Home .Society Emerging Asia's precarious middle class
Emerging Asia's precarious middle class
Sunday, 04 March 2012 07:04

Poor countries typically have a tiny rich elite, large impoverished masses, and a very small "middle class".  When development succeeds, society's middle class expands as poor people escape poverty, and also as some of the elite may lose their privileged positions.

As the Asian Development Bank reports, emerging Asia's middle class has increased dramatically over the past couple of decades ...

But at this stage, much of this middle class is still "lower middle class", and sits in a precarious position.  Also, as the benefits of development have not been shared equally, a small group at the top of the ladder is becoming ever wealthier.

What does middle class mean?  There is of course no one single accepted definition.  The ADB has chosen an "absolute measure", defining the middle class as those people with consumption expenditure of $2-$20 per person per day (1).  While opting for its $2-$20 a day definition, the ADB does break up its middle class into three sub-groups -- the lower middle class with consumption of $2-$4 a day, the middle-middle class with $4-$10 a day and the upper middle class with $10-$20 a day.  Other researchers have chosen relative or hybrid measures (2).

According to the ADB's calculations, developing Asia's middle class population has grown from 21% of the region's population in 1990 to 56% in 2008 (3).  Thus, in 2008 1.9 billion of emerging Asia's population were in the middle class, and 1.5 billion were still living in poverty.  China and Vietnam have made the greatest progress in increasing the share of their middle class populations.

No other developing region has achieved such a stunning growth in its middle class.  For example, the middle class of sub-Sharan Africa rose from 24% to 33% over the same period, while that of Latin America increased from 71% to 77%.

Despite this impressive achievement, the lower middle class constitutes the predominant share of the middle class for most developing Asian countries. In China, Indonesia, and the Philippines, the lower middle class is more than half of the total middle class, and only a few per cent of the population is in the upper middle class group.  In India, the lion's share of the middle class is in the lower middle class group. Malaysia and Thailand stand out for having bigger shares of their populations in the middle-middle and upper middle classes.

This means that emerging Asia's middle class is exposed to possible increases in food or energy prices, or other economic crises, and is at great risk of falling back out of the middle class into poverty.  At the same time, if economic progress continues, the prospects are good for the progressive movement of emerging Asia's population up the middle class ladder.

Who are the middle class?  Predictably, the middle classes tend to be better educated, concentrated in the big cities, and more likely to hold salaried jobs or to be professional and technical workers.  The middle class also tends to value market competition, gender equality, trust, and upward mobility.

What are the implications of the growth of emerging Asia's middle class?

The signs of Asia's growing middle class are everywhere in the economy through the sales of consumer durables like refrigerators, television sets, mobile phones, and automobiles.  China has now overtaken the US as the world's largest automobile market, while China and India are now the world's first and second largest markets for mobile phones.

This surging demand for middle class products promises to be a strong motor for domestic-demand driven growth, and also for more luxury goods produced by Western companies, and for tourism.  Already there are signs that foreign direct investment in emerging Asia, especially in China, is targeting domestic demand as well as exports.

The rise of Asia's middle class is also acting as a spur to "frugal innovation" as entrepreneurs creatively develop new products and services like Tata's $2,200 'Nano car', or the $70 battery-operated refridgerator made by India's Godrej company, which are affordable for Asia's middle class.

History also shows that a rising middle class is better educated, more aware of its rights and better organized than the poor.  It can thus demand greater accountability and transparency from the public sector, apply pressure for economic reforms, and lay the foundation for a transition to democracy as in the cases of Korea and Taiwan.  Middle class values can also be conducive to accumulating savings and investing in education.  The middle class may also provide more entrepreneurs.

Are there any downsides to the rise of Asia's middle class?  Its growing consumption can place pressure on natural resources and the environment notably through carbon emissions.  Emerging Asia has also witnessed a dramatic rise in middle class health problems like obesity, diabetes, cancer and heart disease, long before it has eradicated communicable diseases such as malaria.

In conclusion, the overall reality is that most of Asia's middle class is still living closer to poverty than to prosperity, and is still struggling.  And in the context of Asia's growing income disparities, there is a very much smaller group, notably in China, that is becoming extremely wealthy, but which has little interest in greater political freedom, openness and accountability from a system which accords them many privileges and opportunities for corruption.

This latter group already has huge benefits from its participation in elite political circles, and its access to public goods and services.  It also enjoys many privileged freedoms like the freedom to travel, to send their children foreign universities, to invest overseas, and to obtain foreign passports or permanent residency permits.

References:

Asian Development Bank.  "The Rise of Asia's Middle Class".  Key Indicators for Asia and the Pacific 2010.

http://www.adb.org/Documents/books/key_indicators/2010/pdf/KI2010-Special-Chapter.pdf

(1)  In 2005 Purchasing Power Parity $.

(2)  Bill Easterly and others have chosen "relative measures", defining the middle class as those in the second, third and fourth quintiles of per capita consumption expenditure.  Nancy Birdsall uses a hybrid definition that combines absolute and relative approaches -- in particular, for her the middle class includes individuals who consume the equivalent of $10 or more per day, but who fall below the 90th percentile in the income distribution.  In contrast to all these definitions which are based on consumption or income, sociologists have typically defined the Western middle class on the basis of education and occupation in a white-collar job.

(3)  In 2008, 43% were poor (living on less than $2 a day) and 1% were living on more than $20 a day.  


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