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February 15, 2009

Global Middle Class


A Goldman Sachs study on "The Expanding Middle: The Exploding Middle Class and Falling Global Inequality" While America laments the loss of its middle class as there is divergence between a mass affluent and wealthy class and those at middle class, there is the rise of the global middle class. The global middle class is adding 80 million people per year. This phenonmena is more than just the outsourcing of the American and European economy but the growing of the world economic pie. The global middle class growth will only be slightly slowed by the credit crisis.

We are in the middle of an unprecedented explosion inwhat might be considered a ‘world middle class’, which we define as those with incomes between $6,000 and $30,000 in PPP terms. And global income distribution is getting narrower, not wider.

Over the last ten years, we have already seen unprecedented expansion in the global middle class. But the pace of expansion here is likely to pick up much further still, reaching its peak in about a decade. As a result, an astonishing two billion people could join the global middle class by 2030! At around 30% of the world’s population, this dwarfs even the 19th-century middle class explosion in its global scale.

* The BRICs [Brazil, Russia, India, China] continue to emerge as dominant forces in the global economy going forward. Our latest projections show the BRICs as four of the five largest economies in 2050.

* The rise of the N-11 [Next 11, The Next Eleven are eleven countries — Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, The Philippines, South Korea, Turkey, and Vietnam — identified by Goldman Sachs investment bank as having a high potential of becoming the world's largest economies in the 21st century along with the BRICs.] also remains a significant feature. The updated projections have resulted in somewhat higher GDP and income levels in a few decades time for some countries (Turkey, Philippines, Iran), and somewhat lower for others (Vietnam, Mexico, Korea). But the broad picture confirms our earlier work and ten of the N-11 are in the top twenty largest economies by 2050.

Like the BRICs ‘dream’ that we set out in 2003, there is nothing inevitable about the path for the Expanding Middle or the global projections that we set out here. The
underlying assumptions we are making could clearly turn out to be wrong for a host of reasons. The advantage of setting out a framework is that it allows us to consider the plausibility of a broad range of alternative paths. We think that the more we and our clients understand the forces that are driving the Expanding Middle, the market opportunities that they present and the challenges they could present to businesses and policymakers, the better they will prepare themselves for the way that the world is changing.


MIT economist Duflo and Banerjee’s study of the middle class in several developing countries, and their spending habits, used consumption of $2-$10 per day (roughly $800-$3600 per year), while a recent World Bank study used a definition of incomes of $17,000-$70,000 – much more in line with the current middle class in developed countries.










Poverty has fallen and will continue to fall


By 2030, poverty will no longer be an Africa and Asian thing but pretty much just Africa.

Can the world afford a middle class?

Foreign Policy asks "Can the world afford a middle class?" There will be resource strains. We will need technology to ease the resource demands with greater efficiency or make new resources available.

While the total population of the planet will increase by about 1 billion people in the next 12 years, the ranks of the middle class will swell by as many as 1.8 billion. Of these new members of the middle class, 600 million will be in China. Homi Kharas, a researcher at the Brookings Institution, estimates that by 2020 the world's middle class will grow to include a staggering 52 percent of the global population, up from 30 percent now. The middle class will almost double in the poor countries where sustained economic growth is lifting people above the poverty line fast. For example, by 2025, China will have the world's largest middle class, while India's will be 10 times larger than it is today.

In 2005, China added as much electricity generation as Britain produces in a year. In 2006, it added as much as France's total supply. Yet, millions in China still lack reliable access to electricity; in India, more than 400 million don't have power. The demand in India will grow fivefold in the next 25 years.

The World Tourism Organization estimates that outbound tourists will grow from today's 846 million a year to 1.6 billion in 2020.


Some long term growth projections by Price Waterhouse Coopers. We will see if they are right.

FURTHER READING
Half of the world population is a "local middle class". These people are not $2 a day or less hand to mouth poor. They have $2-13/day and have one third of their income available for non-essential spending. Electronics are getting so cheap that there are 4 billion mobile communication connections.

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