Middle Classes and Development: Is South Korea a Model for Latin America?

1. Middle Classes and Development: Is South Korea a Model for Latin America? Diane E. Davis Harvard University May 13, 2014

2. South Korea: Development Darling of the Late Industrializing World • Rapid economic and industrial catch-up • Transition from agriculture to industry • Matched by investments in human and social capital • Based on early shift to export-led industrialization • Produced a large middle class • New priorities and production processes • Greater demand for skills, technology, management • Virtuous cycle (middle class-growth nexus) through consumption and production

3. From State to Middle Classes in Accounting for Success • States that discipline capital are best able to foster and guide economic development • States that are embedded with middle classes are best able to discipline capital in the serve of national development. • Among middle classes, rural middle classes endow the state with greatest disciplinary capacity.

4. What this Meant for Development Theory and Practice • Middle classes enabled the state to pursue heterodox development strategies • Getting the prices “wrong” (Amsden) • Empowering the state vis-à-vis industrial capitalists • Economic successes can be produced by middle classes, they are not merely its product • Raising questions about causal links between middle classes & development • Countryside was as important as the city in this story (thus challenging urban bias in standard development theory)

5. IS THIS MODEL TRANSFERABLE? • How much owes to “accidents” of history? • Are the advantages of backwardness evenly spread across regions (i.e. Gerschenkron)? • Does timing and prior history matter? • “early-late” developers vs. “late-late developers” • What about geography and space? • smaller versus larger nations • national resources, nearness to markets, etc.

6. East Asia and Disciplinary Development • Agricultural context • Small farmer cultures of austerity (& national identity) • Rural middle class isolated (in consumption & spatial terms) • Territorial Patterns • Limited urban industrialization • Small (and homogeneous) urban middle class • Forward-backward linkages between rural and urban small producers (seasonal labor) • Political Legacies • Tension between ISI industrialists and developmental state • Rural sensibilities embedded in national state

7. Middle Classes and Development: Bringing “Location” Back In • Middle class political orientations and alliances depend on the spatial context in which these social groups produce or consume “modernity” • Rural vs. urban locations produce divergent attitudes towards economic progress, class cooperation, and national investment priorities • Cities are critical sites for understanding the state’s unwillingness and incapacity to discipline capital

8. Latin America and“Accommodating” Development • Agricultural Context • Small rural middle class vis-à-vis agrarian oligarchs (& peasants) • Industry main engine of growth • Urbanization Patterns • Large middle class (old and new) • Strong industrial sector embedded w/state • Political Legacies • Middle classes-capital-labor political connections in politics and space • State bureaucracy allied with urban sectors

9. Dealing with the Legacies of “Accommodating” Development in post-1980s Latin America • Structural Economic Weakness • trade imbalances, debt crisis, etc. • Limited Rural Productivity • little political support from or for rural middle classes • Tardy Pursuit of Export-Oriented Industrialization • race to the bottom in a global economy (low wages) • Abrupt and Late Embrace of Liberalization • In a context of rural poverty, debt crisis, and diminishing urban middle class employment • Just when East Asia began moving beyond EOI

10. OVER-URBANIZATION AS key: MIGRATION, HOUSING SCARCITIES, LIMITED EMPLOYMENT, URBAN SERVICE DEMANDS, URBAN FISCAL CRISIS

11. From Industrialization to Urbanization as a Growth Model • National economic growth fueled by global city functions, shifting economic resources and political power to cities • Industry vulnerable to global shocks • De-industrialization transforms national opportunities and priorities for urban space • Services and ICT replace industrialization as the source of employment • Growing the urban middle class • But creating high and low end service jobs

12. Urban Middle Classes: Transforming the Developing World • Countryside is “disappearing” • Agricultural devolution reduces rural middle class employment, shifting balance to urban employment • Middle class growth in the developing world estimated to jump from 430 million in 2000 to 1.15 billion in 2030 • In 2000, 56% of the world’s middle classes lived in the developing world; in2030 93% will live in the developing world • China & India will account for two-thirds) (World Bank, 2008)

13. Is Disciplinary Development Dead? • Rapid urbanization brings new middle classes with new consumption priorities • Undermining social and spatial underpinnings of previous national development coalitions • State-capital partnerships are building these new city spaces • Urban middle classes less likely to call for disciplining of capital – even in East Asia • Decentralization/democratization pits urban developmental aims against national Korea, Rep.: GDP Composition Breakdown for 2013 Data Source: Worldbank: World Development Indicators

14. The Challenge for Latin America: Catching up by following Others • Embraced EOI after East Asia had moved beyond the basic contours of disciplinary development • Pursuing urbanization-led GDP (again seeking same model applied elsewhere), but in unfavorable conditions • Old & new middle classes co-exist • Greater wealth amidst persistent urban poverty • Can LAC succeed by embracing imported models? • Or must it innovate from within, based on what is possible