Branko Milanovic, lead economist in the research unit of the World Bank, has devoted years of study to the question of whether the world's middle class is growing. Seven years ago, he reached a deeply pessimistic conclusion. In an interview this week, he talked about the larger challenges faced in creating a sustainable middle class around the world.
In a famous 2000 essay, and then in your 2005 book Worlds Apart, you famously concluded that the world was failing to develop a substantial middle class. Has anything changed since then?
Worlds Apart basically ends with the situation as it existed at the beginning of the new century. Since then, the last five years or so, have been quite good in terms of economic growth. Not only has the average per-capita income in the world increased by about 12 per cent since 2000, but growth has returned to Latin America, former Communist countries and, most importantly, to Africa.
These positive trends by themselves should help the formation of the global middle class. However, one has to be careful because it may make more sense to speak, in the case of Latin America and [post-Communist] countries, of attempts toward the re-emergence of the middle class rather than creation of a middle class. This is because stagnation or economic decline in these countries had pushed many people who used to “qualify” as global middle class below that level.
Branko Milanovic, lead economist in the research unit of the World Bank.
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Now, they or their children (since we are talking about a quarter of a century that has elapsed) are trying to reclaim that position. In addition, as far as Latin America is concerned, this growth episode might just remain that, an episode, one of the many starts and stops we have witnessed since 1950.
Nevertheless, the current developments are certainly more favourable than those during 1980-2000, which indeed was a very bleak period for the non-rich part of the world and thus for creation of a global middle class.
Why is it that rising real incomes among the poor – an undeniable and welcome phenomenon almost everywhere in the world except sub-Saharan Africa – are not translating into a commensurate expansion of the middle class?
It is difficult to say in real time what is happening with “the middle class” not only because its definition is vague, but because we can much better track aggregate changes (like GDP growth rate) than other changes, as for example, what happens to income distribution or whether education is becoming more widespread. These developments become known only with a sizable time lag.
If one were to define global middle class in terms of some disposable (after-tax) income level (say, $5,000 per capita per year in international prices, which is about the cut-off point for the top global income quintile), plus at least middle-school education, plus home ownership, it is probable that more and more people are fulfilling each of these three conditions separately. But we do not know if there are commensurate increases in the numbers (or even more difficult, the proportion) of global population who are fulfilling all three conditions. Indeed, these increases are probably much more modest, and take longer take to achieve (in particular, the education part).
The difference between the emerging developing-world middle class (to the extent that it exists) and earlier middle classes is that this new group is often built on more casual forms of labour. Does this create more fragile conditions, i.e., does it make it more likely that people will lose their middle-class status in economic downturns? Or, conversely, do the more liberal and flexible labour markets make it easier for a middle class to sustain its position?
This question goes to the crux of recent economic policy debates everywhere.
If a more flexible labour market with more precarious employment helps people to get jobs and make money, and climb up the ladders, then the current policies are paying off. But if such policies basically help capital owners to the detriment of labour [and] make the position of all but highly skilled people very uncertain (particularly in the face of a downturn), then we may speak of a very unstable middle class.
Yet the options basically seem to be limited, because globalization had brought into direct competition very large masses of unskilled and semi-skilled labour, thus making guaranteed “middle-class” jobs for the comparable workers in the rich countries difficult to sustain.
Doug Saunders
