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Demography is Destiny

A middle class world

A middle class world

by Marcus Roberts | October 10, 2018

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As we’ve been saying on this blog for a while now, the last few decades has seen the global population increase rapidly and yet, at the same time, the world has a whole is getting richer. There is less hunger and poverty now than at any time in history. And to back that up is this interesting study from the Brookings Institute. It notes that this year will see an unprecedented tipping point in global history: the majority of humanity will no longer be “poor or vulnerable to falling into poverty”. We are, in short, about to see a majority middle class world.

In September 2018, there will be some 3.8 million people who can be counted middle class or rich. (3.59 billion middle class and 200 million rich.) And there will be slightly fewer people who are poor (630 million) and vulnerable (3.16 billion). Of course, these figures all depend on your definitions. According to the authors of the report, those who are poor live in households which spend less than $1.90 per person per day. Those who are middle class are those who live in households which spend between $11 and $110 per person per day. Vulnerable households spend between the poor and middle class and those in rich households spend more than the middle class. But why were those numbers chosen? While recognising that what counts as “middle class” differs depending on where you are in the world, the authors use the spending amounts they do to define middle class since that amount recognises that those in the middle class can buy discretionary consumables like washing machines or motorcycles. They can go to the movies, take vacations and they can usually weather an economic shock (like illness or unemployment) without slipping back into extreme poverty.

While the decrease in those living in absolute poverty has received a lot of attention (and rightly so) the increase in those entering the ranks of the middle class has been less remarked upon. About one person escapes from extreme poverty every second, but five people a second are entering the middle class. (The rich are growing at a slower rate: one person every two second enters that category).

Why the growth of the middle class is so important is that they make up two-thirds of private household consumption (which itself accounts for about half of global demand). The growth in the middle class is mainly from Asia (from China, India and South East Asia) and so multinationals will increasingly focus on, and be influenced by, those markets. The middle class consists of people who are generally happier with their lot than those who are poor or vulnerable but they also demand more from their governments. They want better housing, education, health care but they (like everyone) are not so keen on growing taxes to pay for those demands. Policymakers in many countries around the world must learn how to balance those demands as the middle class grows.

And it is expected that the middle class domination of the world will continue for the next dozen years. By 2030, the numbers of people poor and vulnerable will continue to shrink rapidly (by 150 and 900 million respectively). The rich will have grown by 50% (to 300 million), but the middle class will have grown by a whopping 1.7 billion (to 5.3 billion). People in this economic category will make up nearly two-thirds of the world’s population. In short, the world is getting richer, people are becoming economically more secure. This is expected to continue at least for the short term. So that’s something to smile about today.

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