The Evolution of an Economic and Political Middle Class in Transition Countries

Abstract

It is generally believed that successful economic and political transitions, and even development more broadly requires the development of a significant and stable middle class. This middle class is defined in both economic terms, meaning a relatively flat income distribution, and in political terms, meaning a bloc of centrist voters. This paper examines measures of income shares and growth, political attitudes and voting in Poland and Russia during the 1990’s to test the proposition that the growth of an entrepreneurial based sector of new enterprises is an important factor in the growth of an economic and a political middle class. The evidence is in both countries regions with a larger de novo economic sector have increased the income share going to the bottom two quintiles, have higher income growth rates, and have given more political support to centrist liberal parties. We also show that individuals employed in these new firms and/or living in these successful regions are more likely to have economically and politically liberal attitudes. We conclude by suggesting that de novo firm creation is an important factor in successful and stable transitions.