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What A Shrinking Middle Class Means? Part I

For your business

Introduction

With so much discussion of a rising middle class in China and other developing countries, how could the middle class be shrinking? In terms of absolute numbers, it isn’t. However, in Europe, the U.S., Canada and other developed economies, that is exactly what’s happening. This and other shifting demographics are reducing consumer demand for goods and services in developed economies around the globe.

Millennials have good reason to believe they will experience less opportunity for economic advancement compared with their parents. These factors are dashing hopes for a better, more secure economic future and fueling growing political instability as we can see this election year.

That is a sharp reversal of several hundred years of an improving quality of life in the West. Governments are being blamed for this recent development, when, in fact, these changes are most strongly linked to the disruptive effects of the Third (digital) and Fourth (biogenetic) Industrial Revolutions.

As stated in previous Insights articles, less demand combined with more Artificial Intelligence-generated software and robotic development have undermined jobs. Other factors include an aging population that consumes less and, just as importantly, there has been a dramatic shift away from cultural norms that until recently encouraged high levels of consumer consumption.

On a more positive note, if your business provides products and/or services for the elderly, for industries providing for on-going, continuous life needs (e.g., non-durable goods), for health industry products/services, etc., you’re in secure territory.

New Middle Class Economies Are Not Performing According To Expectations

Across the developing world, governments came to power promising greater prosperity. Many of them delivered, but generated a revolution in rising expectations that has been hard to satisfy. Governments, in many cases, are less well funded because citizens want lower taxes while, at the same, time expect better public services, a fix on corruption and greater personal security/Internet privacy at a time when digital connectivity makes that all but impossible.

So, it isn’t just the U.S. electorate that has is angry, but also the populations of countries like Brazil and Turkey that until recently experienced dramatic economic advances.

Middle

Changing Definitions Of The Middle Class

Again, measures of daily income, translated in terms of purchasing power for people in different parts of the world indicate that the middle class is growing, especially in China. Whether the demarcation point is defined roughly as $50 or $ 100 day –upward mobility there and in other developing parts of the world still prevails. Using that and other rough measures, the number of middle class people around the world increased within the decade from 2001 to 2011 by 70%, to 1.4 billion. Of course, the biggest driver of this change has been China.

While Africa has seen some of the greatest declines in poverty rates since 2001, the vast majority of Africans (and Indians) remain in the low-income category. This underscores an important fact–not being poor is not the same as being middle class. So, a laborer in India earning $10 a day–a marginally livable wage in that country–is no longer experiencing abject poverty–insofar as these categories can be objectively defined–, but is definitely not yet Middle Class.

In my Part II of this article, I’ll explore why it’s difficult to predict the often disruptive effects of advances in technology on individual ‘life chances,’ i.e., opportunities for upward social and economic status.

More Insights