it difficult to reach consensus on economic issues; they are overly focused on the redistribution of resources between the elite and the impoverished masses, each of which alternates in controlling political power. Societies with a larger middle class are much less polarized and can more easily reach consensus on a broad range of issues and decisions relevant to economic development (Alesina 1994).

3. Besides helping to reach consensus, Banerjee and Duflo (2008) have discussed three mechanisms through which a large middle class could promote development. First, the middle class may provide the entrepreneurs who create employment and productivity growth in a society. Second, “middle-class values”—that is, the values of accumulation of human capital and savings—are critical to economic growth. And third, with its willingness and ability to pay extra for higher-quality products, the middle class drives demand for high-quality consumer goods, the production of which typically presents increasing returns to scale. This encourages firms to invest in production and marketing, raising income levels for everyone.

4. Middle class is not inimical to the interests of the poor. Indeed, Birdsall (2010) argues that “… in the advanced economies the poor have probably benefited from the rule of law, legal protections, and in general the greater accountability of government that a large and politically independent middle class demands, and from the universal and adequately funded education, health and social insurance programs a middle class wants and finances through the tax system… A focus on the middle class does not exclude a focus on the poor but extends it, including on the grounds that growth that is good for the large majority of people in developing countries is more likely to be economically and politically sustainable, both for economic and political reasons.”

Talking about Pakistan's growing middle class, Professor Rasul Baksh Raees, head of social sciences at the Lahore University of Management Sciences, told the Christian Science Monitor that "the reach and influence of civil society has grown as Pakistan’s middle classes have become more affluent, organized (thanks in no small part to the Internet age), and confident".



The years 2007 and 2008 saw increasing political activism in Pakistan as many members of the nation's newly expanded middle class, most of whom rose to middle class status during Musharraf's economic boom, left the comforts of their homes for the streets to march against the suspension of civil liberties and the firing of Pakistan's chief justice by former President Musharraf. A test of the middle class now is how it responds to the current crises ranging from political instability, poor governance, rising corruption, economic stagnation and the massive flooding that is taking its toll on the nation. At this moment, the greatest need of the hour in Pakistan is greater social activism by the middle class to help their unfortunate fellow citizens devastated by the unprecedented floods sweeping the nation's rural landscape. Early media reports are encouraging, indicating that some Pakistani middle class networks are mobilizing to provide assistance to the flood victims. As the support efforts move from rescue and relief to reconstruction and rehabilitation, my hope is that Pakistan's middle class will be engaged in helping their fellow citizens for the long haul. Such sustained engagement will be a part of Pakistan's defense against religious extremism and radicalization of some in its alienated young population.

Here's a video clip on Pakistan's middle class:



Related Links:

Haq's Musings

Pakistan: a modern history By Ian Talbot

Disaster Dampens Spirits on Pakistan's 63rd Independence Day

Pakistan's Decade of Middle Class Growth

Comparing India and Pakistan in 2010

Indian poverty

Pakistan Wage Structure 1990-2007

Middle Class Clout Rising in Pakistan

Urbanization in Pakistan

The Rise of Mehran Man

Industr ial Sector of Pakistan

India Has No Middle Class

Pakistan's Foreign Visitors Pleasantly Surprised

Escape From India

Reflections on India

After Partition: India, Pakistan and Bangladesh

The "Poor" Neighbor by William Dalrymple

Pakistan's Modern Infrastructure

Video: Who Says Pakistan Is a Failed State?

India Worse Than Pakistan, Bangladesh on Nutrition

UNDP Reports Pakistan Poverty Declined to 17 Percent

Social and Cultural Transformation in Pakistan

Pakistan's Choice: Talibanization or Globalization

Pakistan's Financial Services Sector

Pakistan's Decade 1999-2009

South Asia Slipping in Human Development

Asia Gains in Top Asian Universities

Pakistan's Industrial Sector

Pakistan's Multi-Billion Dollar IT Industry

India -Pakistan Military Comparison

Food, Clothing and Shelter in India and Pakistan

Pakistan Energy Crisis

Comments

Riaz Haq said…
NEW DELHI: Despite its shaky empirical foundations, the myth of the Great Indian Middle Class persists. A new Asian Development Bank report lauds the rise of the Indian Middle Class and projects it as the engine of global growth. However, according to the definition used in the report itself, the vast majority of this middle class earns between Rs 1,000 and Rs 2,000 per person per month. Only 0.0009% of Indians earn more than Rs 10,000 per month.

The ADB’s Key Indicators for Asia and the Pacific 2010 report released this week has a special chapter on the Rise of Asia’s Middle Classes. Projecting that the Asian middle class will dominate the next two decades (including crossing a billion in India alone by 2030), the report says that Asia’s emerging consumers are likely to assume the traditional role of the US and European middle classes as global consumers, and to play a key role in rebalancing the world’s economy.

However, the definitions used to arrive at such conclusions scarcely fit with the traditional definition of the middle class, as those who have not inherited wealth, hold regular jobs and enjoy a degree of financial security that allows them to consume and save and support the maintenance of law and order. The ADB report defines the middle class as those earning between $2 and $20 per person per day, measured in international dollars, ie adjusted for purchasing power parity. The ADB does add further nuance by splitting the middle class into three sub-sections: lower middle class ($2 - $4), middle middle ($4 - $10) and upper middle ($10 - $20).

The vast majority of the Indian middle class 82% of it, or 224 million people - however, fit into the first category. Since $1 PPP is Rs 17.256, this means that the vast majority of the Indian middle class earns between Rs 1035 and Rs 2070.

The ADB report shows that middle-class Indians systematically define themselves as poorer than they actually are in surveys. Even by this fairly stingy definition, in all of developing Asia, only Uzbekistan, Lao, Nepal and Bangladesh have a middle class that is a smaller proportion of the total population than in India. China’s middle class is 63% of its population, Sri Lanka’s 59% and Pakistan’s 40%.

Read more: Most of India’s 'middle class' earns between 1K and 2K - India - The Times of India http://timesofindia.indiatimes.com/india/Most-of-Indias-middle-class-earns-between-1K-and-2K/articleshow/6390170.cms#ixzz0xJCKmwZA
Tina said…
Let’s all Stand Up against poverty in 2010.I am supporting this campaign & would like you to do the same. You can join the campaign on http://www.facebook.com/unmcampaignINDIA & http://twitter.com/unmcampaignIND
Riaz Haq said…
Here's The Express Tribune piece on "changing face of retail" driven by the growth of middle class and FMCG sector in Pakistan:

The retail sector in Pakistan, long dominated by thousands of small corner shops, is about to go through a dramatic facelift as consumers become more discerning and demand greater choice.

The advent of hypermarkets and wholesalers such as Carrefour, Metro Cash & Carry and Makro has given Pakistanis a taste for a consumer choice driven shopping experience which is likely to deepen the market for consumer goods throughout the country and alleviate what has hitherto been the central problem in developing that sector: logistics.

A fragmented market

According to the Small & Medium Enterprise Development Authority, there are over 125,000 retail outlets all across Pakistan. Approximately 94 per cent of these are miniscule corner shops and small retail outlets in cities and villages. Perhaps most critically, there is no nationwide chain of retail or even wholesale outlets.

This poses a significant challenge for most businesses looking to enter the food and agribusiness sector. Despite the fact that Pakistanis spend close to $36 billion a year on food and other retail shopping, businesses find it very difficult to reach the mass market of Pakistani consumers simply because it is not a single marketplace but tens of thousands of little shops.
---
What it all means

The existence of these chains means that Pakistanis are about to be inundated with outlets that seek to create a better shopping experience and offer consumers more choice. The larger these chains become, the more those choices they offer will be produced locally.

If food production companies can have lower distribution costs and easier access to a wider swathe of the consumer market, they are more likely to expand existing lines of business and introduce newer markets. In other words, food producers will go from selling raw commodities to selling higher value goods which will not only expand consumer choice but will also increase the productivity of the Pakistani workforce and thus their incomes.
Riaz Haq said…
Here's an Express Tribune story of a Pakistani young man of humble origins helping terror victims after studying Emergency Medicine at Yale:

.Today, Razzak is a renowned emergency medicine expert and the executive director of the Aman Foundation. He started his schooling at a humble primary school in Lyari, completing his secondary education from Nasira School in Depot Lines. Not one to be held back, the hard-working student subsequently attended Adamjee Science College where his impressive grades and unbounded enthusiasm won him a scholarship at the prestigious Aga Khan University Hospital (AKUH), the top private medical institution in the country.
---------
In collaboration with the Edhi Ambulance Service, an arm of the philanthropic Edhi organisation and the largest volunteer ambulance network in the world, he researched and analysed road traffic injuries and emergency cases. Edhi had a mountain of documentation for every call and every case it had handled in the last two decades. The downside? None of it was digitised, so he spent days sifting through it manually.

The experience stayed with him, and the data revealed a disturbing pattern. Gruesome injuries, often suffered by the poorest members of society, were often improperly handled by well-meaning doctors, simply because of a lack of know-how. These mistakes frequently, and literally, led to the loss of life and limb.

Yet, Razzak soon realised that he needed more professional training and specialisation courses before he could progress further. He sat for the US Medical Licensing Exams (MLE) and had observations at the Beth Israel Medical Centre, New York, and the Yale-New Haven Hospital, Connecticut. In 1996, his residency and training programme at Yale University’s School of Medicine started and in 1999, he was given the ‘Best Trainee’ award by the State of Connecticut.

On the personal front, Yale was also important for the doctor since he met his future wife there. Following graduation, the two stayed in the US for a few years, always looking forward to the time when they would return home. “The plan was always to come back,” says Razzak. “That’s why we never bought a house, never completely settled in.”

Before they could come back, Razzak did his PhD in Public Health at the world-renowned Karolinska Institutet in Sweden, where he focused on the use of ambulance data for monitoring road traffic accidents. Finally, in 2005, the studious boy from Kharadar returned to Pakistan as a successful, qualified expert in emergency medicine.

He joined his alma mater, AKUH as a faculty member and went on to successfully found Pakistan’s first emergency medicine service (EMS) training programme at the university. “There were many doctors who were awarded their degrees without ever administering cardiopulmonary resuscitation (CPR) as it wasn’t a requirement,” he reveals.

This changed when his EMS programme became a mandatory rotation that all students had to serve. Subsequently, Razzak went on to build and head a new emergency department. Yet, the battle was just half won. Students in the new department faced a dilemma, similar to the one Razzak had as a student. They were required to go to the United Kingdom to sit for their exam, otherwise they would not be considered qualified.
-----------
Determined to remove, for others, the hurdles that he himself had crossed only after many toils, Razzak collaborated with the College of Physicians and Surgeons Pakistan (CPSP) to organise a curriculum for the specialised field. The first batch for this course was enrolled last year. Now students wanting to specialise in emergency medicine will be able to obtain certification in their chosen field, without having to travel abroad....

http://tribune.com.pk/story/300042/positive-pakistani-call-of-duty/
Riaz Haq said…
Talking about household disposable incomes in South Asia, there were 1.8 million Pakistani households (7.55% of all households) and 7.9 million Indian households (3.61% of all households) in 2009 with disposable incomes of $10,001 or more, according to Euromonitor.

This translates into 282% increase (vs 232% in India) from 1995-2009 in households with disposable incomes of $10,001 or more.

http://www.just-style.com/store/samples/2011_Euromonitor_WCIEP_Sample.pdf
Riaz Haq said…
Here's an excerpt from a piece in The Atlantic Cities on economic mobility in US and comparing it with Pakistan:

A 2007 study by the organisation for Economic Cooperation and Development combined a number of previous estimates and found income heritability to be greater in the United States than in Denmark, Australia, Norway, Finland, Canada, Sweden, Germany, Spain, and France. The United Kingdom, which had been far less mobile than the United States during the late nineteenth century, brought up the rear, but this time it was just a bit less mobile than the United States. Thanks to a 2012 recalculation by Miles Corak, an economist at the University of Ottawa, we can now add Switzerland, Japan, New Zealand, Singapore, and Pakistan to the list of societies that are more mobile than the United States.

http://m.theatlanticcities.com/jobs-and-economy/2012/05/what-matters-economic-mobility/2089/

http://www.tnr.com/article/politics/magazine/100516/inequality-mobility-economy-america-recession-divergence#
Riaz Haq said…
Here's a report on Marble Slab Creamery opening outlets in Pakistan:

Global Franchise Group LLC inked a franchise agreement with Western Brands PVT Ltd. to open the first Marble Slab Creamery locations in Pakistan.

Financial terms were not disclosed.

The deal calls for the development of 10 Marble Slab Creamery stores in Pakistan over a 10-year period, with the 5,000-square-foot flagship store opening up in Lahore.

“The new locations in Pakistan are an extension of Marble Slab Creamery’s existing presence in the Middle East and the South East Asian sub-continent,” said John Peddar, director of international development, Global Franchise Group. “In a nation of 176 million people, we expect that the brand product will be well-received and positioned for growth in this emerging market.”

Marble Slab Creamery is managed by GFG Management LLC, a subsidiary of Atlanta-based Global Franchise Group.

Marble Slab Creamery operates in Australia, Bahrain, Canada, Guam, Kuwait, Lebanon, Mexico, Oman, Puerto Rico, Scotland, Trinidad and Tobago, United Arab Emirates, and the United States.

Global Franchise Group’s other brands include Great American Cookies, MaggieMoo’s, Pretzelmaker and Pretzel Time


http://www.bizjournals.com/atlanta/news/2013/03/19/marble-slab-creamery-expands-to-pakistan.html
Riaz Haq said…
Here's a Friday Times blog post by Bilal Akbar on "The waning power of Pakistan’s aristocracy":

“My victory shows that the poor peasants have had enough, the feudals have ruled us for long enough. Now we will take our matters into our own hands” declared Jamshed Dasti, as jubilant crowds standing outside his worn-down house broke into tears. The underprivileged son of an illiterate wrestler, who campaigned on a donkey instead of the imported jeeps of his rival Khars, won two constituencies with smashing majorities, defeating the father of the former Foreign Minister Hina Rabbani.
The Khars are amongst the landed gentry of the southern part of Punjab, owning hundreds of acres of land and thus, effectively controlling the lives of thousands of peasants through debt bondage whose votes had kept them invincible for the past few decades. Land means a lot in a country where the livelihood of the majority of the populace is associated with agriculture. Aristocrats elsewhere in Pakistan can be even worse in their demeanor, enslaving generations after generations of farmers through debt bondage, deliberately cutting education expenditures to effectively dumb down locals while their own children receive top-notch education overseas, along with operating prisons and torture cells to mute political opposition.
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Feudals deliberately cut education expenditures to effectively dumb down locals while their own children receive top-notch education overseas
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After yet another military coup led by Gen. Pervez Musharraf that brought a military government at the helm of Pakistan from 1999-2008, the feudal dominated PPP swept to power following the assassination of their leader Benazir Bhutto in 2008. The power of feudals was deemed indispensable by the party to achieve power and numerous posts in the new government were handed over to feudals.
Nevertheless, it seemed that in the recent general election, held in May of this year, the feudal establishment was most struck by the reality of an evolving democracy. Feudal privileges and authority, that had never been criticized to say the least were defied and challenged head-on. Both the leading parties in the polls, albeit conservative, profoundly criticized the tyrannical grip of the feudal class on power. The PPP suffered a dreadful defeat. In Punjab, its former MPs – Feudals, Saints, landlords – lost their seats. It seamed that even the party’s grip in the still feudal oriented society of Sindh, trembled, although it managed to pull off a mediocre victory there.
These elections proved to be symbolic of what the democratic evolution has brought to Pakistan. The power of the vote of the people – oppressed and exploited over the ages – has started crumbling the foundations of a ruthless system of a few hundred families controlling a poor country, nourished by the British and defended by successive Pakistani Leaders. In his shanty house, Dasti sits, wiping the sweat off of his face “This is what democracy means. It means that we hopeless people have the power to challenge the cruel system that has controlled us for centuries and given us nothing”


http://blogs.thefridaytimes.com/737/
Riaz Haq said…
Change is most difficult to recognize when it is actually happening.

It can often resemble chaos, even to those who demand it loudest.
Riaz Haq said…
The Emerging Middle Class in Pakistan: How it Consumes, Earns, and Saves
Dr. Jawaid Abdul Ghani
Professor, Strategy and Marketing Research,
Karachi School of Business and Leadership
jawaid.ghani@gmail.com

During the first decade of the twenty first century, and for the first time in the history of
Pakistan, over half of the households in the country belonged to the middle class (M-class).
During this period (2002-2011) the M-class, defined as households with daily per capita
expenditures of $2-$10 in 2005 purchasing power parity dollars1
, grew from 32 percent to 55
percent of all households in the country, and the number of people in this class doubled from 38
million to 84 million. Real aggregate national consumption increased by about $60 billion, of
which $55 billion was accounted for by the increase in consumption of the M-class. As a result
90 percent of the increase in national consumption during this decade came from the increase in
consumption of the M-class2
. It is not surprising that the Asian Development Bank listed
Pakistan as among the top five countries3
in the Asia Pacific region with the fastest growing Mclass
during 1990-2008 (Chun 2010).
What characterizes the M-class? Bannerjee and Duflo (2008) suggest that holding a relatively
secure job is the single most important characteristic of the M-class. Individuals with higher
levels of “permanent income” are less vulnerable to economic shocks, have lower discount rates
for future rewards and thus invest more in health, education, and other “rent generating”
credentials. Professionals and others in the “service class” with large amounts of human capital
and stable employment relationships are considered the most likely to invest in securing their
own and children‟s future. Indeed, according to Sorenson (2000) it is the level of uncertainty in
“lifetime wealth” and resulting living conditions which result in differences among social
classes4
. M-class values are described as optimism and confidence regarding the future, a
preference for moderation and stability, a willingness to pay a little extra for quality, the “ability
to defer gratification”, and income often based on specialized skills. As a result the M-class has
the “base amount of income to invest in productive activities that contribute to economy-wide
welfare” (Chun 2010), and is more likely to accumulate human capital and savings, and more
inclined towards entrepreneurship (Lopez 2012, Meyer 2012).

http://iba.edu.pk/testibaicm2014/parallel_sessions/ConsumerBehaviorCulture/TheEmergingMiddleClassPakistan.pdf

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