The New Power of the Global Middle Class

The world's emerging economies will need more than just cheap labor to keep growing.

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People pass by a billboard of a Chinese family in the financial district of Shanghai / Reuters

The BRICS comprise four distinct trillion-dollar plus economies (Brazil, Russia, India & China) plus the recent addition of South Africa which has nearly a half trillion dollar GDP.  Whether it was a marketing ploy or brilliantly prescient, Goldman Sachs economist Jim O'Neill -- who coined the BRICs moniker -- created a new portal into debating and thinking about the future global distribution of power that has more dynamism than the conventional binary framing of America vs. Asia or more flamboyantly, the West vs. the Rest. 

Many have tinkered with the question of whether the BRICS nations are the right ones to celebrate as tomorrow's national wunderkinds or not.  I'm guilty of this as well -- suggesting at the recent Halifax International Security Forum that Turkey, itself closing in on membership in the trillion dollar GDP club, be considered the "silent T" in TBRICS.

In contrast, George Mason University's Jack Goldstone tosses out the decade old skeletal structure of BRICS and says that new significant trends have changed which nations will be up and which down.  He suggests that TIMBIs be the new acronym -- Turkey, India, Mexico, Brazil and Indonesia.

Goldstone tosses out Russia and China on demographic grounds, arguing that labor force growth will determine which economies are most fast-growing and vibrant.  Russia's population is shrinking while China's workforce will age fairly rapidly.

The argument I find more compelling, however, is that the density and breadth of a country's middle class -- more than the size of labor force -- may determine whether a rising nation jumps up to the level of a stable, enduring, high-wage job generating economy. 

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Source:  OECD Development Centre Working Paper 285

Two must read treatments of this subject are first, The Bridge to a Global Middle Class by Sherle Schwenninger and Walter Russell Mead published in 2003 by the Council on Foreign Relations; and second, an OECD Development Centre Working Paper titled "The Emerging Middle Class in Developing Countries," by Homi Kharas published in January 2010. 

Here is the pdf of the 54-page Kharas paper.  Regrettably, the Schwenninger/Mead book is priced by the Council on Foreign Relations at $150.00 -- not very middle class friendly -- but they have a number of shorter articles that can be googled and this survey of their thinking by Glenn Yago and James Barth captures the key principles of their smart book.

What Schwenninger and Mead argue is that the development of stable financial instruments and social support structures that hold and direct capital to productive investment in a country -- like a stable (not corrupt) home mortgage framework.  Other middle class-oriented structures include the creation of retirement savings systems and broadly deployed health care networks.  These institutions can create legitimacy for the state in contrast to the hot money flows from outside that can undermine governments.  These structures also help create a class of vital middle class stakeholders whose self interest can moderate the potential bad decisions and extremes of politicians.

As Barth and Yago summarize:

[Schwenninger and Mead] convincingly argue that for market-oriented reforms to succeed and produce lasting stability, they must hold out the prospect that all citizens will directly benefit from them. Reforms, for example, must be designed to allow ordinary people access to home ownership through the availability of affordable long-term financing or for private entrepreneurs to enter long protected, government directed business markets. Expanding economic participation in home and business ownership is key to the expansion of consumption and production in these economies. Not only will a program of middle-class oriented development create a constituency that will support reform, but it will be the best guarantor of global stability.

But what are the prospects for middle class oriented development among the BRICS countries and other parts of the world?

Homi Kharas' interesting report doesn't do a line item review of nations -- but he does of regions.  And he delves into China's and India's growth vectors in great detail in his paper -- as well as comparing many other high growth economies, including Brazil's.

What he argues is that while there are serious structural constraints facing the super sizing of China's and India's middle class -- both are poised to grow this segment of their economy faster than nearly any other part of the world in the decades to come.  Kharas writes that China's 157 million person middle class is now only second to the United States in absolute size.  China is now the world's largest user of energy, the largest vehicle market, the number one cell phone market.  Kharas also argues that "China's new middle class is eager to become the world's leading consumers" nothing that Chinese consumers shop 9.8 hours per week compared to 3.6 hours a week for the average American.

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Steve Clemons is Washington editor at large for The Atlantic and editor of Atlantic Live. He writes frequently about politics and foreign affairs. More

Clemons is a senior fellow and the founder of the American Strategy Program at the New America Foundation, a centrist think tank in Washington, D.C., where he previously served as executive vice president. He writes and speaks frequently about the D.C. political scene, foreign policy, and national security issues, as well as domestic and global economic-policy challenges.

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