Middle class is not needed for Ukraine’s economic development
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The document discusses arguments for and against the position that a middle class is not needed for Ukraine's economic development. It argues that Ukraine can focus on developing large, export-oriented businesses as countries like China, India, and South Korea have done. However, others counter that a middle class finances modernization by demanding higher quality goods and services, and promotes innovation by introducing new businesses and acting as a skilled workforce. Global data on the projected growth of the middle class worldwide and its current size in different countries is also presented.
Middle class is not needed for Ukraine’s economic development
- 1. The Foundation for Effective Governance Kiev, Illinskaya Str., 8, entrance VIII, the 5th floor, 04070, Ukraine Tel: +380 44 501 41 00, Fax: + 380 44 501 41 05 feg@feg.org.ua www.feg.org.ua, www.debaty.org, www.competitiveukraine.org Middle class is not needed for Ukraine’s economic development There is a common perception among politicians, businessmen and economists that country’s economic prosperity is steadily related to existence of liberal share of middle stratum of society. In the majority of developed countries middle class is considered to be a guarantee of sustainable social and economic growth, for this reason their policies are focused on middle class development. For instance in the United States in the White House there has been established a special department to handle issues of middle class only. At another point China, India and Russia observe rapid economic development without large middle class. The share of middle class in Ukraine is considerably lower, compared to the EU countries and the USA. According to self-definition from 30% up to 50% of our country’s population rate themselves as middle class, whereas in Europe this figure already accounts to 60-65%, and in the United States it’s above 85%. Is existence of considerable share of middle class a prerequisite for catching-up economic growth or is middle class a result of this process? Is middle class a prerequisite for economic growth? Arguments FOR the motion “Middle class is not needed for Ukraine’s economic development” Ukraine’s economic development will be significantly accelerated, if it’s based on competitive advantages of our country such as considerable proportion of the large export-oriented companies in the economy, inherited from the Soviet Union. It is big business that forms the main source of GDP, tax liabilities, jobs and major investments in modernization of the economy. We can refer to the South Korea, India and China as successful examples of the rapidly developing economies, which placed stakes on supporting large business, export and attraction of foreign direct investments. Share of middle class in these countries is growing already being a result of economic progress. Ukraine should take advantage of competitive positions of the developed big business Middle class is more liable to preserve the existing state of affairs rather than to introduce drastic changes. According to the data of the Institute of sociology of the National Academy of Sciences of Ukraine, not more than 3% of Ukraine’s middle class are fully engaged in the country’s social life. More than 67% of the middle class representatives refer to their own financial security as the major value navigator. Maintaining a status quo in the economy is reasonable in the developed countries, where efficient paradigms for interaction of authorities, business and society exist. For the moment Ukraine’s economy is in the phase of transformation and needs fast economic breakthrough, which does not require existence of middle class. Middle class representatives encourage maintaining a status quo in the economy
- 2. The Foundation for Effective Governance Kiev, Illinskaya Str., 8, entrance VIII, the 5th floor, 04070, Ukraine Tel: +380 44 501 41 00, Fax: + 380 44 501 41 05 feg@feg.org.ua www.feg.org.ua, www.debaty.org, www.competitiveukraine.org Arguments AGAINST the motion “Middle class is not needed for Ukraine’s economic development” The middle class sponsors the Ukrainian manufacturers by creating exacting demand for qualitative goods and services. Whereas the wealthy spend their money mainly outside Ukraine, and the low-incomes (and regretfully we have most of them) can hardly make a living, the middle class buys domestic goods and services of better quality. This is exactly the middle class that can afford private schools for their children and insurance medicine, encouraging improvement of standards and thereby financing various sectors of the Ukrainian economy. Existence of considerable share of middle class stimulates modernization of country’s economy. Middle class finances modernization of Ukraine’s economy Middle class inspires innovations and facilitates introduction of new businesses, as its representatives are well educated and possess professional skills. For Ukraine to reach the European level of prosperity, which is 5-10 times larger than the Ukrainian one, it’s necessary to develop new areas and sectors of economy instead of supporting the obsolete ones. New skills and qualifications, which the middle class has, are of utmost importance for this development. Representing small and medium enterprise, middle class acts as a motivator for innovations; being staff personnel for large business, middle class is highly educated workforce. Middle class promotes appearance of new businesses and innovations The above defined arguments are only few of all possible. The question of the role of the middle class in Ukraine’s economic development will be discussed during the public debates to be organized by the Foundation for Effective Governance on the 14th of March, 2013 in Kiev. _______________________________________________________________________________________ Information Definition: There are several approaches to determine middle class, with the following methods being the main – material, valuable, behavioral (buying behavior, lifestyle), self-definition and integrated one. For the purposes of the debates we use the following integrated approach to define middle class: Middle class is a social group of people with steady income, which is enough to satisfy a wide range of material and social needs, and who are highly educated. Table 1. Global statistics on middle class,* millions 2009 2020 2030 North America 338 18% 333 10% 322 7% Europe 664 36% 703 22% 680 14% Central and South America 181 10% 251 8% 313 6% Asia Pacific 525 28% 1740 54% 3228 66% Sub-Saharan Africa 32 2% 57 2% 107 2% Middle East and North Africa 105 6% 165 5% 234 5% Total all over the world 1845 100% 3249 100% 4884 100% Source: Homi Kharas (January 2012), ‘The Emerging Middle Class in Developing Countries’, Working paper No 285, OECD Development Center. Notes: * In the calculation the following definition of middle class was used – households with expenses of 10-100 US dollars per capita per day. Table 2. Share of middle class based on level of prosperity, % № Country Share of population 1 Denmark 94,5 2 Norway 93,1 3 Sweden 91,5 ... … … 25 Russia 39,0 26 Bulgaria 31,6 27 Ukraine 24,6 Source: Data of the European Social Survey