Why the Search for the Middle Class is a Waste of Time and Money

CJamzx5WsAANOgfOnce we stop focusing only on the search for the mythical middle class, we see the very real changes that have taken place, globally, over the past 25 years. The Pew Report in the previous post focused primarily on the middle income/middle class, overlooking in their haste that even this segment of the world’s population had almost doubled from 7% to 13%. Their rationale is based on conventional thinking which frames the importance of this middle income demographic so:

Developing a vast middle class is key to sustaining growth in emerging economies, whose comparative advantage in offering advanced markets products at a fraction of the cost is waning with new technologies.

Just a couple of days before this Pew report, the United Nations released an important global development report. Here, we can see the real changes that have taken place in historically poverty stricken populations like India’s and China’s:

More than a billion people have been lifted out of extreme poverty since 1990 with China and India playing a central role in global poverty reduction, a major UN report has said

The latest estimates show that the proportion of people living on less than $1.25 a day globally fell from 36 per cent in 1990 to 15 per cent in 2011. Projections indicate that the global extreme poverty rate has fallen further, to 12 per cent, as of 2015.

The poverty rate in the developing regions has plummeted, from 47 per cent in 1990 to 14 per cent in 2015, a drop of more than two thirds.

“The world’s most populous countries, China and India, played a central role in the global reduction of poverty. As a result of progress in China, the extreme poverty rate in Eastern Asia has dropped from 61 per cent in 1990 to only 4 per cent in 2015,” the report said.

“Southern Asia’s progress is almost as impressive — a decline from 52 per cent to 17 per cent for the same period — and its rate of reduction has accelerated since 2008,” it said.

Who cares about the middle class and their mythical relationship to economic growth and progress when the data shows that poverty has been halved, and a billion people can dream of hope. If this middle class were genuinely related to economic growth then we wouldn’t be seeing these conflicting headlines. From the same article that touts the need for a middle middle as critical to growth, already linked above, and referencing the Pew Research report.

India’s middle class barely expanded during the decade, increasing from 1 per cent of the population in 2001 to 3 per cent in 2011, an increase the study called ”small by any measure.”

While the Indian economy is currently said to be so:

India is seeing “stable growth momentum” even as economic activities are expected to slow down in China, the US and many other major economies, says Paris-based think tank OECD.

Last month, OECD — a grouping of 34 countries — had pegged India’s growth to remain “strong and stable” at 7.3 per cent in 2015 on the back of revival in investments.

India has surpassed China to become the world’s fastest growing economy by clocking 7.5 per cent growth for the three months ended March. In 2014-15, the economy had expanded 7.3 per cent.

Earlier this month, Finance Minister Arun Jaitley said the country is no longer satisfied being in the 6 to 8 per cent growth.

“It wants to transcend to another level and aim for 8 to 10 per cent growth… We wish to grow faster because we have a huge challenge of eradicating poverty ahead of us,” he had said.

Given the imperative to push hundreds of millions above the poverty line – far more important to a developing country like India, a historically poverty stricken country – worrying about the mythical middle class is the least of the government’s problems. India’s NREGA is the world’s largest public works programme, benefiting 182 million human beings, only 15% of the country’s population.

This begs the question: “Is growing a vast middle class really key to sustainable growth?

India didn’t grow one (sounds rather like a beard, doesn’t it?) as large as or as fast as China, yet India’s economic indicators seem to be healthier and its population emerging out of abject poverty.

One wonders whether the continued emphasis and focus on chasing the middle class dream not only blinds us to the very real social and economic developments taking place but also whether its a corporate imperative rather than a societal one?

In the long run, will more noodles and biscuits matter, or the fact that more girls are going to school, studying computers and English?

This same single minded search for a middle class is creating its own set of repercussions on the African continent. One gets the feeling there’s a bunch of folks wandering around dazed and confused, groping and grasping blindly for something called “middle class”. Again, overlooked in this game of blind man’s buff are data points like Kenya’s recent emergence as a lower middle income country – the World Bank upgraded it from low income last month:

“Our latest data show that in terms of this indicator, the world’s economic geography has changed a lot. In 1994, 56.1% of the world’s population – 3.1 billion people – lived in the 64 low-income countries. In 2014, this was down to 8.5%, or 613 million people, living in 31 countries. It is heartening to see that over the last one year itself four nations crossed over that critical line from the low-income to the lower-middle income category.”

But, no, lets go chasing the mythical middle instead. On paper, and in the numerous reports churned out by management consultancies, they might be easiest demographic to sell consumer goods to, but as I’d asked 8 years ago, is the holy grail of economic development only the creation of a consumer society? And, is it something that can be realistically aimed for, given the rapidly dwindling natural resources of our planet?

Global tipping point in development

Two years ago, I’d written the following words:

Finally, enough people in enough places have managed to lift themselves free of the gravity well sucking them down into completely insecure and uncertain relationship with the poverty line (aka the next meal or three for the entire family) that they can plan ahead for the next purchase or investment in their future economic status and social standing. One is not independent of the other, especially not in the closely knit, hyper local social networks in rural regions of the developing world.

What we’re in fact seeing are the metrics that demonstrate that tipping point I’d sensed a couple of years ago, while wandering around rural Kenya.

People, not consumers, are bootstrapping themselves out of poverty and feeling steady enough to make a leap for the brass ring of prosperity. The shift is so huge – 700 million people or 10% of the planet’s population – that we’ll be seeing the impact and influence of this emerge over the near term emerging future.

They’ll be neither the Bottom of any Pyramid nor the Middle Class – both measures use metrics too obsolete to account for the leapfrogging taking place in the eternally developing world. What they won’t be is stagnant, or satisfied with their achievements. Pew might say they haven’t come far enough, but who is to say that’s their own metric of success?

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