Burgeoning bourgeoisie A special report on the new middle classes in emerging markets February 14th 2009

MMiddleClassSpecialReport.inddiddleClassSpecialReport.indd 1 111/2/091/2/09 15:04:1315:04:13 The Economist February 14th 2009 A special report on the new middle classes 1

Burgeoning bourgeoisie Also in this section Who’s in the middle? It’s a matter of de†nition. Page 2

Beyond Wisteria Lane Scott Fitzgerald was wrong. It is not the rich who are di erent but the middle classes. Page 4

What do you think? A special poll on middle•class attitudes. Page 6

Notions of shopkeepers Why the new middle classes are so good for their countries’ economies. Page 7

The other Moore’s law "No bourgeoisie, no democracy"; Barring• For the †rst time in history more than half the world is ton Moore may have had a point after all. Page 10 middle•class‹thanks to rapid growth in emerging countries. John Parker reports Suspended animation HE crowd surges back and forth, hands poverty, who are prepared to make sacri• above heads, mobile•phone cameras †ces to create a better life for themselves The recession may bring middle•class growth T snapping one of Brazil’s best•known sam• but who have not started with life’s materi• to a halt for a while‹but not for long. ba bands. It could be almost anywhere in al problems solved because they have ma• Page 13 Latin America’s largest city on a Saturday terial assets to make their lives easy. That night. But this is Paraisopolis, one of São covers a broad range of ambitions, as two Paulo’s notorious crime•infested favelas other examples will show. (slums). Casas Bahia, the country’s largest Back in 1992 Lu Jian was a dissatis†ed retailer, is celebrating the opening there of mid•level bureaucrat at China’s depart• its †rst ever store in a favela (pictured ment of transport and communications above). It is selling television sets and re• who became surplus to requirements. Tak• frigerators in a place that, at †rst glance, has ing advantage of government measures no running water or electricity. that encouraged such oˆcials to go into Among the shacks, though, rise three• business, he went o for a stint at China’s storey brick structures with satellite dishes †rst commodity•futures trading company. on their tin roofs. In the new shop, Brazil• Soon afterwards he found himself design• ians without bank accounts‹plumbers, ing the country’s †rst ski resort, near the salesmen, maids‹‡ock to buy on instal• northern city of Harbin. Now, as chairman Acknowledgments ment credit. In a country with no credit his• of the Nanshan Ski Village, in the desert The author would like to acknowledge the generous help tories, the system is cumbersome: the sta hills near Beijing, he presides over the capi• of a number of people at the World Bank and McKinsey. In interview customers about their quali†ca• tal’s main winter•sports recreation ground. addition to those named in the text, he would especially like to thank: Shankar Acharya, Suman Bery, Rama tions and get them to sign stacks of promis• This season 3m Chinese will take up a Bijapurkar, Nicola Caliccihio, Phyllis Chang, Charles sory notes, like post•dated cheques, before sport that was unavailable in the country Collyns, Uri Dadush, Angus Deaton, Jorg Decressin, allowing them to take their purchases only 15 years ago. China has around 300 ski Shanta Devarajan, Bruce Dickson, Tracey Francis, Paul French, Francis Fukuyama, Norman Gall, David Goodman, home. But it works, more or less. According runs, including some in the subtropical Carol Graham, Peter Hakim, Louis Kuijs, Nicolas Lardy, to Maria, a cleaner, ŒEverything I have south where skiing is done indoors. Even Danny Leipziger, Eduardo Lora, Andrea Minton Beddoes, comes from Casas Bahia. Things are very in freezing Nanshan, snow is manufac• Max Magni, Laxman Narasimhan, Jim O’Neill, Qin Bing, Tang Jun, Arvind Virmani, Yuan Yue and Roberto Zagha. expensive but the means of payment are tured from wells deep underground. better for people like us, without any mon• ŒWhen the Chinese †rst got rich, says Mr ey. This is the emerging markets’ new mid• Lu, Œthey wanted to go to Thailand and A list of sources is at dle class out shopping. South Korea. Now they want to go skiing. www.economist.com/specialreports Eduardo Giannetti da Fonseca, one of Every weekend the resort is packed with IT Brazil’s most distinguished economists, de• executives, bankers and media glitterati. An audio interview with the author is at scribes members of the middle class as This is the emerging markets’ new middle www.economist.com/audiovideo Œpeople who are not resigned to a life of class at play. 1 2 A special report on the new middle classes The Economist February 14th 2009

2 In December 2008, a week after the ter• a new party. ŒThose laid•back, lethargic, in• democracy. As a group, they are meant to rorist attacks in Mumbai, thousands of dolent middle classes‹they’ve been galva• be the backbone of the market economy. young, English•speaking professionals nised, says a former advertising execu• And now the world looks to them to save it gathered in Mumbai, New Delhi, Banga• tive. This is the emerging markets’ middle from depression. With the global economy lore and Hyderabad. They were demand• class engaged in politics. facing the biggest slump since the 1930s, ing a new security law and a ban on crimi• the World Bank says that Œa new engine of nals holding parliamentary seats, as well So much to do private demand growth will be needed, as urging people to vote. India’s profes• ŒWe expect a lot from the middle classes, and we see a likely candidate in the still sional classes have long been considered say Abhijit Banerjee and Esther Du‡o, of largely untapped consumption potential indi erent to politics and less inclined to the Poverty Action Laboratory at the Mas• of the rapidly expanding middle classes in vote than the poor. Yet suddenly social• sachusetts Institute of Technology. Follow• the large emerging•market countries. networking sites were full of memorials to ing the historical examples of Britain and This special report will assess these ex• the victims and proposals for further ac• America, they are expected to be the domi• pectations. It will argue that many of them tion: vote, don’t vote, withhold taxes, join nant force in establishing or consolidating are broadly justi†ed; that there is indeed 1

Who’s in the middle? It’s a matter of de†nition

HERE are two main ways to de†ne a for only 6% of the world’s population and erty line in America, so this category Tmiddle class: in relative terms, as the in 2030 it will still make up only 15%. might be described as people who are middle income range of each country; or The main objection to this de†nition is middle•class by developing•country stan• in absolute terms, using a †xed band for that it excludes many people in China and dards but not by American ones. It is the all countries. An in‡uential exponent of India who are recognisably middle•class developing world’s own middle class. the †rst approach was Lester Thurow of but earn less than $12 a day. India’s Nation• Mr Ravallion’s range captures the stag• the MIT’s Sloan School of Management, al Council for Applied Economic Research gering growth of the emerging•market who took as his reference point the medi• found that between 1995 and 2005 the middle class. Between 1990 and 2005 the an income in America‹where there is an number of Indians earning $12•60 a day total almost doubled, from 1.4 billion to 2.6 equal number of people above and be• rose from 2% to only 5% of the country’s billion, rising from one•third of the devel• low the line‹and de†ned the American population, but the number of those earn• oping world’s population to half. It also middle class as the group with incomes ly• ing $6•12 a day rose from 18% to 41%. gives due weight to China, where the ing between 75% and 125% of the median. An unpublished paper by Martin Ra• numbers living on $2•13 a day rose from Nancy Birdsall of the Centre for Global vallion at the World Bank uses a range of 174m to a jaw•dropping 806m in just 15 Development applied the same idea to de• $2 to $13 at 2005 PPP prices. Two dollars a years. In India the numbers rose from veloping countries. Bill Easterly of New day is a commonly accepted de†nition of 147m to 264m, impressive in any other York University selected those who were the poverty line in developing countries; context. But Mr Ravallion’s de†nition ex• in the three middle quintiles of income people above this line are middle•class in cludes people living on slightly above•av• (leaving out the poorest 20% and the rich• the sense that they have moved out of erage incomes in Brazil, who would gener• est 20%). The problem with this approach poverty. Thirteen dollars a day is the pov• ally be considered middle•class too. is that each country has a di erent medi• John Hewko of the Millennium Chal• an income, so the de†nition of what is lenge Corporation, part of America’s aid• middle class shifts from place to place. Half the world 1 giving system, points out that there is no An absolute de†nition avoids that pro• Population living on $2–13* a day, m single best de†nition; it all depends on blem. The question is what level to what you want it for. If you need to know choose. In a paper in 2002, Branko Mila• 1990 2005 whether America’s middle class is declin• novic and Shlomo Yitzaki used the aver• East Asia and Pacific 315.5 1,117.1 ing, for example, you use Mr Thurow’s rel• age incomes of Brazil and Italy as the re• of which China 173.7 806.0 ative approach. To †nd out how many spective ‡oor and ceiling. That translates Eastern Europe and Central Asia 355.3 347.8 people in emerging markets might be, or into roughly $12•50 a day per person, us• Latin America and Caribbean 276.7 362.1 become, customers for Western brands‹ ing household•survey data at 2000 pur• Middle East and North Africa 170.2 240.1 the global middle class‹you need some• PPP chasing•power parities ( ). South Asia 192.7 380.2 thing like the Milanovic•Yitzaki range: this On that de†nition, the middle•class is what McKinsey and Goldman Sachs of which India 146.8 263.7 population of emerging markets was use. And if you want to measure how about 250m in 2000 and 400m in 2005. Sub-Saharan Africa 117.7 197.1 many people in developing countries The World Bank says it will be 1.2 billion Total 1,428.1 2,644.3 have moved out of poverty and into the by 2030. But despite that rapid growth, in *2005 prices at middle class recently, the Ravallion/Ba• Source: Martin Ravallion purchasing-power parity 2005 this global middle class accounted nerjee•Du‡o range is just the job. The Economist February 14th 2009 A special report on the new middle classes 3

2 something special about the contribution The current, third one is happening almost the middle classes make to economic de• Relentless rise 2 entirely in emerging countries. According velopment that goes beyond providing a Middle-class population as % of world total to Mr Bhalla’s calculations, the number of market for Western consumer goods. The middle•class people in Asia has overtaken middle classes can, and sometimes do, 50 the number in the West for the †rst time play an important role in creating and sus• since 1700 (see chart 3). 40 taining democracy, though on their own In many emerging markets the middle they are not suˆcient to create it, nor do 30 class does not grow incrementally, in line they make it inevitable. On balance, the re• with, say, economic growth. It surges. port is optimistic about the prospects of 20 Chart 4 on the next page shows why. The countries where the middle classes are vertical line represents an income of $10 a 10 growing. But they are not a homogeneous day, which is where Mr Bhalla considers group, so their impact varies. A middle 0 the middle class to start. In 1980 there was class that has grown largely to tend to the 1820 90 1913 38 50 60 80 90 2000 06 hardly anyone beyond that line. The lop• state will behave di erently from one that Source: Surjit Bhalla, “The Middle Class Kingdoms sided bell shape represents the distribu• of India and China” (forthcoming) is based on the private sector. tion of income in a country (in this case, China) with a tail of poor people on the The one•third rule has the makings of a global class whose left, a longer tail of rich ones on the right But who, as a patrician British prime minis• members have as much in common with and a bulge of people on average incomes ter, Harold Macmillan, once loftily asked, each other as with the poor in their own in the middle. are these middle classes? Their members countries. It is growing fast, but still makes As the economy grows, the bell moves are neither rich nor poor but somewhere up only a tenth of the developing world. to the right and as it meets the threshold, a in•between. In countries long divided be• You could call it the global middle class. great whoosh of people cross into the mid• tween lord and peasant, that has large con• The other, more numerous, group con• dle class. In reality, growth may be even sequences. ŒMiddle•class describes an in• sists of those who are middle•class by the faster because the shape of the bell has come category but also a set of attitudes. In standards of the developing world but not been changing. According to new research the words of Shashi Tharoor, an Indian the rich one. Some time in the past year or by Martin Ravallion, the director of the commentator, it is a category Œmore socio• two, for the †rst time in history, they be• World Bank’s development research logical than logical. came a majority of the developing world’s group, income distribution in developing An essential characteristic is the posses• population: their share of the total rose countries started to shift between 1990 and sion of a reasonable amount of discretion• from one•third in 1990 to 49% in 2005. Call 2005. The bulge in the middle of the range ary income. Middle•class people do not it the developing middle class. got bigger, making the bell taller, so the live from hand to mouth, job to job, season Using a somewhat di erent de†ni• middle class is growing even faster. to season, as the poor do. Diana Farrell, tion‹those earning $10•100 a day, includ• At a certain stage it starts to boom. That who is now a member of America’s Na• ing in rich countries‹an Indian economist, stage was reached in China some time be• tional Economic Council but until recently Surjit Bhalla, also found that the middle tween 1990 and 2005, during which period worked for McKinsey, a consultancy that class’s share of the whole world’s popula• the middle•class share of the population has spent a lot of time studying the middle tion rose from one•third to over half (57%) soared from 15% to 62%. It is just being classes, reckons they begin at roughly the between 1990 and 2006. He argues that reached in India now. In 2005, says the rep• point where people have a third of their in• this is the third middle•class surge since utable National Council for Applied Eco• come left for discretionary spending after 1800. The †rst occurred in the 19th century nomic Research, the middle•class share of providing for basic food and shelter. This with the creation of the †rst mass middle the population was only about 5%. By 2015, allows them not just to buy things like class in western Europe (see chart 2). The it forecasts, it will have risen to 20%; by fridges or cars but to improve their health second, mainly in Western countries, oc• 2025, to over 40%. care or plan for their children’s education. curred during the baby boom (1950•1980). Usually, an income of that size requires Sweet spot regular, formal employment, with a salary Homi Kharas, of the Brookings Institution, and some bene†ts, that is, a steady job‹an• Asia’s return 3 a think•tank in Washington, DC, argues other key middle•class characteristic. The Middle-class population as % of world total that the point at which the poor start enter• income needed to have a third of it left West Asia ing the middle class in their millions is the over after meeting basic needs also varies Œsweet spot of growth. It is the moment 80 from place to place. In China, for example, when poor countries can get the maxi• $3,000 a year may be enough in Chong• mum bene†t from their cheap labour 60 qing or Chengdu, big cities in the west, but through international trade, before they not in Beijing or Shanghai. So de†ning the 40 price themselves out of world markets for middle class in absolute terms is hard (see cheap goods or are able to compete with box, previous page). 20 rich countries in making high•value ones. In practice, emerging markets may be It is also almost always a period of fast ur• said to have two middle classes. One con• 0 banisation, when formerly underem• sists of those who are middle class by any 1700 1850 1950 1980 2006 ployed farmers abandon what Marx called standard‹ie, with an income between the Source: Surjit Bhalla, “The Middle Class Kingdoms Œthe idiocy of rural life for the cities to of India and China” (forthcoming) average Brazilian and Italian. This group work in manufacturing, boosting their pro•1 4 A special report on the new middle classes The Economist February 14th 2009

2 ductivity many times over. Eventually this have profound social consequences, as al improvement. results in a lessening of income inequal• happened in previous middle•class surges. Marx, who admired Malthus, was ities because the new middle class sits Close to the creation of the world’s †rst equally astonished by the emergence of somewhere between the rich elite and the mass middle class in early 19th•century the middle class. As he wrote in the ŒCom• rural poor. England, Thomas Malthus (the political munist Manifesto: The surge across the poverty line is a economist who scared the world with his Historically it has played a most revolution• period of accelerating growth both for the forecasts of overpopulation and food ary part. The bourgeoisie, wherever it has got new middle class and for the country it in• shortages) wrote that Œit is probable that the upper hand, has put an end to all feudal, habits. That should continue for a couple extreme poverty or too great riches may be patriarchal, idyllic relationsðIt has accom• of decades. By most estimates, the global alike unfavourable [to furthering the pro• plished wonders far surpassing Egyptian pyr• middle class will more than double in gress of mankind]. The middle regions of amids, Roman aqueducts and Gothic cathedralsðThe bourgeoisie has through its number between now and 2030. This will society seem to be best suited to intellectu• exploitation of the world market given a cos• mopolitan character to production and• consumption in every countryðAll Mostly middle-class now 4 old•established national industries have Changes in China’s income distribution, % of population* been destroyed or are daily being destroyed. 1980 1995 2008 They are dislodged by new industries, whose MIDDLE-CLASS MIDDLE-CLASS MIDDLE-CLASS introduction becomes a life•and•death ques• THRESHOLD, $3,900 THRESHOLD, $3,900 THRESHOLD, $3,900 tion for all civilised nationsðIn place of the 60 60 60 old wants, satis†ed by the production of the 50 50 50 country, we †nd new wants, requiring for 40 40 40 their satisfaction the products of distant lands and climesðNational one•sidedness 30 30 30 and narrow•mindedness become more and 20 20 20 more impossible, and from the numerous na• 10 10 10 tional and local literatures there arises a world literature. The bourgeoisie, by the rap• 0 0 0 id improvement of all instruments of pro• 250 1,00020,000 150,000 250 1,000 20,000 150,000250 1,000 20,000 150,000 † † † duction, by the immensely facilitated means Annual income per person, log scale, $ Annual income per person, log scale, $ Annual income per person, log scale, $ of communication, draws all, even the most Source: Surjit Bhalla, “The Middle Class Kingdoms of India and China” (forthcoming) *At each income level †2008 prices at purchasing-power parity barbarian, nations into civilisation. 7 Beyond Wisteria Lane

Scott Fitzgerald was wrong. It is not the rich who are di erent but the middle classes

N 1943 Abraham Maslow, an American mid too, argues Brink Lindsey of the Cato picket fences. Lampooned for its uniformi• Ibehavioural scientist, published an arti• Institute, a think•tank in Washington, DC. ty (ŒAnt•like conformity now a ordable, cle entitled ŒA Theory of Human Motiva• In America, says Mr Lindsey, material joked a satirical newspaper, The Onion), it tion in which he argued that people abundance has made people more self•ab• nevertheless in‡uenced suburbs the everywhere are subject to what he called a sorbed, changing the character of culture world over. Œhierarchy of needs. At the bottom are and politics. This is what happens when In ŒThe Levittowners, Gans claimed food and shelter, sex and sleep: elemen• people reach the top of the pyramid. De• that America’s new middle classes were tary physiological needs. Next come the veloping countries have yet to get there. thinking and acting very di erently from basic needs for safety and security. As long Once they have solved the problems of the working•class communities in which as these things are lacking‹as they are for food and security, suggests Mr Lindsey, the most of them had grown up. Those tradi• billions of the world’s poor‹the search for middle classes in those countries too start tional communities had been (to use terms them dominates every aspect of life. to turn to Œbelonging and Œesteem needs. popular at the time) Œpeer•group•direct• But once basic needs are met, people ed, taking their values and their outlook move up ŒMaslow’s pyramid to look for Suburban revolution from people in their immediate circle, such other things: what he called Œbelonging Sociological research has con†rmed that as family and co•workers. By contrast, needs (love, acceptance, aˆliation), Œes• improvements in material circumstances Gans argued, the middle classes were Œoth• teem needs (self•respect, social status, the change the behaviour and the thinking of er•directed, taking their cues not only approval of others) and at the top Œself•ac• whole groups. In 1967, within a generation from family and friends but from manag• tualisation (as he put it, Œa musician must of Maslow’s article, Herbert Gans wrote a ers in distant oˆces or from contemporar• make music, an artist must paint, a poet classic book, ŒThe Levittowners, which ies they had heard about through other must write if he is to be ultimately at peace described the changing mindset of Ameri• means, such as the mass media. with himself). ca’s new middle class. Levittown was the Peer•group people live by rigid codes Maslow was talking about individuals, original suburbia: a place of identical de• set by their village or trade union. ŒOther• but groups of people climb Maslow’s pyra• tached single•family houses with white directed folk are more ‡exible in their 1 The Economist February 14th 2009 A special report on the new middle classes 5

2 thinking. Mr Lindsey explains: ŒMiddle• words of Margaret Thatcher, a former Brit• tinctive group of its own. Both, he says, class life is built on abstract relations based ish prime minister: ŒWe were taught to have similar attitudes to the poor. Tradi• on shared valuesðWe are used to dealing work jolly hard. We were taught self•reli• tionally, the middle class has supported with people we don’t know in order to get ance. We were taught to live within our in• meritocracy and upward mobility, more something done and do it by abstracting come. Lastly, it is a society whose critical than the elite has done. Yet, according to away from the particular details of our characteristic, according to Justin Yifu Lin, Mr Varma, the Indian middle class shows background or personality. To use a fam• the World Bank’s chief economist, is Œaspi• little inclination to †ght the corruption, ous metaphor, the mind of the peer•group• ration, and the means to pursue it. It is a bad governance and incompetence that directed person is a gyroscope, pivoting on society of the new middle classes. hold back the poor and block upward mo• a single point; that of the other•directed bility through education. Unlike its peers person works like radar, taking in signals The muddle classes in other emerging countries, it has largely from near and far. So far, this report has looked at what the given up on public education, paying for Research based on opinion polls docu• new middle classes have in common, treat• private schools for its own children. ments the di erences between middle• ing them as a homogeneous group. But, as The most important division, however, class and working•class attitudes. The best• Lawrence James says about the British is probably between the middle class known work of this kind is the World Val• variety in his book, ŒThe Middle Class: A created by the actions of the state and its ues Survey run by Ronald Inglehart of the History, they are Œa sprawling, untidy or• equivalent created by its own e orts in the University of Michigan. It tracks attitudes ganism in a perpetual state of evolution. private sector. The †rst group contains to public institutions‹such as the govern• For example, Kellee Tsai, a professor at managers and white•collar employees of ment or the church‹and to broader social state•owned enterprises, accountants and matters, such as the role of women or chil• civil servants, and teachers and doctors in dren. As countries get richer (and, by impli• the public education and health systems. cation, more middle•class), the in‡uence The second group covers private entrepre• of traditional and religious authorities neurs, their employees and archetypal tends to fall away, though ŒWestern atti• small shopkeepers. tudes to personal and individual well•be• To see how much these groups di er, ing are slower to develop. Just as people consider economies in which oil plays a move up Maslow’s pyramid from Œsafety large part. Here the middle class is often to Œesteem, so countries rid themselves of puny or distorted. A 2003 survey by Ta• some traditional attitudes without adopt• tyana Maleva of the Independent Institute ing individualistic Western notions about for Social Policy in Moscow found that broader social mores. For this special re• only just over 20% of Russians were mid• port, The Economist asked the Pew Re• dle•class by income or occupation. De• search Center to document the opinions of pressingly, this was a smaller share than on the global middle class: the results, which the eve of the October revolution of 1917, con†rm the distinctiveness of middle• when a quarter of the population was esti• class attitudes, are summarised in the box mated to have been middle•class. In most on the next page. countries with Russia’s income levels the Mr Inglehart identi†es three kinds of middle class accounts for half the popula• society. The †rst is dominated by tradition• Thatcher set the tone tion or more. al attitudes to authority and holds inherit• The distortions in the Gulf states are ed religious and communal norms in great Johns Hopkins University, argues that even more conspicuous. Kuwait has both a esteem. The next is Œmodern society, there is no such thing as a coherent middle public•sector and a private•sector middle which covers the majority of middle•in• class in China. Her research shows that class, but they are totally separate. Over come countries. The last is what he calls two•†fths of Chinese private•sector entre• 95% of adult Kuwaitis work for the govern• Œpost•modern society, which values indi• preneurs were born to farming families; ment, usually in white•collar civil•service vidual and subjective well•being above all one•†fth come from families of ordinary jobs. The emirate also has a thriving priv• else and downplays authority of any kind. workers; and about 15% are children of gov• ate•sector middle class, but it consists al• ŒModern society stresses the impor• ernment oˆcials or enterprise managers. most entirely of foreigners. tance of economic growth and upward Their attitudes to China’s Communist Considered as a group of consumers, a mobility. It is shifting away from tradition• party vary widely, from enthusiastic sup• middle class created by the state is unlikely al acceptance of established authority and port to overt opposition, with the majority to behave any di erently from a private• putting more emphasis on law and rights. accepting the status quo. She also points sector middle class. Its members will buy It engages in a wider debate of policy and out that private•sector entrepreneurship the same branded goods, save up for the politics. It is the kind of society in which takes di erent forms in di erent regions of same houses, sign up for the same credit people hope their children will do better the country. So the term Œmiddle class cards and aspire to put their children into than they have done themselves; which covers a multitude of di erences. the same schools. But there are question believes in merit, not privilege; competi• Pavan Varma, the director•general of marks over whether the public•sector sort tion, not inheritance; thrift, not conspicu• the Indian Council for Cultural Relations, has the same entrepreneurial drive, politi• ous consumption; and which applauds also thinks that in at least one respect the cal impact or capacity to sustain high eco• personal e ort rather than collective en• middle class of his own country behaves nomic growth over time. deavour. It is a society summed up by the more like members of its elite than as a dis• Brazil o ers a case study in the di er•1 6 A special report on the new middle classes The Economist February 14th 2009

2 ences between a middle class created by search, says it shows Brazil has at last be• America. ŒBut it was the result of state poli• the state and one that owes more to the come a middle•class country after decades cy, not growth. Income inequality also private sector. In 2008 Brazil became a of e ort. rose dramatically. By the 1980s Brazil had middle•class country by its own reckoning. The †rst big growth spurt took place in become the world’s most unequal society. In April of that year Brazilians with house• the 1960s behind high tari walls. The mid• Moreover, the economy was prone to hold incomes ranging from 1,064 reais to dle class expanded fast thanks to jobs in slumps and episodes of hyperin‡ation. 4,561reais a year, which is the middle of the state•owned companies, the public educa• That made the middle class poorer (not country’s income range, were found to tion system and the bloated civil service. least by destroying its savings) and caused make up nearly 52% of the population, up ŒWe grew the middle class faster than it to rebel. ŒOur middle class was no longer from 44% in 2002 and only one•third in would have been possible with pure mar• willing to live in a closed society, says Mr 1993. Marcelo Neri of the Getulio Vargas ket forces, says Marcelo Giugale, the Giugale. ŒPeople have become more outgo• Foundation, which carried out the re• World Bank’s chief economist for Latin ing and technologically savvy. They don’t 1

A special poll on middle•class What do you think? attitudes

CONOMIC studies of the middle class• (see chart 5). The middle class is also far Ees are plentiful, but opinion•poll re• Happy medium 5 more likely than the poor to expect a bet• search‹especially involving internation• Life satisfaction, 2007, % ter life in future. These †ndings qualify the al comparisons‹is thin on the ground. So Middle income Low income common view that economic growth un• The Economist asked the Pew Research leashes myriad discontents. Center to trawl through its Global Atti• 0 30 60 90 The Pew survey also provides evi• tudes database for this special report. South Africa dence to support two other arguments put Pew looked at 13 middle•income coun• Malaysia forward in this special report. One is that tries in which the middle class is large or the middle class varies a good deal from Bulgaria growing and classi†ed their responses to place to place. The gap in attitudes be• questions about religion, democracy, life Poland tween the global middle class and the satisfaction, homosexuality and the envi• Russia poor seems greater in most of eastern Eu• ronment by income. The threshold it used Egypt rope and Spanish•speaking Latin America for Œmiddle•classness was a self•report• than in, say, Egypt, India and Brazil. The ed income of $4,286 a year in 2007 PPP Brazil second is that the middle class supports dollars, consistent with the range of Chile democracy, which the poll bears out. Giv• $4,000•17,000 a year used by the World Mexico en widespread scepticism about this, it is Bank. Pew then compared these answers perhaps the most striking †nding of all. Argentina with the rest of the sample. Its middle• Middle•income people are more likely class group included the rich (de†ned as India than the poor to say they want competi• those with over $17,000 a year), but their Venezuela tive elections with at least two parties; numbers were not statistically signi†cant. Ukraine more likely to demand fair treatment un• The survey therefore compares the atti• der the law; and more disposed to back tudes of the global middle class with Source: Pew Global Attitudes Survey freedom of speech and the press. How• those of the poor in the same countries. ever, their attitudes about politics do not Andrew Kohut, the Pew Research Center’s tions as important (by an average of 8 di er quite as much from those of the president, describes it as Œthe most com• points); somewhat more concerned about poor as they do on religion, homosexual• prehensive analysis of the ways in which global warming; and less religious than ity or happiness. It is also true that these the middle class in emerging markets dif• the poor (for full results, see pewglo• indicators are blunt instruments for de• fers in its attitudes to life and society. bal.org/middleclass). scribing often subtle attitudes. The di erences can be large. In half of The biggest di erences are in so•called Still, the †ndings are consistent across all responses there was a gap of †ve to 15 Œlife satisfaction. Asked to rate their per• all questions and across all countries percentage points between the answers sonal position on a ten•point scale of sat• (even in Russia, where backing for democ• given by the middle class and by the poor. isfaction, middle•class respondents are far racy is low, half the middle class supports For example, 52% of middle•class Venezu• more likely to put themselves near the top fair elections, compared with barely a elans but only 42% of poor ones say ho• than are poor ones. The †nding is consis• third of the poor). The poll, concludes Mr mosexuality should be accepted as a way tent with polls showing that countries Kohut, shows that Œwhen they make it of life. The middle•class di erences run tend to become happier as they get richer. into the middle class, people in emerging mostly in the same direction. The middle But the di erences in current satisfaction markets want the kind of governance as• class is more likely to see competitive elec• are bigger than might have been expected sociated with rich nations. The Economist February 14th 2009 A special report on the new middle classes 7

2 want their kids left behind by what the rest of the world knows. This is the middle class of satellite dishes and political activi• ty. If you want to be middle•class now, you have to earn it; you can’t have a state that creates a middle class as you could 40 years ago. Private•sector growth and openness to trade has so far proved a more reliable en• gine of growth for the middle class than the old state•directed version. Between 2001 and mid•2008 Brazil experienced a long period of growth with low in‡ation, something it never managed in its earlier stop•start period. By squeezing in‡ation out of the econ• omy, argues Santiago Levy of the Inter• American Development Bank, Brazil has enabled people to expand their planning horizons and take out credit, which has Where’s the †le with the entrepreneurial drive? soared. This has allowed a new middle class‹a younger generation, mostly in that accompanied the earlier period of crease in political stability. If the next presi• their 30s and 40s‹to start building up as• state•led middle•class expansion. The Gini dential election is held in 2010, as planned, sets. By encouraging growth and improv• coeˆcient, a measure of income inequali• it will be the fourth one in a row to be con• ing the labour market, Brazil has greatly ex• ty, fell from 0.628 in 2003 to 0.584 in early ducted under the same rules. The last time panded the number of jobs in the formal 2008, which by the standards of this index that happened was in the 19th century. economy (which matters because its infor• amounted to a social revolution. Vinod Brazil’s economic record is not all jam. mal sector is unusually large). Formal jobs, Thomas, the World Bank’s former country As Marcelo Carvalho of Morgan Stanley with health and pensions bene†ts, are a director in Brazil, reckons the lessening of argues, the country owes more of its recent middle•class preserve. In the †rst quarter income inequality has come in roughly growth to the commodity boom than its of 2008 Brazil’s six largest cities created a equal measure from cash transfers to the policymakers realise, which suggests that record number of new jobs. Mr Neri talks poor, better education and jobs growth. it is more vulnerable to the downturn in of Œthe return of the carteira de trabalho Brazil’s poorest provinces are growing fast• raw•material prices than its leaders think. (the employment registration book that er than its richer ones, helping to narrow Even so, seen through the eyes of the mid• comes with a formal•sector job). the gap between its rich and its poor re• dle class, recent times compare favourably Moreover, thanks partly to a govern• gions (whereas the opposite is true in India with the period of economic take•o in the ment cash•transfer scheme called Bolsa Fa• and China). 1960s. In Brazil, the middle class is at last milia, aimed at the poor, Brazil has re• The emergence of a new middle class in delivering on its long•standing promise of versed the vast rise in income inequality Brazil has gone hand in hand with an in• growth, stability and equality. 7 Notions of shopkeepers

Why the new middle classes are so good for their countries’ economies

OST Western businessmen think the tional design•award winners: the Apple packs of washing powder‹22 products in Mmiddle class in emerging markets store a cool glass box, the Adidas one a jag• all. The family also runs a scrap•metal busi• matters because of its spending potential. ged shard of orange and ochre, all arranged ness and earns between $2 and $4 a day. One day those billions of Chinese, Indians around the obligatory skating rink. During a two•hour visit, two customers and Brazilians will be buying awesome It’s magni†cent, but it is not the typical came by. One bought a box of incense, the quantities of toothpaste or computers. A middle•class shopping experience. A more other a single cigarette. global consumer society will be born. representative specimen can be found in Yet between them the village shop• Walking around the stores of Sanlitun central India, a †ve•hour drive from Hyder• keepers and the yuppie shoppers are Village, a shopping mall in central Beijing, abad, on the outskirts of Gulbarga in Kar• changing the economies of both their it is tempting to imagine that those dreams nataka state. This shop, described by Abhi• home countries and the globe. Surjit are already coming true. Young Chinese jit Banerjee and Esther Du‡o, is a dimly lit Bhalla reckons that the larger a country’s couples dressed to the nines ogle the latest corner of a family house. The goods are middle class, the faster its economic computers and BMWs. The architecture kept in plastic jars: one of snacks, three of growth: according to his calculations, a na• looks like a collection of recent interna• sweets, two of chickpeas, 20 teabags, three tion’s growth rate rises by half a point ev•1 8 A special report on the new middle classes The Economist February 14th 2009

2 ery time the size of the middle class in• echo the tastes of the English middle class classes who currently ride motorbikes. But creases by ten percentage points (so if a 150 years ago. They want travel, improved if it does take o , it could change car•buy• country’s middle class accounts for 50% of health services, private schools and better ing habits around the world. At one•†fth of the population, it will, other things being public infrastructure. Like the Victorians, the price of a cheap family saloon in the equal, have a growth rate one percentage they are also keen on self•improvement. West, some American or European fam• point higher than a country whose middle On one (conservative) estimate, 30m Chi• ilies might decide to buy two or even three class makes up 30%). nese children are learning to play the pi• Nanos instead. Bill Easterly of New York University ano. ŒThe discipline will be good, says A similar story has emerged in banking. reaches similar conclusions, though he de• one proud mother. On a more frivolous ICICI, an Indian bank, has cut the transac• †nes the middle class di erently. ŒCoun• note, Brazil is number one in the world for tion costs of banking to far below those of tries with a middle•class consensus, he liposuctions, number two for plastic sur• its competitors by adding lots of new fea• says, Œhave higher levels of income and geries (after America) and number four for tures to mobile•phone banking and cutting growthðmore human capital and infra• the number of gyms. out layers of waste, says the bank’s Mr Vai• structure accumulationðbetter economic But as Diana Farrell points out, the real• dyanathan. Just †ve people manage the policies, more democracy, less political in• ly transformative thing about middle•class 250,000 daily transactions processed by stability, a more ‘modern’ sectoral struc• consumption is the signal it sends to pro• ICICI Direct, its online share•trading arm. ture and more urbanisation. On his mea• ducers. The demands of middle•class con• The cost of mobile•phone banking in India surement, an increase of one standard sumers in the developing world feed in• is roughly one•third of what it is in Ameri• deviation in the middle class’s share of na• vestment in new sorts of production, ca. This has made it possible for ICICI to tional income is associated with one extra which raises income levels and changes reach previously unbanked customers in percentage point of growth per person. the way business is conducted. India’s second• and third•tier cities, reap• Why should the middle class encour• The best•known example is the Nano, ing further economies of scale. Last year it age growth? The simplest explanation is the $2,500 car designed by India’s Tata Mo• added 4m new customers. that it doesn’t. The middle class and tors. Until it made its appearance, nobody Seen as a market, the new middle class growth go hand in hand because they are in the automobile business believed that in emerging countries is still relatively both results of something else: economic you could design a proper car that sold for poor but very large, so it provides incen• policies. In essence, the policies that made less than about $5,000. By radically simpli• tives to o er things that are cheap and can possible China’s vast increase in wealth fying production and by stripping down be sold in their millions. In terms of its total over the past 30 years were determined by the design, Tata’s engineers managed to cut spending power, though, it still lags well just one man: Deng Xiaoping. There was that supposed ‡oor price in half. behind its peers in the rich world; nor is no frustrated incipient middle class urging There is no guarantee that the Nano that likely to change soon. According to a change in 1978. It was a similar story in In• will succeed. It has been plagued by well• World Bank study in 2007, the rich (in this dia in 1991: the middle class grew bigger publicised production problems. It may instance meaning everyone with an in• thanks to the willingness of Manmohan not satisfy its target market, being too come per person above the average for Ita• Singh, then the †nance minister, to tear up cheap for the rich who can a ord tradition• ly, wherever they live) accounted for 57.5% the ŒLicence Raj. At †rst shrug, the expan• al small cars and too dear for the middle of total world income in 2000, a †gure that sion of the middle class seems to be a con• is likely to rise to 69% by 2030 (because the sequence of change elsewhere, not a cause ranks of the rich are swelling, too). The of anything in its own right. share of world income taken by the global middle class (on $13•50 a day), at 14%, will Avid consumers remain more or less ‡at between 2000 and Yet there is a handful of reasons for think• 2030. So its role in consumption can be ing that something special about the mid• only part of the story. dle class itself‹some intrinsic quality of middle•classness‹contributes to growth, Keen investors eˆciency and the enrichment of a society. To grasp the true economic signi†cance of The most common argument is that the the global middle class, says Daron Ace• middle class matters because it does a lot moglu of the Massachusetts Institute of of consuming. Technology (MIT), you have to look at the The new bourgeoisie has created an second main reason why it contributes to enormous market, even if you ignore wild growth. It is more committed than the elite extrapolations about the future. In 2008 to a mixed, competitive economy. the number of cars sold in the big emerg• For many rulers in poor and middle•in• ing markets exceeded that sold in America come countries, political control is based for the †rst time. In 2007 India had slightly on control of resources, especially land. more mobile•phone users than America The aristocrats of pre•industrial Europe and China had more than twice as many. were all landowners. Nowadays the same Since 1994 business services in a range of sort of political control is exercised in oil• emerging markets including India and Bra• rich economies through control of the oil• zil have grown by 250•700%; in Europe and †elds and the distribution of oil wealth. America they have roughly doubled. An elite that depends on land or raw The newly a‰uent in emerging markets In the pink materials, argues Mr Acemoglu, tends to be1 The Economist February 14th 2009 A special report on the new middle classes 9

2 wary of new economic activities that white•collar workers in general). The rich• might compete with its source of wealth er the country, the higher its human capi• and erode its political power. And since tal, and vice versa. openness to foreign ideas is the single most Education is high on any list of middle• important source of new technology and class values. Around the world, parents skills in developing countries, a reluctance scrimp and save to send their kids to to invest in new things is also likely to keep school and compete with one another to an economy more technologically back• get into the best schools. The middle class ward, less skilled and more inward•look• invests more in the next generation than ing. This can suit the elite perfectly well. do either the poor or, in one way, even the Consider Russia since the Kremlin elite rich. Middle•class families do not take their expanded its in‡uence over the oil sector children out of school to work in the †elds under Vladimir Putin (who is now prime or in a sweatshop because they do not minister). The oil industry has lost foreign need the tiny extra income a child’s labour technical input, the country has become brings in. In several countries, school en• less open to the outside world and the in• rolment rates for children aged seven to 12 ‡uence of the middle class, already weak, in families earning $6•10 a day are twice as has ebbed further. The Kremlin regards this high as in families on less than $2. Mem• as a success. Learning curve 6 bers of the middle class are also more like• Unlike the Kremlin, the emerging•mar• Children aged 13-18 in school ly to let their children stay on at school as ket middle class does not have a political % of total, 13 emerging countries, urban sample teenagers, especially if they live in cities. monopoly to defend. Its members are 100 Among the rural poor, fewer than half therefore more willing to invest in busi• have children aged 13•18 in education, Girls nesses and technologies that might o er 80 whereas among those living in cities and Boys competition to the elite; they are also more earning over $2 a day the †gure is over 60 likely to be open to the outside world. So three•quarters (see chart 6). middle•class growth, trade openness and 40 The rich in emerging markets certainly new businesses tend to go together. That is believe in educating their own children. in evidence in China, whose elite is not 20 But they often do not support universal gorging itself on oil money. There, the cities 0 public education, for fear that this will lead of the eastern seaboard, especially in the $1 $2$2-$4 $6-$10 to demands for more democracy and chal• Yangzi and Pearl river deltas, are the fastest• Parental income lenges to their political dominance. The Source: Abhijit Banerjee and Esther Duflo growing, most technologically advanced, middle class in most countries strongly most open and also most middle•class ar• backs state schools. eas of the country. building, labour•intensive ones like As you would expect, middle•class Thanks to this middle•class predilec• making T•shirts and farming, and low•cap• families also spend proportionately more tion for investment, China has been able to ital but high•skill ones such as informa• money than the poor on their children’s tread a classic path towards increasing the tion•technology services. The mix partly education. Mr Banerjee and Ms Du‡o sift• value of its exports. Starting in the 1980s re‡ects the Indian middle class’s willing• ed through household•spending accounts with labour•intensive activities like simple ness to invest in almost anything. in 13 developing countries and found that plastic assembly and mass•market textiles, in Nicaragua, for example, those on less it moved into more capital•intensive but Creating human capital than $1a day spent 5.6% of their income on low•margin electronics and consumer But aptitude for investment is only part of schooling; those on $2•4 a day spent 8.6%; goods in the early 2000s and is now trying what makes the middle class important to and those on $6•10 about 9%. Mexico, Peru, to move further up the chain into higher• economic growth. Mr Banerjee of the Indonesia and Panama all showed a simi• value electronics and business services. A MIT’s Poverty Action Laboratory, who lar pattern. single town half•way between Shenzhen with Ms Du‡o did an extensive analysis of Part of this extra money goes on keep• and Guangzhou, in an area which used to the emerging world’s middle class, lists ing children at school for longer, but most be all collective farms, started o making three more characteristics that are just as is spent on private•school fees or on priv• toys in township and village enterprises vital. ate tutors after school hours. Especially in and by 2002 was producing 40% of the First, the middle class is committed to India, private schools (many costing as lit• magnetic recording heads used in hard• education. Current theories about eco• tle as 50 cents a day) are springing up disk drives throughout the world. nomic growth stress the importance of everywhere. According to one study, two• Something similar is happening in In• what economists call Œhuman•capital ac• †fths of all boys of secondary•school age dia, albeit in a more confusing manner. cumulation. Human capital means more in urban India are getting some after• Whereas China exports a relatively nar• children at school and university, higher school tutoring. row range of products, India exports all educational quali†cations, more adult Moreover, these numbers understate kinds of goods, ranging from those typical• education and healthier lives. The more how much middle•class people are spend• ly made by very poor countries to those advanced the economy, the more educated ing per child. In emerging markets, Mr Ba• produced by very rich ones, and every• people are needed to control the processes nerjee and Ms Du‡o found, middle•class thing in•between. It has huge capital•inten• of wealth creation (more computer design• families have fewer children than the poor. sive businesses such as steel and ship• ers, more logistics technicians and more Among the very poorest (those scraping by1 10 A special report on the new middle classes The Economist February 14th 2009

2 on less than $1 a day), the number of chil• to invest in new businesses and more will• deed, by the poorer end of the middle dren in the household ranged from 1.8 to ing to learn new ways of doing things. But class‹remain resolutely small. Hardly any 3.6 per adult woman. In families that live that is only part of a wider picture. of the companies owned by people earn• on $6•10 per person, the average number The middle class is more numerous and ing less than $10 a day surveyed by Mr Ba• of children per household was between 1 more heterogeneous than the rich, and nerjee and Ms Du‡o had more than three and 1.3 (these †gures do not include China therefore more likely to produce both a employees. Most were run by one person. so they are not in‡uenced by that coun• mass of hard•working business people To create companies that employ tens or try’s one•child policy). The middle class and a few exceptional entrepreneurs: peo• hundreds of people, you need hundreds or spends substantially more on each child. ple such as Nandan Nilekani, one of the thousands of dollars. If, say, a talented car The same sort of thing is happening in founders of India’s Infosys and Forbes mechanic in central India or north•west health care, another aspect of human capi• magazine’s Businessman of the Year for Brazil wanted to set up a string of garages, tal: middle•class people lead healthier Asia in 2007; or Li Qinfu, a former Red he might well need $10,000•worth of lives than the poor, go to the doctor more Guard who built a miniature replica of equipment. In the absence of a sophisticat• often and spend more per visit. If investing America’s Capitol in Shanghai as head• ed banking system, his chances of borrow• in human capital is the key to growth, then quarters for his textile and manufacturing ing that sort of money would be remote. a large middle class will make that key easi• conglomerate‹and put a three•tonne stat• So setting up new companies of any size er to †nd. ue of himself on the top. usually requires resources available only Most importantly, argues Mr Banerjee, to the rich‹who may not be interested‹or Natural entrepreneurs the cream of the middle class is a better to the well•o middle class. Infosys was The middle class’s third distinctive contri• source of entrepreneurship than the poor created by seven people from this sort of bution to growth is its gift for entrepreneur• because it can set up companies big background. One was the son of a school• ship. ŒArmed with a capacity and a toler• enough to create lots of jobs. Pro†table in• teacher, another the son of a textile•mill ance for delayed grati†cation, says Mr vestments often incur substantial †xed manager. A third pawned his wife’s jewels Banerjee, new entrepreneurs Œemerge costs. The dream of a couple of college kids to help raise money. Infosys now employs from the middle class and create employ• with a few savings creating an Apple com• 91,000 people. ment and productivity growth for the rest puter in a garage could come true only in a The middle class’s last distinctive con• of society. rich country, with a big †nancial sector and tribution to growth comes through its sup• The middle class is better at entrepre• a low•cost distribution system. Emerging port for the right economic policies and its neurship than the elite partly for the rea• markets do not have those. backing for democracy. That is the subject sons cited by Mr Acemoglu: it is more likely Businesses owned by the poor‹and, in• of the next article. 7 The other Moore’s law

ŒNo bourgeoisie, no democracy; Barrington Moore may have had a point after all

n December 2008, 300 people in China the charter, discussion of it quickly spread lishing a democracy. Some of them think Irisked arrest to sign and distribute a doc• on the internet, the favourite medium of that the poor are more in‡uential, others ument called Charter 08. It demanded the China’s new middle class. Within a week that the main actors are particular individ• abolition of Communist Party rule, free 5,000 people had added their signatures. uals, not social groups. In much of the elections, a new constitution, separation The appearance of Charter 08 came post•communist and developing worlds, of powers, an independent judiciary and against what might be called the run of the giddy hopes for liberal democracy that freedom of expression, assembly and reli• play in politics in China and elsewhere in grew up after the Berlin Wall came down gion. Charter 08 was not a speci†cally mid• the developing world. The middle class have given way to a period of disappoint• dle•class manifesto. Its most notable‹and, used to be seen as the single most impor• ment and democratic stagnation. Despite to the Communist government, alarming‹ tant force in democratisation. Even Mal• the huge growth in the middle class, the feature was the wide range of those who thus had argued that Œif we could †nd out a number of elected democracies world• had signed it: farmers, former party oˆ• mode of government by which the num• wide, as tracked by Freedom House, an cials, dissidents from the Tiananmen bers in the extreme regions [ie, rich and American advocacy group, has been ‡at Square era, a Tibetan blogger. poor] would be lessened and the numbers since the mid•1990s. But the signatories did include repre• in the middle regions increased, it would China’s 800m•strong new middle class sentatives of China’s new middle class, es• be undoubtedly our duty to adopt it. In has conspicuously failed to rise up against pecially lawyers active in the so•called 1966 Barrington Moore, an American histo• its rulers. Russia’s smaller, weaker middle Œrights movement who take up cases in• rian, pithily summarised decades of schol• class seems to have colluded in the reversal volving property law and environmental arly opinion in his formula, Œno bourgeoi• of hard•won but fragile freedoms: hence protection. The document calls for the pro• sie, no democracy. the popularity (across all classes) of Mr Pu• tection of private property, a quintessen• But that view has been changing. tin. In both countries, middle•class fear of tially middle•class concern everywhere. Moore’s academic successors increasingly instability seems to have trumped demo• Although the oˆcial media sti‡ed news of see the middle class as marginal to estab• cratic impulses. Their middle classes have 1 The Economist February 14th 2009 A special report on the new middle classes 11

Chinese Academy of Social Sciences ar• gues that the spread of the net is transform• ing what the middle class knows about the world and how its members interact with one another. Large majorities of users say the internet helps them understand poli• tics better and in‡uence political leaders more. And though the government cen• sors and controls the net, he says, it can do so only at the margin. Perhaps most importantly, the middle class has in‡uenced the aims and make•up of the party itself. China’s Communist Party used to be a strongly ideological in• stitution dominated by farmers and indus• trial workers. Now most of the top party Divided by headscarves, and much else leaders are engineers and other profes• sionals. It has set up a rigid career structure 2 also provided some particularly ugly man• brutal military o ensive against the Tigers in which leaders are identi†ed early and ifestations of aggressive nationalism: for by the Sri Lankan armed forces. sent to show their mettle in minor regional example, during the controversy over the In sum, the record suggests that a thriv• posts before re•emerging at the top, like Olympic torch for last year’s Beijing ing middle class is not a suˆcient condi• sons of factory owners learning the ropes Games, and in Russia’s war on Georgia. tion for democracy. China has a middle before inheriting the business. The party is Middle classes in other emerging coun• class without a democracy. Nor is it a nec• obsessed with quali†cations: its leaders all tries, faced with the disputes and strains of essary one. India had a democracy before seem to have postgraduate degrees, often democratisation, seem more likely to it developed a middle class. from America. It is strongly corporate, hier• deepen political divisions than to resolve archical and career•oriented, resembling them. That is what has happened in Thai• Mutual in†ltration nothing so much as any great American land, where, after a year•long political im• Yet that does not mean to say that the mid• corporation in the 1950s. This is mutual in• passe, the middle class split between the dle class has only a marginal role in creat• †ltration. The party keeps tabs on the mid• urban groups of Bangkok, many of which ing or sustaining democracy. Its prefer• dle class; the middle class in‡uences the allied themselves with the royalist elite, ences are clear. As the Pew poll mentioned party. China’s middle class has remade and their peers in the smaller cities and the earlier in this special report found, the mid• Mao’s party in its own image. countryside, who linked up with farmers dle class consistently supports a competi• So what is it about the middle class that and with the political groupings of Thak• tive democracy and freedom of speech in‡uences politics? To oversimplify, its cru• sin Shinawatra, a former prime minister. and the press. But its actual in‡uence is of• cial feature is heterogeneity. Compared This split has undermined democracy. ten indirect, patchy and dependent upon with the poor and the rich, the middle Something comparable can be seen in other groups. This is true even in China, class contains a greater range of interests. It Turkey, where legal disputes over the wear• which is always cited as evidence that covers a wide range of occupations: soft• ing of headscarves in public buildings and there is no link between democratisation ware engineers, shopkeepers, teachers and over the legality of the ruling AK party and the existence of a middle class. all the manifestations of economic com• have pitted the secular•minded middle Over the past few years China has been plexity. On the widest de†nition, it covers class of Istanbul against the new, more de• swept by two broad social changes, both everyone from the almost poor, on $2 a vout middle class of Anatolia. In South Af• of which re‡ect middle•class in‡uence. day, to the almost rich, on $100 a day. It in• rica, the split within the ruling African Na• One is the Œrights movement in which cludes people with barely a foothold on tional Congress can be linked to China’s new generation of private•sector the economic system and those who are dissatisfaction with its performance by the lawyers is taking up cases of abuse of pow• pillars of it. Œblack diamonds, South Africans who er, usually by local party oˆcials, and chal• have worked their way up into the middle lenging them in the courts. It has been es• Fifty•seven varieties class since the end of apartheid. pecially active in environmental cases, Because of this variety, the middle class is Worst of all, the middle class has some• where lawyers are †ghting a rearguard ac• driven by a wider range of concerns than times contributed to the most brutal vio• tion on behalf of communities a ected by either the poor‹whose main worry is the lence. Kenya is probably the most middle• environmental degradation, and in prop• need for more money‹or the elite, who class country in East Africa but that did not erty•law disputes, where the vast expan• concentrate on defending their political or prevent it, in early 2008, from descending sion of home•ownership has caused many economic position. The middle class is not into horrendous tribal strife. Sri Lanka and con‡icts between the new owners and a narrow special•interest group in the the Indian state of Tamil Nadu are two property developers or the state. same way. places in South Asia where the middle The other social change has been the This heterogeneity is important. One class has thrived most. But the Tamil mid• growth of the internet. Last year China test of that importance is what happens dle class has helped to †nance a terrorist overtook America as the country with the when it is absent, or thought to be absent. group, the Tamil Tigers, and now the Sin• largest number of internet users. Most of For example, the Turkish elite fears that the halese middle class is cheering the no less them are middle•class. Guo Liang of the new ŒMuslim middle class (the economi•1 12 A special report on the new middle classes The Economist February 14th 2009

2 cally successful groups from Anatolia who sometimes with the rich. That does not public education‹but also things that ben• support the AK) is not heterogeneous but guarantee the emergence of democracy, e†t the nation, notably the decision in 1991 merely acts as a single•minded Trojan but the presence of a large, varied middle to liberalise the economy. Because the mid• horse for Islam. Hence the elite’s extreme class does make democracy more attrac• dle class contains so many competing in• suspicion of those groups. Where the mid• tive than if a country is dominated by just terests, patronage politics‹handing out dle is not seen as heterogeneous, the poli• two classes. As Aristotle said, Œthe best po• goodies to a favoured few‹can end up tics of the country is often divisive. litical community is one in which the mid• hurting as many members of the group as But where variety is the rule (as it usual• dle class is in control and, if possible, out• it helps, so it becomes less tempting. ly is), it has two main e ects. First, says numbers the other two classes. Members of the middle class agree on a MIT’s Daron Acemoglu, a heterogeneous Such a large, varied middle class en• few basic things. Because they have a stake middle class makes the elite less fearful of courages new policies, often (though not in the economy and want things to be bet• democracy than it would otherwise be. always) more liberal ones. To oversimplify ter for their children, they support pro• The elite fears democracy not just because again: the characteristic political demand growth policies: cautious liberalisation, in• it might mean giving up its position of of the poor is for transfers. They want a vestment in public goods, open trade. Be• power (which actually does not always fol• new well in the village or electricity for the cause their assets are small compared with low) but also because of the potential ef• slums. This encourages a politics of patron• those of the rich, and comparatively vul• fect on its wealth. Land is easy to tax, so a age. The characteristic political demand of nerable to reversals, they tend to be risk• land•owning (or oil•controlling) elite will the middle class is for things like property averse, wary of in‡ation and opposed to naturally worry that, if the poor gain great• rights and a stable economic policy. This economic populism. With the strange ex• er political in‡uence, they will use it to im• tends to give rise to a politics of account• ception of Argentina, the middle classes of pose punitive land taxes or land reforms. ability, if not necessarily democracy. Latin America are bulwarks of economic Oil•producing countries in which the To see the di erence, says Arvind Sub• orthodoxy and †scal rectitude. elite controls the oil†elds are hardly ever ramanian of the Peterson Institution for In• New York University’s Mr Easterly has democracies. And in places where people ternational Economics in Washington, DC, found that the larger a country’s middle have grabbed power claiming to represent consider two examples from India. Maya• class, the lower its indicators of every sort the poor (Venezuela, Bolivia), the †rst re• wati, the chief minister of the country’s of instability, be it revolutions and coups, sult has often been swingeing taxes on largest state, Uttar Pradesh, has used her outbreaks of civil war, constitutional land or raw materials. Mr Acemoglu ar• government to dispense patronage to the changes or suppression of civil rights. gues that a thriving, varied middle class dalits (formerly called untouchables, a Which is the cause and which the e ect, will be opposed to punitive taxes, too, so if poor caste). It has doled out favours to that however, is not so clear. the elite thinks the middle class will pre• particular group but done little to improve When an autocracy brings stability, as it vent drastic redistribution, it may be more the lot of other poor people. has done in China, an approving middle willing to accept democracy. In contrast, Mr Subramanian argues, class may be less likely to insist on democ• the middle class supports not only those racy. But when democracy becomes estab• A force for moderation things that speci†cally bene†t its mem• lished, the middle class usually turns into a Other things being equal, any group in the bers‹such as the Indian Institute of Tech• strong supporter. Latinobarómetro, a poll• middle should act as a moderating in‡u• nology system, the most successful part of ing organisation, found that, in the period ence on social con‡icts. By de†nition, a from 2001 to 2008, support for democracy growing middle class will reduce income rose in 12 of the 18 Latin American coun• inequality because it will moderate the tries that have it; most respondents also stark divide between rich elite and rural thought democracy provided the only poor that is often a source of con‡ict in road to development. emerging markets. The middle class also That does not necessarily turn the mid• tends to be inclusive. For example, non• dle class into a force for democracy and sta• governmental organisations backed by the bility. Eventually it brings its own discon• middle class campaign for better treatment tents which, as the group becomes a of indigenous peoples in Latin America. majority, dominate politics: disputes over In India, the middle class has eroded land (emerging markets abound with his• the caste system, especially in the south. toric land•holding patterns that con‡ict Companies such as Infosys make a point with the interests of the middle class); dis• of being caste•blind in recruitment. But Di• agreements over the role of women (mid• pankar Gupta, a sociologist at Jawaharlal dle•class women go out to work more, and Nehru University in New Delhi, says that have smaller families, causing con‡icts even though the importance of caste hier• with groups committed to traditional ways archy may have declined, that of caste of life); and so on. identity‹the voluntary association of peo• But the more immediate question is not ple of the same or similar castes‹has in• how much disruption will be caused by creased, because as people leave their vil• the growth of the middle class but by its lages, caste often provides the only ready possible decline, at a time when global re• social network in the big cities. cession is pushing some of those who In sum, the middle class acts as a bu er. have just joined it back into poverty. That is Sometimes it allies itself with the poor, Mayawati favours her own the subject of the last article. 7 The Economist February 14th 2009 A special report on the new middle classes 13

Suspended animation

The recession may bring middle•class growth to a halt for a while‹but not for long

VER the next two or three decades, an ties than the rich and are more likely to The main relief for the middle class is Oexpanding global middle class could create jobs than the poor. They also tend to that many of its members have jobs in the boost economic growth and encourage de• promote liberalisation and, indirectly, de• public sector, which can resort to de†cit mocracy (or at least more liberal politics). It mocracy by moving their countries away spending. For the moment, therefore, the could also press for global public goods, from the politics of patronage. All these usual rule that a middle class based on the such as tougher limits on greenhouse•gas good things would be at risk if they were private sector tends to do better than one emissions (middle•class people are more hurt by recession. which feeds o the public sector may have inclined than others to worry about the en• There are several reasons for thinking been suspended. vironment). But the main question about the middle could be more vulnerable to A second reason for thinking that the the middle class in the immediate future the global recession than the extremes. middle class may be especially vulnerable will be di erent: how badly will it be hit by Though the rich are the most exposed to is that the largest group within it is danger• a global recession? losses on equity and †nancial markets, ously close to the poverty line. This report Since the Asian currency crisis of they also have a much greater capacity to has argued that in recent years the middle 1997•99, the middle classes in emerging absorb the blows, since they have more, class has surged, not merely expanded markets have known nothing but success. along with economic growth. As the fat For most of them even that currency crisis part of the bell curve of income inequality was just a blip. China’s and India’s mass moves beyond the middle•class threshold, middle classes have seen only uninter• huge numbers are lifted out of poverty. Yet rupted growth. But the period of rising many of them are still perilously close to prosperity is coming to an abrupt end. the borderline. Economic growth is slowing much more than anyone had expected only a Slippery slope few weeks ago. China’s GDP growth more Martin Ravallion of the World Bank sepa• or less came to a halt in the last quarter of rates the developing•world middle class 2008 and many economists are forecasting (those on $2•13 a day) into upper and lower the feeblest expansion for 20 years in 2009. tiers, with $9 a day as the dividing line. On At the end of 2008 exports from emerging his calculations, the numbers in the upper markets were falling at an annual rate of tier ($9•13 a day) rose by only 95m between more than 10%. Industrial output is collaps• 1990 and 2005, from 139m to 233m. Yet the ing and many Asian countries face the number of middle•class people as a whole worst recession since 1997•99. during that period increased by 1.2 billion, Against that unpropitious background, so more than ten times as many people three emerging•market giants face elec• joined the lower tier ($2•9 a day) as joined tions in the next two years: India, a parlia• the upper. Most of them cluster at the very mentary vote by May this year; Indonesia, bottom. In 2005, estimates Mr Ravallion, congressional and presidential votes in A better class of kitchen sink one person in six in emerging markets was mid•2009; and Brazil, a presidential elec• living on $2•3 a day. Such people have only tion in October 2010. Other big middle•in• and more diversi†ed, assets. As for the a tenuous hold on middle•class status and come countries with elections in the next poor, the very things that have prevented risk slipping backwards. . two years include Argentina, Chile, Co• them doing better in the past 15 years‹dis• A third reason for worry, argues Homi lombia, Hungary, Poland, South Africa and tance from world markets, lack of expo• Kharas of the Brookings Institution, is that Ukraine. China’s rulers too have long been sure to trade‹might now come to their res• the middle classes might Œmisinterpret the worrying about retaining the support of cue. Poverty cushions them from the recession. For most of them, the lesson of the middle class. Anniversaries in 2009‹ losses as well as the gains of globalisation. the past 20 years has been that good things the 20th of the Tiananmen Square upris• In contrast, the middle class faces pro• happen when a country opens up and bad ing; the 50th of the crushing of Tibetan in• blems across the board: jobs (its members things occur when it turns inward (eg, Chi• dependence‹may provoke protests. are more likely than the poor to be em• na’s Cultural Revolution or Brazil’s mili• A reversal of middle•class fortunes ployed by companies that depend on ex• tary coups). But a period in which emerg• could have serious e ects. As this report ports or outsourcing); assets (they have in• ing countries import recession from rich has argued, the new middle classes con• vested in property and shares but house ones could change people’s attitudes. tribute a lot to a country’s growth, eˆcien• prices and stockmarkets have crashed); In Russia the instability of the Yeltsin cy and equity‹as consumers, as investors and †nance (they have put their money in years convinced many that the country in Œhuman capital and because they en• banks or have borrowed from credit com• would be better o if it became more self• gage in a wider range of economic activi• panies that are exposed to global markets). reliant. And in 2007•08, as food prices 1 14 A special report on the new middle classes The Economist February 14th 2009

2 spiked, governments around the world, in• cluding the emerging markets, reacted by imposing export bans, export taxes and many other forms of trade protection. Moreover, some countries seem more vulnerable to a global recession than oth• ers. Brazil and Russia are sensitive to raw• material prices, which are falling. The World Bank forecasts that the volume of international trade will decline in 2009, for the †rst time since 1982. This will hit coun• tries heavily dependent on exports. Most large emerging nations have built up for• eign•exchange reserves and cut their exter• nal debts, which will provide a measure of protection. But that is not true of eastern Europe, where reserves have been ‡at and The way it was, and will be again external debts rising. For all these reasons, it seems more like• produce yet another relatively weak co• tion. But the middle classes in America and ly that the new middle classes will be vic• alition government, led by one of the two Europe do not seem to have changed their tims of recession, rather than the people to main parties. Because of Indonesia’s com• outlook radically during slumps. People haul the world out of trouble, as the World plex electoral system, the presidency is have usually sought to keep their children Bank hopes. But the bigger question is most likely to go to the current incumbent in private education as long as they can, for whether the slump will undermine the es• or his predecessor, both from secular, example, cutting back on consumption in• sential qualities of middle•class behav• mainstream parties. Brazil’s election is too stead. The spread of the internet and mo• iour‹the propensity to save, to invest in far away for a sensible forecast to be made, bile phones may also have reinforced the the children’s education and so on. The an• but since the incumbent president (who is middle class’s fear of being cut o from the swer to that depends in part on how long prevented by term limits from standing technology and information on o er in the the slump lasts. Most developing coun• again) has an 80% approval rating, a rebel• rest of the world. tries, including the two largest, China and lion against the status quo looks unlikely. So if‹perhaps a big if‹the global reces• India, expect some growth in the next two sion lasts no more than a couple of years, it years, albeit much less than in 2000•07. See you in a couple of years seems reasonable to expect the engine of Moreover, retail sales tell a slightly less This survey has argued that, to misquote middle•class formation to start humming gloomy story and may be better indicators Scott Fitzgerald, the middle class is di er• again when growth picks up. There will be of the mood of the middle class than GDP ent: meritocratic, thrifty, individualistic, another portion of Maslow’s pyramid to growth. In China and India they held up committed to education. Some of these at• climb, another political system to change, surprisingly well in 2008, suggesting that tributes and attitudes may be permanent, another step to take towards a global mid• consumers have not gone into their shells. or at least only partially subject to the vaga• dle class. Until then, there will be a pause, Much will also depend on public poli• ries of the economic cycle. Admittedly but not an end, to what Marx called Œthe cy, especially in the emerging•market there is little hard evidence from emerging most revolutionary part the middle class giants. The reactions of the Chinese and In• markets to support or contradict this asser• has played in human a airs. 7 dian governments have been Œmature, says Eswar Prasad of Cornell University. In O er to readers Future special reports November 2008 China produced a multi• Reprints of this special report are available at a Business, †nance, economics and ideas billion•dollar government•spending plan price of £3.50 plus postage and packing. GDP Waste February 28th which aims to restore growth to over A minimum order of †ve copies is required. Entrepreneurship March 14th 8% in 2010. It has plenty of room to increase Corporate o er The rich April 4th domestic demand. In India, the picture is Customisation options on corporate orders of 100 Health care and technology April 18th more mixed: the country has imposed or more are available. Please contact us to discuss International banking May 16th some restrictions on goods imports but your requirements. Business in America May 30th has also liberalised its †nancial sector. Send all orders to: In general, support for globalisation among the Chinese, Indian and Brazilian The Rights and Syndication Department middle classes does not yet seem to be 26 Red Lion Square WC1R 4HQ waning, as it has done in Russia. That may London Tel +44 (0)20 7576 8148 be because so many people have bene†ted Fax +44 (0)20 7576 8492 over the past 15 years that it will take a lot to e•mail: [email protected] persuade them to back any radical depar• tures from the way things are. Certainly, For more information and to order special reports Previous special reports and a list of few observers expect the coming elections and reprints online, please visit our website forthcoming ones can be found online in the three biggest emerging countries to www.economist.com/rights www.economist.com/specialreports bring drastic changes. India’s is likely to