The Global Middle Class Is Bigger Than We Thought

Foreign Policy: The Global Middle Class Is Bigger Than We Thought

A new way of measuring prosperity has enormous implications for geopolitics and economics.

The swelling middle class in emerging economies is transforming the economic balance of power across the globe. Measuring it, however, is no easy task. There is no widely accepted definition of what constitutes the middle class, and the most common ways of measuring its growth — through looking at rises in income — suffer from a number of flaws.

There's an easier way. In the developing world, buying a car is virtually synonymous with entry into the middle class. In these countries, car ownership separates those with the ability to purchase many other nonessentials from those within the wider population. Car statistics, moreover, are generally reliable and frequently updated, and they include data by automobile type that can be used to further segment the middle class. For this reason, the number of passenger cars in circulation serves as the most reliable gauge we have about the size of a country's middle class.

Applying this measure significantly alters our understanding of the middle class in the developing world. It shows that there are many more affluent people in developing countries than had previously been thought and that about 70 developing countries with a combined population of about 4 billion are near or above the point where car ownership rises very rapidly. This suggests that very large numbers of people will enter the middle class in the coming years, transforming the economies and political systems of the countries they inhabit. …

Why Does This Matter?

The middle class in the developing world, if you'll forgive the pun, is in the fast lane. As its ranks swell, firms in advanced countries will increasingly focus their efforts on selling products to that middle class directly, or selling the machines, software, and business services that firms in developing countries need to meet the needs of their burgeoning middle classes. For this reason, trade agreements struck with developing countries may yield more gains for advanced-country exporters than is generally understood, at least over the next several years.

Policymakers should also take heed of this rapid rise in car ownership, as governments in developing countries will be forced to contend with more urban and airport congestion, as well as more pollution and carbon emissions, for example, than would be deduced from aggregate growth statistics. Similarly, the demand for items the middle class expects its government to provide — from advanced education to health services — is also exploding. These new demands are likely to present particular challenges for countries such as Indonesia, where per capita income is still quite modest, tax revenues are low, and government capacity to satisfy such demands is limited.

The people of this burgeoning middle class also expect their governments to be representative and accountable, and they are sure to put increased pressure on the nondemocratic systems in many developing countries. Seen in this light, the rising incidence of protests and dissent in China, Russia, Thailand, and the Arab world is not surprising.

The data points unequivocally to an extraordinarily dynamic period in middle-income developing countries, where everything from material conditions in cities, to demands for government services, to political norms are being transformed. The world must wake up to these impending changes sooner rather than later — if it doesn't, it risks a billion-car pileup.