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Pro-Poor Policies and the Rise of an Alienated Middle-Class in Developing Countries

08/07/2013

Development Pathways

From Turkey to Brazil, the middle-class are out on the streets protesting. In a thought-provoking article, Francis Fukuyama argues that the cause of these protests is a growing middle class with aspirations that are not being realised. As he notes: “Newly arrived members of the middle-class are more likely to be spurred to action by what the late political scientist Samuel Huntington called ‘the gap:’ that is, the failure of society to meet their rapidly rising expectations for economic and social advancement. While the poor struggle to survive from day to day, disappointed middle-class people are much more likely to engage in political activism to get their way.”

My own view is that ‘pro-poor policies’ must bear much of the blame. In recent years, most international agencies and developing countries have – in some way or other – signed up to ‘pro-poor policies’. In practice, this has been interpreted as targeting resources at the poor, a form of Tea Party international development. By targeting the poor, budgets have been reduced and taxes have been kept low.

One consequence of targeting the poor with low budgets has been poor quality public services. So, the middle-class – who, as Fukayama notes, contribute a large proportion of taxes – find that they are paying for services but not receiving the quality to which they aspire. So, they look elsewhere, in particular to the private sector where they pay high fees (or insurance) for access to better health and education services. Yet they still pay taxes for public services that they no longer use, and many countries, as a result, find themselves in a downward spiral: the middle-classes become less willing to pay taxes for services they’ve already boycotted and, as a result, the quality of services fall even further, leading inexorably to even less public funding (and lower taxes).

Of course, it is the poor who end up as the real victims of these pro-poor policies. Unlike the middle class, they can’t escape to the private sector and, instead, have to continue to rely on low quality and poorly funded services. So, pro-poor policies end up being anti-poor, which is exactly what we’d expect from the political economy of social policy.

Brazil is an excellent example of this process. Although Lula continues to peddle the myth of Zero Hunger and Bolsa Familia the reality has been very different. As Milne claims: “The Lula government never broke with neoliberal orthodoxy or attacked the interests of the rich elite.” Under Lula, public services – such as Brazil’s well-known universal health and education sectors – deteriorated. To a large extent this was because the rich – and increasing numbers of the middle-class – stopped using these services and fled to the private sector. The rest of the middle-class and those in poverty were left with services that were well below their expectations. Yet, they still had to pay taxes, much of which has, in fact, gone to paying excessively high old age pensions for former civil servants. Lula’s flagship Bolsa Familia programme focused on the poor while ignoring the middle-class – many of whom are in need of social security – yet achieved little more than ameliorate poverty for a minority of the poor. (See Bolsa UnFAMILIAr for our take on Brazilian social security policy).

It’s not surprising that Brazil’s middle-class – and those from other countries – are now out on the streets. They’re paying relatively high taxes but not getting good quality public services in return. However, as taxpayers, they’re now beginning to hold their governments to account; evidently, more conventional avenues haven’t been working.

So, what is the solution? How can developing countries begin to deliver quality public services? The answer is to move away from ‘pro-poor policies’ and embrace inclusive social policy, in which all citizens feel that they have a stake in the services that their taxes pay for. But, this will require the middle-class and rich using the services. Once they do, they will push for greater spending and a higher quality of service. If this happens, it is the poor who will be the big beneficiaries. 

Including the rich and middle-class in the social security system is relatively easy, as seen in the success and popularity of Brazil’s inclusive old age pension. However, health and education services face a Catch 22 situation: the rich won’t use public health and education services because they are poor quality; but the quality of services won’t increase unless they are used by the middle class and rich.

It is this conundrum that needs to be the focus of social policy in developing countries. Instead of prioritising greater access of the poor to poor quality services, social policy needs to be oriented towards encouraging and persuading the middle-class and rich to use public services. One way to achieve this is by progressive governments significantly increasing their investments in these services, which means higher taxes. It’s a challenge but not impossible. In fact, this is exactly what happened in many developed countries as public services evolved. In the UK, for example, the National Health Service was created following the Second World War as the result of a real commitment from government to tax and spend. A good quality service was created that served the rich, middle-class and poor. Since that time, spending on health has been “protected.” All British political parties now fear to even suggest cutting the National Health Service.

So, as the post-2015 MDGs are developed, let’s hope the international community moves away from the failed pro-poor policies of the past and embraces inclusive – and entitlement-based – social policy. The real enemy is Tea Party international development with its seductive message of cost-effective [i.e. cheap] public services targeted at the poor. But if countries want quality services for all, they have to be willing to tax. I’ll leave you with a thought-provoking graph showing the strong correlation between low poverty and higher taxes in OECD countries (taken from OECD data). Good quality does not come cheap.

OECD-Graph

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