Can the World Afford a Middle Class?

Population adds pressure not only to the global environment, but also for societies and economies. Sustained growth in developing nations like China and India rapidly lifts people from poverty and the world must adjust, warns Moisés Naím, editor in chief of Foreign Policy. A growing middle class around the world is already increasing demand for meat, milk and other foods, thus increasing the prices of staple products. The middle class can afford more energy, precious metals and commodities per capita than the poor. In 2006, China added to its overall energy use as much as France consumes in one year. The larger middle class will increase demand for a lifestyle that many in developed nations now take for granted, along with increased urbanization and immigration, notes Naím. New technologies may cover some demand, but big changes, higher costs as well as some conflict are in store. Naím predicts that “unanticipated effects of the new global middle class will become part of our daily news.” – YaleGlobal

Can the World Afford a Middle Class?

A growing middle class will be expensive; the world must prepare for more competition along with increased demand for basic products and higher prices
Moisés Naím
Thursday, February 28, 2008

The middle class in poor countries is the fastest-growing segment of the world’s population. While the total population of the planet will increase by about 1 billion people in the next 12 years, the ranks of the middle class will swell by as many as 1.8 billion. Of these new members of the middle class, 600 million will be in China. Homi Kharas, a researcher at the Brookings Institution, estimates that by 2020 the world’s middle class will grow to include a staggering 52 percent of the global population, up from 30 percent now. The middle class will almost double in the poor countries where sustained economic growth is lifting people above the poverty line fast. For example, by 2025, China will have the world’s largest middle class, while India’s will be 10 times larger than it is today.

While this is, of course, good news, it also means humanity will have to adjust to unprecedented pressures. The rise of a new global middle class is already having repercussions. Last January, 10,000 people took to the streets in Jakarta to protest skyrocketing soybean prices. And Indonesians were not the only people angry about the rising cost of food. In 2007, higher pasta prices sparked street protests in Milan. Mexicans marched against the price of tortillas. Senegalese protested the price of rice, and Indians took up banners against the price of onions. Many governments, including those in Argentina, China, Egypt, and Russia, have imposed controls on food prices in an attempt to contain a public backlash.

These protesters are the most vociferous manifestations of a global trend: We are all paying more for bread, milk, and chocolate, to name just a few items. The new consumers of the emerging global middle class are driving up food prices everywhere. The food-price index compiled by The Economist since 1845 is now at an all-time high; it increased 30 percent in 2007 alone. Milk prices were up more than 29 percent last year, while wheat and soybeans increased by almost 80 and 90 percent, respectively. Many other grains, like rice and maize, reached record highs. Prices are soaring not because there is less food (in 2007, the world produced more grains than ever before), but because some grains are now being used as fuel and because more people can afford to eat more. The average consumption of meat in China, for example, has more than doubled since the mid-1980s.

The impact of a fast-growing middle class will soon be felt in the price of other resources. After all, members of the middle class not only consume more meat and grains, but they also buy more clothes, refrigerators, toys, medicines, and, eventually, cars and homes. China and India, with 40 percent of the world’s population, most of it still very poor, already consume more than half of the global supply of coal, iron ore, and steel. Thanks to their growing prosperity and that of other countries such as Brazil, Indonesia, Turkey, and Vietnam, the demand for these products is booming. Not surprisingly, in the past two years, the world price of tin, nickel, and zinc have roughly doubled, while aluminum is up 39 percent and plywood is now 27 percent more expensive. Moreover, a middle-class lifestyle in these developing countries, even if more frugal than what is common in rich nations, is more energy intensive. In 2005, China added as much electricity generation as Britain produces in a year. In 2006, it added as much as France’s total supply. Yet, millions in China still lack reliable access to electricity; in India, more than 400 million don’t have power. The demand in India will grow fivefold in the next 25 years.

And you know what happened to oil prices. Again, oil reached its all-time high of $100 per barrel not because of supply constraints but because of unprecedented growth in consumption in poor countries with rising middle classes. China alone accounts for one third of the growth in the world’s oil consumption in recent years. The middle class also likes to travel: The World Tourism Organization estimates that outbound tourists will grow from today’s 846 million a year to 1.6 billion in 2020. Venice and Paris will be even more expensive—and crowded—to visit.

The public debate about the consequences of this global consumption boom has focused on what it means for the environment. Yet, its economic and political effects will be significant, too. The lifestyle of the existing middle class will probably have to change as the new middle class emerges. The consumption patterns that an American, French, or Swedish family took for granted will inevitably become more expensive. Some, like driving your car anywhere at any time, may even become prohibitively so. That may not be all bad. It may mean that the price of some resources, like water or oil, may more accurately reflect its true costs.

But other dislocations will be more painful and difficult to predict. Changes in migration, urbanization, and income distribution will be widespread. And expect growing demands for better housing, healthcare, education, and, inevitably, political participation. The unanticipated effects of the new global middle class will become part of our daily news.

The debate about the Earth’s “limits to growth” is as old as Thomas Malthus’s alarm about a world where the population outstrips its ability to feed itself. In the past, pessimists have been proven wrong. Higher prices and new technologies, like the green revolution, always came to the rescue, boosting supplies and allowing the world to continue to grow. That may happen again. But the adjustment to a middle class greater than what the world has ever known is just beginning. As the Indonesian and Mexican protesters can attest, it won’t be cheap. And it won’t be quiet.

Moisés Naím is editor in chief of Foreign Policy.

All contents ©2008 ForeignPolicy.com. All rights reserved.

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