5 People Join the Middle-Class Every Second, Two Economists Say

If life is what happens when you’re busy making other plans, then progress is what happens when we’re busy arguing about politics.

The most important piece of news in recent weeks has nothing to do with Brexit or Brett Kavanaugh. It didn’t make the front page and it did not cause social media to explode. It was a milestone that represented not a great leap forward, but hundreds of millions of steps in the right direction.

I am referring to the fact that, as of last week, more than half of the world is middle class.

Let’s Define Our Terms

Homi Kharas and Kristofer Hamel, two of the researchers behind the work, done under the auspices of the World Data Lab, characterize the global middle class as having enough discretionary income to buy consumer durables like fridges and motorcycles; being able to spend money on entertainment like trips to the cinema; and being fairly confident that they can weather an economic shock without falling back into extreme poverty.

“For the first time since civilization began, the majority of humankind is no longer poor or vulnerable to falling into poverty.”

The more precise measure they use is earnings of between $11 and $110 per day on a 2011 purchasing power parity basis.

The researchers divide the world’s population into four groups. They estimate that 600 million people are poor (living on under $1.90 per day); 3.2 billion people are financially vulnerable (living on between $1.90 and $11 per day); 3.6 billion people meet their definition of middle class and 200 million people are rich (living on more than $110 per day).

Explaining the significance of what they are describing, Kharas and Hamel do not mince their words: “For the first time since agriculture-based civilization began 10,000 years ago, the majority of humankind is no longer poor or vulnerable to falling into poverty.”

A Refreshing Perspective

Theirs is a refreshing perspective on the remarkable rate at which the world is getting better. When it comes to rising living standards, the focus is usually—and understandably—on the collapse in the number of people living in extreme poverty. But the growth of the middle class is arguably a more striking trend. By Kharas and Hamel’s calculations, one person leaves extreme poverty every second whereas five people per second enter the middle class. The ranks of the rich are expanding too but at a rate of one person every two seconds.

The study claims that almost nine in ten of the next billion middle-class consumers will live in Asia.

When the fall in extreme poverty is cited as evidence of the power of markets to boost living standards, the laziest—and most common—response is to question the significance of the very poor becoming only slightly less poor. The World Data Lab’s work shows just how completely that argument not only misses the point but is at odds with the facts.

The study claims that almost nine in ten of the next billion middle-class consumers will live in Asia, where market liberalization and an embrace of global trade in India and China have been, and will continue to be, transformative. In 2030, they estimate that the spending power of America’s middle class will still be world-beating, at $16 trillion. But India and China will almost have caught up, with their middle-class markets being worth $12 trillion and $14 trillion respectively.

The consequences of this change for business are profound. As Kharas and Hamel put it: “It’s no accident that the latest Hollywood hit is Crazy Rich Asians or that Asian multinationals are emerging that have built a domestic brand and now look to compete abroad.”

An Interesting Paradox

What about the political implications of the middle-class tipping point? Here there is a paradox. A growing middle class unsurprisingly means a happier population, and so the trend is a source of stability. If people suddenly have something to lose, they are less likely to join a revolution or civil war. But middle-class citizens also become more demanding voters, insisting on better public services, more generous safety nets, and so on.

One link exists beyond doubt: the connection between liberal economics, trade, and the rise in global living standards.

Troublingly, however, the rise of the middle class in China has not been accompanied by demands for political reform in the way many of us hoped. That change may yet come, but—for now—hundreds of millions of Chinese citizens are getting on with living bourgeois lives in a one-party state. That should give pause to those who claim an inextricable link between economic progress and political liberty.

One link, however, exists beyond any doubt: the connection between liberal economics, trade and globalization, and the remarkable rise in global living standards happening at this moment in human history.

This article is reprinted with permission from CapX.