Is the global middle class a reality? Not quite, study finds.(Read article summary)
Despite an historic reduction in global poverty from 2001-2011, the emergence of a global middle class is still just an aspiration, according to a Pew Research center study. Still, experts expect the pattern of raised living standards worldwide to continue.
The number of people living what's considered a "middle-income" existence has almost doubled since the turn of the century, but it’s still just a small percentage of the world’s population.
Despite an historic reduction in global poverty from 2001-2011, the emergence of a global middle class is still just an aspiration, a Pew Research Center study revealed Thursday. Only 13 percent of the world’s population was considered middle income in 2011; 56 percent were considered "low-income". The findings of the report demonstrate that, although economic development is pulling more people out of poverty on a global scale, the dream that a worldwide majority will attain the Western notion of a “middle class lifestyle” is still far from becoming a reality.
“Even those newly minted as middle class enjoy a standard of living that is modest by Western norms,” the report notes.
“In 2011, only 16% of the world’s population was living on $20 or more daily, a little above the U.S. poverty line.”
The Pew study defines “middle income” as anyone who lives on $10-$20 a day, or around $14,600-$29,200 for a family of four. The upper end of that range is barely above the official poverty line in the United States, which was considered to be $28,498 for a family of four in 2013.
The good news is that from 2001-2011, close to 700 million people stepped out of poverty, meaning that the percentage of the world’s population that lives on $2 a day or less dropped from 29 percent to 15 percent. But most of these people "took only a moderate step up the income ladder, changing their status from poor to low income,'' according to the Pew report.
What’s more, the rise in income has been concentrated in specific regions, such as China, South America, and Eastern Europe. In many parts of the world, such as India, Southeast Asia, Africa, and Central America, the middle class hardly expanded at all.
"As the report points out, growth in China alone contributed to more than half of the total increase in the global middle-income population. Most of the rest emanates from Eastern Europe and South America. So, some of the BRICS – China, Brazil and Russia – were important contributors. But India lagged behind," explains the study's author Rakesh Kochhar, Associate Director for Research at the Pew Center.
The growth in emerging markets that swelled the ranks of the global middle class may also be slowing down, experts note. On Thursday, the International Monetary Fund downgraded its forecast for global growth in 2015 to 3.3 percent, as expansion in China and other emerging markets began to decelerate.
Meanwhile, the income gap between nations has closed only slightly in recent years. Ninety-one percent of the world’s high-income population, or those living on $50 a day or more, lived in Europe and North America in 2001, that number dropped four percentage points to 87 percent by 2011.
Nevertheless, experts largely agree that superseding a $10 a day living standard, as 13 percent of the world’s population currently has, is important for people across the globe. The emergence of a “global consuming class” that doesn’t have to lose sleep about subsistence, or worry whether it will fall back into extreme poverty someday soon, could have a huge impact on consumption patterns and demand-driven growth in emerging markets. In other words, the fact that the percentage of people living on $10 a day or more has nearly doubled in a decade could have an important long-term impact on the global economy and on living standards worldwide.
Happily, many experts have predicted that this pattern will continue.
A 2013 report by the consultancy group EY noted that, although more people have climbed out of poverty than reached the middle class, “it is this richer, global middle class that we forecast will begin to grow rapidly over the next 20 years."
Additionally, the US National Intelligence Council posited this trend as a potential portent of political change. The more people are able to purchase and save, the Council’s experts said, the more motivated they will be to work for social and political changes that will advance their long-term interests. In this case, the Council says the rise in income could be a political game changer by helping to promote democracy worldwide.
Despite this rosy forecast, the author of the Pew report remains skeptical that we’re getting close to such a pivotal moment.
“The question addressed by this report is whether we have yet to see the emergence of a truly global middle class—one that has the potential to dramatically alter the trajectory of societies around the world,” the author notes.
Still, a larger middle class is always good news, since many economists say income inequality has been found to negatively impact economic growth in developed and developing nations alike. And while we haven’t achieved a middle class status for all quite yet, we could be slowly headed in that direction.