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What A Shrinking Middle Class Means? Part II

For your business

Recap

The Organization for Economic Co-operation and Development (OECD) estimates the global middle class will expand to nearly five billion people by 2030 out of a projected total population of eight billion. Yet a number of hard-to-predict developments could slow or even reverse this trend. Of course, if this OECD projection pans out, it will translate into great opportunity for emerging markets, with a parallel yearly increase in middle class spending from $21 trillion to $50 trillion 24 years from now.

Get Ready For More Disruptive Change

While I’m hoping this comes to pass, I have doubts. Let me explain… For starters, the middle class in the West and the rest of the developed world is eroding. From a broader perspective, we can expect an acceleration of disruptive changes locally and globally. For the growing global middle class to feel secure, governments will need to take action to provide solutions to problems that are exceeding their current grasp.

  • Among the key global challenges the world needs to address are climate change (ranked the number one threat by the World Bank), the related growing scarcity of water, and the impact of AI (Artificial Intelligence)-based robotics on jobs. In addition, global terrorism inevitably will utilize new, more dangerous digital and military technologies that will be harder to contain. –These changes, by contrast with the overall OECD projection of middle class growth, are predicted to push more than 100 million people into extreme poverty.
  • Strongly related to digital and biotech breakthroughs is the dramatic shift in wealth to the top less than one percent of the population. While technology has made the world richer overall, most people are not benefiting. Since 2009, the world’s top less than 1 percent has grown from 44% to about 50% of the world’s wealth. By 2020, it is estimated that the percentage will rise to 54%. Global populations, fueled by rising expectations are increasingly angered by this trend.

 

Middle

Coming Challenges

  • Middle class employment growth will be slowed by the headwind of a drastic reduction in the need for low-skilled middle class workers around the world. Many of them only recently joined the middle class and are not going to easily accept returning to a lower standard of living.
  • Oxford economists estimate that by 2036 almost 50% of U.S. jobs will be vulnerable to computer-based automation. Even white-collar professionals like lawyers, doctors and financial middlemen are threatened by the new technology that has helped websites like WebMD, LegalZoom and E*Trade thrive. That said, jobs that provide local products and in-person services, many of them low-paying jobs like nursing home aides will remain protected, at least for now.
  • Cheaper fossil fuel-based energy cuts both ways. Since Barack Obama was elected in 2008 oil prices have (recently) fallen, the price of solar energy is down by 78 percent, and the cost of wind energy down by 58 percent, thanks largely to technological advancements and improved economies of scale. While the global economy grew by 3 percent in 2014, these improvements have resulted in zero increase in global emissions. Yet, with fossil fuels more competitive than just a year ago, there is less incentive for reducing the cost of environmentally safe, cheap alternative energy sources. And without progress on that front, global climate change, according to 97% of climate scientists, will accelerate, leaving the world vulnerable to a series of catastrophic changes that will challenge the viability of civilization and life itself.
  • Finally, these and other countervailing forces will likely play out in a way that that even the best research organizations can’t predict despite new, more effective disruptive change statistical models.

 

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