A newly proposed international definition of the middle class for developing countries, produced by the Center for Global Development for the World Bank, has some surprising conclusions for India.
The report, produced by the president of the Center for Global Development, Nancy Birdsall, suggests that “middle class” is defined as everyone with an income above $10 a day, excluding those in the top 5% of earners in the country… meaning India has no middle class.
This is a combination both of the depth of India’s poverty and its inequality. China had no middle class in 1990, but by 2005, had a small urban middle class (3% of the population). South Africa (7%), Russia (30%) and Brazil (19%) all had sizable middle classes in 2005. […]
In socio-political terms, the middle class is traditionally that segment of society with a degree of economic security that allows it to uphold the rule of law, invest and desire stability. They do not, unlike those defined as rich, depend on inheritances or other non-productive sources of income. […]
OECD countries define their poverty lines as 50% of median income which works out […] to about $30 day. In the US the poverty line for a single individual in 2008 was $29 per day and for each individual in a four-person household was about $14 per day.
However, people in developing countries living on even $10 a day still have extremely low social indicators. Economist Lant Pritchett has shown that infant mortality of households in the richest quintile in Bolivia was 32 and Ghana 58 per 1,000. Fewer than 25% of people in the richest quintile in India complete 9 grades of school, Pritchett showed. “An upper limit of the 95th percentile, while on the high side, is just about sufficient to exclude the countrys richest,” Birdsall adds.
via The Browser
When there is a medium placed between our effort and a desired outcome, we strive to maximise this medium regardless of whether or not it leads optimally to that outcome (think points or virtual currencies as a medium when attempting to obtain goods).
That’s my attempt at a concise summary of the findings from a study coining the phrase ‘medium maximisation’.
This example taken from the paper (pdf) and presented by The New York Times may help:
Students were given a choice between two simple tasks. One would take six minutes, and the students were told that they would get a gallon of Haagen-Dazs vanilla ice cream as a reward. The other would require seven minutes of work, and the payment would be a gallon of Haagen-Dazs pistachio.
Not surprisingly, since the second option involved more work and a less popular flavor, only about a quarter of the students chose it.
But the researchers also repeated the experiment with a couple of tweaks. In the new version, the six-minute task led to a payoff of 60 points, and the seven-minute task brought 100 points.
The researchers then told the students that anyone who finished with between 50 and 99 points would be given a gallon of vanilla ice cream. Anyone with 100 points would get pistachio.
Practically, there was no difference between the two experiments. But the outcomes ended up being very different.
In the comments of a previous post of mine looking at the denomination effect, the idea that “the greater the level of abstraction, the more ready we are to spend” was mooted. So it seems to be the case here.
via @BFchirpy
In light of the ongoing debate with regards to the financial sector’s so-called ‘bonus culture’, economist John Kay looks briefly at the history of the bonus and why the idea of a ‘bonus culture’ is a “poor joke” (using the example of teacher and doctor bonuses).
At one time, the offer and receipt of a gratuity was a statement of social and economic superiority on the part of the giver, its acceptance a statement of social and economic inferiority on the part of the recipient. To be salaried – to be trusted to do the job for which you had been contracted and paid – was a mark of status. Contractually agreed performance-related pay – commissions and piece work – was widespread in shops and factories, but has now largely been abandoned.
The common outcome was that employees came to care more about the quantity of the product than its quality. The system polarised the conflict between the interests of the organisation and of those who worked in it. […]
Teachers and doctors strongly resist the introduction of a bonus culture: not just because they resent measurement of performance and accountability for their activities […] but because they oppose importing the culture of assembly lines. They fear an environment in which they would be encouraged to focus on narrowly quantifiable objectives at the expense of the underlying needs of clients.
Even if many teachers and doctors are incompetent and lazy, many others are seriously committed to the organisations for which they work, the subjects and specialisations to which they are devoted, and to a broader sense of professional ethics: and it is only people like these who establish the kinds of schools and hospitals we want as parents or patients.
Kristian Segerstrale–owner of online games company Playfish (acquired by Electronic Arts for $400m in November 2009)–discusses why online game environments are exciting places for economics research (and specifically: “how social factors influence economic decision making”):
When economists try to model behavior in the real world, they’re always dealing with imperfect information. “The data is always limited, and once you get hold of it there are tons of reasons to mistrust it,” Segerstrale says. In virtual worlds, on the other hand, “the data set is perfect. You know every data point with absolute certainty. In social networks you even know who the people are. You can slice and dice by gender, by age, by anything.”
Instead of dealing only with historical data, in virtual worlds “you have the power to experiment in real time,” Segerstrale says. What happens to demand if you add a 5 percent tax to a product? What if you apply a 5 percent tax to one half of a group and a 7 percent tax to the other half? “You can conduct any experiment you want,” he says. “You might discover that women over 35 have a higher tolerance to a tax than males aged 15 to 20—stuff that’s just not possible to discover in the real world.”
Of course, there’s a fairly obvious caveat:
One possible flaw in this economic model is that the kind of people who spend hours online taking care of imaginary pets may not be representative of the rest of the population. The data might be “perfect” and “complete,” but the world from which it’s gathered is anything but that.
When requested to give up a “sacred value”, the inclusion of a financial incentive incites moral outrage, decreases general support for a compromise, increases anger and increases a subject’s approval of “violent opposition”.
Research looking at our reactions to such proposals offers same suggestions for negotiating over sacred values.
A more successful tack for negotiating over sacred values, as it turns out, is to simply use the right words. Whether discussing nuclear disarmament or reluctance to sell one’s lucky mug at a garage sale, using specific rhetorical strategies can make trade-offs seem less taboo and can facilitate conflict resolution. […] One tactic is to describe tradeoffs in terms of “costs and benefits” and “analysis” rather than in terms of sacred values and money. This vague utilitarian language appears to mask the emotion-laden taboo nature of the exchange. Another strategy is to emphasize the dire, obligatory nature of the trade-off. For example, people are more willing to sell their body organs for medical transplants when told it is the only way to save lives because this framing posits the exchange as one sacred value for another. In an age where many of the most volatile conflicts stem from sacred causes, and politicians have questioned effectiveness of diplomacy, understanding how to best negotiate about these issues has never been more critical.
via Schneier on Security