Thursday, November 27, 2014

The Middle Class Goes Global

PARIS – In the twentieth century, the American dream of a middle-class life inspired the world. Now, in the twenty-first, 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 roughly 80 developing economies rising at twice the rate of per capita growth in the OECD, the club of the world’s richest countries, middle-class citizens paradoxically complain and protest regardless of whether fortunes improve or decline. Moises Naim, a former Venezuelan minister of trade and industry, 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 Communist leader Deng Xiaoping’s 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 2011, 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, DC, defines today’s global middle class as households with daily expenditures of $10-100 per person (at purchasing power parity). This represents approximately two 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, 3.2-3.9 billion will probably live in emerging economies, representing 65-80% 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% of its population, are all instructive social-protection models for the emerging middle classes.

Second, more (and better) jobs are desperately needed. The global labor force is three billion, of which two-thirds are informally employed. Indeed, in countries like India, the number of jobs without social protection has increased, despite sustained growth. In Tunisia, the probability of unemployment actually rises with higher levels of education, reaching nearly 30% among the highest-qualified individuals, compared to only 8% among the least skilled. Education in the developing world must be reformed to cater to the demand for skills.

Third, a social contract – one that entails better services and greater government accountability – is essential to improving fiscal policy and mobilizing domestic resources. In countries whose populations are genuinely enfranchised, and where they benefit from good-quality public services, social trust rises, and citizens are more willing to pay taxes. Opinion polls show that in countries where individuals do not trust one another, more than one-third of the population finds tax evasion acceptable. This number drops to one-tenth in countries where people trust each other most.

Finally, as the Arab Spring demonstrates, any state that does not give its citizens adequate space to exercise their voice, and thereby strengthen loyalty, is ultimately unsustainable. Governments must accept pluralism, and social media such as Facebook and Twitter should be permitted to facilitate citizens’ exchange of opinions. Kenya’s Ushahidi Platform, which allows Internet users to quickly access information about human-rights abuses such as human trafficking, is a sophisticated example of how technological resources can provide citizens with powerful tools to monitor their governments’ behavior.

The rise of the global middle class will transform the world’s social, political, and economic landscape. Fostering cohesive societies – in which people feel protected, citizens trust one another, and efforts are rewarded – is the key to realizing its members’ dreams.

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    1. CommentedJSC Siow

      There's an inherent contradiction here where you state the need for better jobs (presumably requiring a better qualified workforce) and yet in your subsequent statement claim that: "Education in the developing world must be reformed to cater to the demand for skills." Where better jobs are not forthcoming, doesn't the lack of demand for well-qualified labor create a vicious cycle if education policies follow suit? Your latter seems to be calling for a race to the bottom (education-wise) or to some kind of lowest common denominator - or am I mistaken?

    2. CommentedZsolt Hermann

      What we see is a very fundamental reaction of our basic matter: desire.

      Imagine a very fine tasteful cake, but before we actually tasted it we do not truly crave for it. After we got a taste and then the cake is taken away, this is when the true desire, hunger to eat the cake appears.

      The middle class world wide, especially in emerging market countries is relatively new, even in western societies only some decades old. For this short time they could taste the good, comfortable life, security, prosperity, they could buy all those goods made desired in their eyes by the skillful margeting machinery. Of course it was all false, an illusion, since this good life was based on not on their own money but on credit beyond their natural necessities and means, making them slaves to the banks and the establishment.

      Today the good life is taken away, they lose their jobs, houses, money, and most of all lose their future prospects. And at the moment it is only starting but as the crisis is going on it will get worse. These people will want the good life they tasted, they are not the poor social layers who never tasted comfortable secure life, these people know exactly what they want back thus they will not give it up easily.

      The top layers of society do not have answers, solutions to fulfill this desire in the present worsening economical situation, especially as now they have to explain the suddenly revealed vast inequalities as well.

      This will not end pretty unless the social layers start talking to each other in an honest, transparent way, and start working out together how we can adapt to this new global, interdependent, mutual network we evolved into, and create a new human structure where everybody can taste the good life in a sustained way.