The document summarizes a public debate held in Kyiv, Ukraine on whether the presence of a large middle class is necessary for a country's economic growth. The debate discussed examples of rapid economic growth in China, India, and Russia without a large middle class, as well as examples of developed countries where the middle class is considered important for stable growth. While the participants generally agreed the middle class is important, they disagreed on whether the middle class appears as a result of economic growth or if strong economic growth requires a middle class first. In the end, most participants voted that the presence of a middle class was essential for economic development.

1. www.debaty.org
March 14, 2013
Teacher’s House, Kyiv, Ukraine
MIDDLE CLASS IS NOT NEEDED FOR UKRAINE’S ECONOMIC DEVELOPMENT
PUBLIC DEBATE BRIEF
Boris Lozhkin
President of the UMH group
Sergey Vorobyov
President and Co-founder of Ward
Howell Company
Pavlo Sheremeta
President of the Kyiv School of
Economic
Mikhail Khazin
President of LLP Neokon Expert
consulting copmany
There is a widely held opinion among politicians, businessmen, and economists that the economic prosperity of a country is
directly connected with the presence of a large middle class population in society. In the majority of developed countries, the
presence of a middle class is considered to be a sign of stable economic growth, which is why countries often take measures to
ensure its increase. On the other hand, in China, India, and Russia, rapid economic growth takes place without a middle class. Is
the presence of a large middle class population a necessary condition for economic growth or does the middle class appear as
a result of this process? These questions were discussed in public debates organized by the Foundation of Effective
Governance in Kyiv on March 14, 2013. Borys Krasnyansky, Managing Director of the Group DF, moderated the debates.
The participants of the debates concurred that the middle class is important for economic development. The crux of the
debates however was the issue of what comes first: the middle class or economic growth. Speakers defending the thesis of the
debate insisted that financial resources, which today can be received only in the international market in the form of
investments in large businesses, are required for economic development. In turn, these developing businesses will create job
opportunities with hefty salaries, which will increase the proportion of the middle class in the country. Speakers “for” the
argument took the position that it is a demanding customer—namely the middle class—that is required for economic growth.
This class is the most interested in economic development and in improving their families’ standard of living and their
children’s wellbeing.
Voting results showed that the participants of the debates considered the presence of the middle class to be essential for
economic development. In fact, the majority voted for this position both at the beginning and at the end of the debate. Even
though the debaters arguing "for" the thesis earned an additional 11% of votes, they still did not win the voters' support.
The public debates serve as a social forum for the discussion of issues essential for Ukraine’s economic development. The project
has been designed to foster a culture of constructive and substantial debate, as well as to assist in creating public awareness
about the key economic challenges facing our country.
Speakers FOR the motion Speakers AGAINST the motion

2. Boris Lozhkin: “Money is needed for the country’s economic
development. This can come from three sources: savings of
citizens, foreign investments, investments of corporations and
government. It is unlikely that the population of Ukraine will
provide the investments required for business, and the
government does not have enough money. Consequently,
only foreign investments in large businesses can influence the
economy, not the middle class”.
Sergey Vorobyov: “The middle class is a self-sufficient subject of
the state that is able to create welfare, save, increase, and
transfer to succeeding generations… If we want capitalism with
a human face, it will be the face of the middle class. It will be
the face of our children if normal conditions (infrastructure,
reasonable taxes, high ranks in ‘Doing Business’) are created for
them”.
Pavlo Sheremeta: “The middle class wields three powerful
channels of influence on the national economy: consumption
(60-70% GDP), national capital (97% against 3% foreign capital),
and taxes. The middle class is a lever for the creation of an
inclusive political and economic system as it requires that the
government provide freedom, welfare, equal access to
resources, and an improvement in the quality of life“.
Key arguments
Q&A Session with the Audience
Voting results:
Q: “What should be changed in our schools to increase the middle class?”
A: Sergey Vorobyov: “Schools should teach children to study, to change, to differ, to forget the old so that they can learn the new”.
A: Pavlo Sheremeta: “Today, we need not possess encyclopedic knowledge—this encyclopedic knowledge is in Google. Today, people do
not pay for knowledge but for the ability to use this encyclopedic knowledge. The more quickly schools start to teach this, the more
effective education will be”.
Q: “Which Union should we join (Customs Union or the EU) for the more effective development of the middle class?”
A: Boris Lozhkin: “We should join the one from which we will be able to receive more money”.
A: Pavlo Sheremeta: “And money will be given by the one that has more capital—in other words, the European Union”.
A: Mikhail Khazin: “We should ask not who can give more money... If you have money to return, everybody will give you money. We
should ask, to whom can our products be sold? You will not be able to sell anything to the European Union and Turkey, Russia is “under
question”, so we should think it over further”.
Q: “Could you name the country which for a long time, for more than 20-30 years, has been developing its economy and has been
increasing purely on the basis of large businesses?”
A: Mikhail Khazin: “Of course, it is South Korea where large business was intentionally promoted”.
Q: “According to various data, the sum total of domestic savings is close to USD $40 billion. Whether there is a necessity of outward
investments or not, isn’t it better to create conditions for the middle class for the investing and turnover of this money?”
A: Boris Lozhkin: “Of the USD $40 billion, only 10% can usually be invested in small businesses. People can deposit the rest of the money
in a bank, but there is no demand and banks don’t know what to do with this money”.
Q: “Do you think that the middle class creates living and consumption standards?”
A: Pavlo Sheremeta: “Yes, I agree, absolutely”.
A: Sergey Vorobyov: “Yes, of course”.
A: Mikhail Khazin: “The government forms consumption standards via the middle class, which is created mainly at the expense of credit
granting. This is not as severe as in USA where one’s salary range allows one to buy only specific products of the corresponding segment,
but the tendency is similar”.
A: Boris Lozhkin: “Except for the government, consumption standards can also be influenced by the church, but in our country this
influence is not so considerable”.
Mikhail Khazin: “The availability of enough money is a
condition for the emergence of the middle class, which is
possible only as a consequence of the competitive production
of goods and the availability of a huge consumer market,
which as of today cannot be provided exclusively by the
country’s domestic resources”.
Additional information and video-version of the
debates are available on web-sites:
www.debaty.org and www.feg.org.ua
Middle class is not needed for Ukraine’s economic development
The Foundation for Effective Governance
8 Illinska Str., 8th Entrance, 5th Floor
Kiev, 04070, Ukraine
Tel.: +380 44 501 41 00
feg@feg.org.ua