Sun, Feb 26, 2012 - Page 9 News List

The middle class goes global

While the number of people who have escaped extreme poverty is rising worldwide, their American dream can turn into a nightmare if societal forces are not managed carefully

By Johannes Jutting

Illustration: Kevin Sheu

In the 20th century, the American dream of a middle-class life inspired the world. Now, in the 21st century, we are moving at high speed toward a world based on a new geography of growth, with millions of people in the east and the south moving out of extreme poverty to become potentially powerful middle-class consumers. Whether the dreams of this new global middle-class are realized or turn into a nightmare depends on several factors.

In today’s shifting world, with GDP in about 80 developing economies rising at twice the rate of per capita growth in the Organisation for Economic Co-operation and Development (OECD), the club of the world’s richest countries, middle-class citizens paradoxically complain and protest regardless of whether fortunes improve or decline.

Former Venezuelan minister of trade and industry Moises Naim even warns of a possible “emerging global war of the middle classes.”

While anger over pay cuts and unemployment make sense, it is harder to understand the current protests in fast-growing countries like Thailand and Chile, where standards of living are improving. What is going on?

High growth in Asian and southern countries has meant greater export earnings and rents from natural resources. Unfortunately, this blessing can turn into a curse. In China, former Chinese leader Deng Xiaoping’s (鄧小平) vision — “let some people get rich first” — has led to impressive economic growth and poverty reduction, but it has also undermined the self-proclaimed “harmonious society,” as recent protests and labor conflicts indicate.

Indeed, it is telling that, in the spring of last year, Beijing’s municipal authorities banned all outdoor luxury-goods advertisements on the grounds that they might contribute to a “politically unhealthy environment.”

Rising inequality, lack of civic participation, political apathy and a dearth of good jobs, particularly for the young, comprise the Achilles heel of emerging-market countries’ current development model. A Gallup poll on subjective well-being in Tunisia and Thailand shows that, while income levels and social conditions in both countries improved between 2006 and 2010, life satisfaction dropped.

Homi Kharas, a senior fellow at the Brookings Institution in Washington, defines today’s global middle class as households with daily expenditures of between US$10 and US$100 per person (at purchasing power parity). This represents approximately 2 billion people, split almost evenly between developed and emerging economies. In its Perspectives on Global Development 2012 — Social Cohesion in a Shifting World, the OECD forecasts that, by 2030, the global middle class could total 4.9 billion. Of these, between 3.2 billion and 3.9 billion will probably live in emerging economies, representing 65 to 80 percent of the global population.

These people will demand more and better services, a fairer division of growth’s benefits and more responsive political institutions. The current wave of protests could be just the beginning of this trend.

So, what should be done?

First, more extensive social protections must be instituted. Most of the emerging middle class is one income shock from being pushed back into poverty. To counter this risk, social-security programs should be gradually extended beyond social assistance. India’s Employment Guarantee Scheme, Ghana’s national health-insurance program and Lesotho’s tax-financed pension plan, which covers more than 90 percent of its population, are all instructive social-protection models for the emerging middle classes.

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