Rise of the Middle Class Vital to Global Prosperity

This article first appeared in the 10 September 2008 edition of The Irish Times and is reproduced here with their kind permission.

Our latterday scruples about economic development make little sense to those who see prosperity coming their way for the first time, writes Richard Whelan.

Economic development works. Since the early 1990s, more than four billion people in the developing world have been lifted out of poverty.

Moreover, the conveyor belt that is economic development inexorably takes many from subsistence to working class and then to middle class. Half the global population will be middle class by 2020, according to respected think tank, the Brookings Institution.

Economic development and trade drive the process. Paul Collier, director of the Centre for the Study of African Economics at Oxford University, in his book The Bottom Billion shows that four billion have already begun that journey. Further proof, if it were needed, can be found in China and India, where hundreds of millions are escaping poverty.

The fastest growing segment of the world’s population is the middle class in developing countries. These countries are mainly in Asia, Latin America, with a few in Africa.

In the 12 years to 2020, it is estimated that the world’s population will increase by about one billion, while in that same period, the middle class, particularly in developing countries, will grow by approximately 1.8 billion. Almost 700 million of that new middle class will be in China while over 500 million will be in India. What is particularly striking is that the Brookings Institution has estimated that by 2020 the world’s middle class will amount to 52 per cent of the global population, up from 30 per cent now.

In that period the middle class will almost double in developing countries going through sustained economic growth. By 2025 China will have the world’s largest middle class while India’s will be 10 times larger than it is today. Those who fear a population explosion should remember that middle class has historically meant smaller families.

The conclusion is clear – economic development eliminates much poverty, though it may cause downstream food supply, energy utilisation and climate change problems.

However this success coincides with a greater awareness in the West of problems associated with economic development. For some the jury is out on climate change, but there is little argument about greenhouse gas emissions. In a world where hunger still stalks too many lands, western scruples about genetically modified foods may seem like a luxury the starving can ill afford. It is an unfortunate reality that those in the West who do most to help the less well off are often those who have most concerns about the problems caused by economic development.

In the West the middle classes have had the luxury of being able to focus on the problems caused by economic development. People in China, India, Brazil and other developing societies are not about to welcome high-minded lectures from the West on sustainability, given our recent profligacy and downright wastefulness. The newly prosperous East is unlikely to heed doomsday warnings about dangers to the planet if its people take up driving the SUVs we are just about to abandon.

We have been here before.

Thomas Malthus, 210 years ago, in An Essay on the Principles of Population said that the continuing growth in world population would logically lead to wars and famine, as the world could not feed itself because land was finite. His focus was on the past, pre-industrial society and its limited technology and his underlying pessimistic assumptions were demolished by the industrial revolution. Land indeed was finite, but how it and other resources were used was limited only by human ingenuity and imagination.

Similarly neo-Malthusian pessimism emerged in the early 1970s – the last time food prices shot up dramatically – and was again proven unduly pessimistic by the “Green Revolution”. The current neo-Malthusian pessimism about the absolute limit on resources and energy, and climate change, may once again be seen as unduly pessimistic, and may be dealt with by successful RD and a shift to low-carbon economies over time.

In determining how we respond to possible energy and food shortages and climate change, we in the developed world, must not surrender to false fears and to pessimism about our ability to meet these challenges.

We need to help the developing world to continue its economic development, not lecture it on profligacy. If projections of the growth of the global middle class from less than a third to over half of the world’s population in 12 years are achieved, that is good news. A prosperous middle class is more likely to be receptive to concerns about sustainability than people who are struggling just to survive. Prosperous people will buy our goods and services and spend on tourism.

Rather than lecturing others, we have a job to do reorienting our own economic development to prosper in the fundamentally changed world we will all shortly inhabit.

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