Public Lecture: Size Matters: Why is it so Small and How to enlarge It, the Middle Class.

Size Matters:  Why is it so Small and How to enlarge It, the Middle Class.

By Tan Sri Datuk Dr. Kamal Salih

Abstract of Lecture

The lecture will address the issue of the middle class in inequality and Inclusive Growth, which entails lifting households out of poverty and facilitating upward, especially inter-generational, mobility through graduation to middle class status. Noting the difference between the “aspirational” middle class reported by the World Bank recently which was put at 65% of all households, while the finding of the first Malaysian Human Development Report 2014 put the “actual” middle class size, defined in income terms by the World Bank as those households positioned between 20% above and below the median income, has remained relatively small for Malaysia, trending around the 22% level when in comparison in the typical developed country situation the percentage is closer to 50-55%, the lecture will attempt to explain why the Malaysian middle class is relatively so small through historical comparisons as well as with countries at a similar stage of development. 

This lecture will note that the median income profile of the NEP generation improved more rapidly than that of the earlier generation and in comparison with  the post-NEP generation, though the median levels of incomes are higher for the latter.  In other words middle class formation was fastest during the implementation of the NEP in the twenty-year period involved, but evidently not in the liberal and globalization era after the Asian Financial Crisis of 1997. 

The lecture will also describe the status of the middle class in terms of the composition of its fiscal capability. While the bottom 50% has wages/salaries making up 97% of their purchasing power, the upper part of the middle class would exhibit a similar pattern to the upper 50% with contribution from wealth effects approaching 11% and increasing as they climb the income ladder.  In other words, on the basis of household fiscal capability Malaysia essentially exhibits a two-class social stratification, with inequality diminishing between ethnicities but within-group income gaps rising more and more to obliterate the NEP-based ethnic classification as a relevant issue of equity in development.   Income inequalities then become essentially a question of class. 

The lecture will seek to find the factors behind this, including issues such as the contribution of labour productivity to per capita income growth, wage-productivity gap and the wage premium, and the distortions attributable to policy and institutional failure, and conclude with some exploration of how to enlarge the middle class through appropriate interventions through the next generation of development policies.