‘Middle class’ faces threat of slide into the doldrums
ALMOST a billion people in the developing world are at risk of slipping out of the ranks of a nascent middle class, according to Financial Times analysis, raising questions about the durability of the past 30 years’ remarkable march out of poverty.
Rising inequality and slower global growth have major implications for businesses that have been investing heavily in emerging markets.
One of the biggest questions confronting governments is what slower growth will mean for the creation of a solid middle class in countries such as China and India, which many are counting on to drive the global economy in the 21st century.
Last week, the IMF warned that the world could face years of subpar growth and economists from the World Bank cautioned that the growth of developing economies was likely to average 2 to 2.5 percentage points less than that seen before the 2008 global financial crisis.
The Asian Development Bank has defined the entry point to the new middle class as the $2 a day (about R21) poverty line, adjusting for purchasing power, but other economists have argued that a more robust definition begins at $10 a day.
But analysis by the Financial Times of World Bank income distribution data from 122 developing countries going back to the 1970s makes it clear that most of the millions who have risen out of poverty in recent decades are sitting in what is best described as a “fragile middle” between those two lines.
There were more than 2.8 billion people — or 40% of the world’s population — living on between $2 and $10 a day in the developing world in 2010, the most recent year available. That makes the fragile middle the world’s biggest income group.
Moreover, a major portion of those lifted out of poverty remain in an even tighter band only just above the $2 a day line. There were 952 million people earning between $2 and $3 a day in the developing world in 2010, according to the analysis — a vulnerable segment that has grown more quickly than any other across the whole income spectrum.
The International Labour Organisation said it was already seeing the impact of slow growth in emerging economies: the number of workers worldwide in extreme poverty declined by only 2.7% in 2013, one of the slowest rates in the past decade.
Kaushik Basu, the World Bank’s chief economist, warned that many of those people who had emerged from poverty in recent years remained “very vulnerable” to slipping back.
He also said the world economy faced risks such as the possibility that China’s growth could slow even more. Even if that risk did not materialise, said Basu, current growth would not be enough to return to the sort of poverty reduction seen in recent decades. — © The Financial Times, London