The middle class sandwich

Inclusive Economy25 Jun 2014Evert-jan Quak

The EADI General Conference started its first full day on 24 June with a plenary panel on the middle classes. It emerged that perspectives on the middle classes are very different in Africa, Latin America, Asia and Europe.

The title of the plenary session was ‘the middle classes as development actors in a polycentric world’. Moderator Patrick Leusch, head of International Cooperation at the Deutsche Welle Academy, correctly put on the table why there is no question mark in the title. The big question is how the new middle classes in emerging economies can be real development actors and agents of change. The observations of the panel made it even clearer that it should not be taken for granted that the new middle classes are the backbone for democracy, sustainable development and social change.

In her opening remarks, EADI president Isa Baud mentioned the role the middle classes in developing, emerging and developed countries have to play in responsible development. What is the common ground on which agendas can be set? According to Baud, three topics should be on the agenda: inequality, green development, and citizenship. Sharing linkages within and between these topics can push the development agenda much further and will make the rising middle class a serious development actor.

The panelists presented experiences and views from around the world on the rising middle classes. Noeleen Heyzer, special adviser to the UN Secretary-General and former Executive Secretary of ESCAP, emphasized the importance of Asia. According to recent research, by 2030, 70% of the global middle class will live in Asia, which will account for 60% of global middle class consumption. In 2010 the share of global middle class consumption in Asia was just 25%. In other words, the rise of the middle class is real and will continue.

However, the question policy-makers should be addressing today is what type of middle class development they want. For example, can the middle class be the new driver of growth? Asia is shifting its development model towards domestic markets and building its own consumer markets. The development model based on cheap labour and manufacturing for global markets is on the turn. The rising middle class in Asia is the key to this shift.

Heyzer, however, takes the view that the debate on the middle classes focuses too heavily on economic values, and does not pay sufficient attention to behaviour and social questions. For example, could the middle class be the catalyst for addressing key issues like the unequal distribution of power and corruption in the private sector and government? In Asia the state has been captured by private sector interests. Will this change? Or will the middle class just been seen as consumers in the domestic development model? The way forward would be for the middle classes to increase their real power, through democracy and by embracing sustainable values. But are they willing to fight to achieve this?

Some of the questions Heyzer raised were partly answered by the other panelists. Professor Jie Chen of the University of Idaho researched the Chinese middle class and was pessimistic about it playing a fundamental role in supporting democratization in the short and medium term. In Chen’s words, “the middle class in China is closely associated with the state.” This is because the middle classes are the beneficiaries of programmes developed by the state and 60% of them are employed by the state. Chen’s research shows that, for the time being, the middle classes in China are not interested in change, but want stability.

According to Luis F. Lopez-Calva, leading economist on Latin America at the World Bank, the middle classes in Latin America share this desire for stability. Two surveys in Latin America have shown that the middle classes do not hold any particular values, but are fundamentally pragmatic and are willing to defend whatever political system protects their status. In Lopez-Calva’s words, “the middle class is opting out of the social contract”. When they become less vulnerable to dropping back into poverty, they turn their back on the state and increasingly look for private education, private security and private health care.

There is, however, a rising group of middle classes that remains vulnerable. For that reason, Lopez-Calva prefers a different definition of middle class based on economic security. The real middle class, he said, enjoys economic security but cannot be labelled as rich in economic terms. In the context of Latin America, that is an important distinction because there are fewer poor, but the middle class defined in this way is still very small. Consequently, according to Lopez-Calva, Latin America cannot be seen as a society with a rising middle class, as the largest percentage of the population remains vulnerable. And that has implications for the policy agenda. With the increase in vulnerable yet not poor groups, the quality of social services becomes a hot issue. These groups are demanding higher quality services and more social policy. And that shows the growing gap between this group and the real middle class in Latin America.

The experience of Africa is slightly different. Bright Simons, president of M Pedigree, questioned two fundamental assumptions. Firstly, the quantitative basis: according to the African Development Bank the African middle class comprises 20% of the population, but this is based on the definition of earning 2 to 20 dollars a day. This quantitative income range is so large that it makes the concept of middle class meaningless and drawing any empirical conclusions on a quantitative basis “ridiculous”.

However, looking at the middle class from a qualitative perspective is even more complex. The middle class is heterogenous and in conflict. A large percentage of the middle classes are not educated and earn less than minimum wages. They are disenfranchised and disempowered. In the African context, the political middle class and economic middle class do not align. For that reason the middle class is in conflict, with competing demands and interests.

Simons and Lopez-Calva therefore make a distinction between a lower and upper middle class. Heyzer calls this the sandwich population, with the upper middle class being captivated by elite interests. One member of the audience remarked that the middle class is stuck in middle of nothing, not just between the poor and the rich. And that is a difference between the rise of the old middle class in 20th century Europe and US and the new middle class in later developing countries: for the time being at least, the middle class in developing countries is less a driver of democratization than its counterparts were in the advanced industrialized countries. Because of their vulnerability to economic shocks, the lower middle classes – which now form the largest group in many emerging countries – tend to be pragmatic and instrumental supporters of democracy rather than a long-term democratic force see our previous contribution ‘Emerging powers and the promotion of democracy’. The positive message is that, if the middle classes develop into more upper middle-income groups, they will acquire freedom of speech, which will eventually have an effect on democratization processes.

The Broker reports from the EADI conference ‘Responsible Development in a Polycentric World: Inequality, Citizenship and the Middle Classes’, 23 – 26 June 2014 in Bonn, Germany. The Broker is main media partner during this conference.