## WHY DEVELOPMENT FEELS HARDER

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**Canonical URL:** [WHY DEVELOPMENT FEELS HARDER](https://www.imf.org/-/media/files/publications/fandd/article/2026/09/basri.pdf)

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### Core argument
- Economic growth that no longer creates secure, upwardly mobile employment produces widespread insecurity beyond the poor, turning expectations into frustration and making development politically harder.
- Growth can coexist with macroeconomic indicators that look strong (examples below) while social and political outcomes worsen when jobs are insecure.

### Evidence and trends
- Macroeconomic context cited: "two decades of 5 percent growth," "low inflation," "fiscal deficits below 3 percent of GDP."
- Indonesia case specifics:
  - App-based drivers earn about "$272 a month," which is "nine times the $30 poverty line" (University of Indonesia study).
  - Middle class share fell "from 21 percent of the population in [2019] to 16.6 percent by 2025."
  - The "aspiring middle" expanded to "nearly half the country—about 137 million people in 2024."
  - The aspiring middle is defined as households spending "between 1.5 and 3.5 times the national poverty line."
  - Households between the "50th and 80th percentiles saw their real consumption fall from 2019 to 2022" (University of Indonesia economists Teguh Dartanto and Keanu Can).
  - In Indonesia, "80 percent of new jobs in 2019–24 were informal, paying about $114 a month, below the $181 minimum wage."
  - Less than "10 percent of export growth comes from new products in new markets."
- Regional parallels: middle-class shrinking also noted in "India, Thailand, Vietnam, and Brazil."
- Social volatility examples: Santiago fare rise of "30 peso (US 4 cent)" triggered severe unrest in 2019.

### Mechanisms: why growth no longer guarantees secure work
- Premature deindustrialization: manufacturing employment shrinks before countries reach the income levels at which advanced economies deindustrialized (concept attributed to Dani Rodrik).
- Value chains concentrated among incumbents; "automation and reshoring" reduce labor‑intensive work that once absorbed school leavers.
- Growth channels shifting toward capital‑intensive resources (example: "nickel smelting and other mineral processing") and services, which often employ fewer workers.
- Services dynamics:
  - Polarization: high‑skill tradable services raise productivity but absorb few workers; labor‑absorbing services (care, education, hospitality) offer little productivity growth and must pay rising wages, raising costs for middle‑class consumption.
  - Nontradability: many services cannot be exported, so services‑led growth is bounded by domestic purchasing power.

### Political-economy constraints on reform
- As the aspiring middle expands, reforms that impose visible costs become politically costly; governments grow cautious.
- Examples of distributional shifts complicating reform:
  - Fuel subsidy cuts earlier benefited the rich; over time vehicle ownership spread downward so subsidy removal increasingly hits the aspiring middle.
- Bureaucratic and vested interests: "red tape generates income for those who administer it," creating resistance to deregulation or regulatory simplification.
- Institutional fragility: reforms anchored to individuals risk reversal; durable change requires embedding reform in law and institutions.

### Policy priorities and recommendations
- Protect the aspiring middle through targeted recalibration rather than new blanket spending:
  - Use administrative data (example: state electricity company customer data combined with social protection data) to identify the poor and the aspiring middle and direct subsidies/compensation accordingly.
  - "Compensate first, then reform"—use conditional cash transfers recalibrated with better targeting.
- Restore labor absorption with scalable, productive employment:
  - Prioritize export‑oriented investment in global value chains and tradable services that bring capital, markets, and firm‑led training.
  - Focus on mid‑skill, scalable activities that can absorb labor while upskilling on the job: "electronics and components assembly, garment and footwear production for export, food processing, and digitally enabled work such as logistics and back-office services."
  - Encourage firms to train workers themselves via incentives, since firms "know their needs best."
  - Address scarce skills and the AI challenge: AI "threatens to cap how much labor even these activities absorb"—thus upgrading skills is essential so workers complement automation.
- Improve the business environment without requiring new fiscal resources:
  - Lower barriers to trade in goods and services to pull firms into export‑oriented value chains.
  - Create a cleaner business climate, broader financial inclusion, and lighter regulation to let private firms create jobs.
  - Accept that "letting go and taking on the interests that profit from the status quo are what it takes."

### Implementation constraints and tactical advice
- Prioritize feasible, low‑cost, politically realistic reforms: limited resources, time, and political capital mean selective action is necessary.
- Dealing with vested interests requires private sector leadership and institutional reforms to make changes durable.
- Success depends on rebuilding trust: people require "honest explanations and transparent rules" and proof that efforts "will be rewarded."

### Conclusion
- The central challenge is political as much as economic: growth that stops creating secure jobs erodes middle‑class confidence and makes reform harder just when it is most needed.
- Policy must protect the aspiring middle, restore labor‑absorbing tradable activities, upgrade skills for automation, and embed reforms in institutions to sustain progress and rebuild trust.

*Muhamad Chatib Basri, visiting scholar at the Harvard Center for International Development and former finance minister of Indonesia.*

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_Source: https://www.imf.org/-/media/files/publications/fandd/article/2026/09/basri.pdf_