The Middle Class Conundrum

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By Nicolas Guerrero

Calling it a culture shock would be an understatement; what it was was a first impression of the paradoxical urban conditions we now read of in news headlines and textbooks. The sun was setting through the overcast sky of coastal Peru. I was sitting on the back seat of the cab we hailed from the airport, as we zigzagged in the chaotic traffic snaking through the dusty and seemingly impoverished outskirts of the capital, Lima. It was then when I noticed a massive complex in the distance--a shopping mall--surrounded by hills overflowed with shantytowns. I asked our driver, Ernesto, who in their right mind would invest in building a mall encircled by such poverty. “Now they are able to buy things,” he responded. “It is brand new, the biggest shopping center in the country. It is revolutionary.” Little did my fourteen-year old self know I was witnessing firsthand the conflicted mix between an emerging consumer class, and the pre-conditions of economic inequality.

The term “middle class” is something we hear on daily basis, especially at the heart of this election season. It represents a majority of Americans, and at least in the developed world denotes the concept of social mobility and economic opportunity. I will argue not on the points focusing around the challenges presented domestically, but rather on the unique opportunities that a global middle class can bring us

History tells us that economies develop and mature, usually in the form of transitioning from agricultural to industrial to service centered ones. As these cycles take place, the middle classes often find themselves in unstable situations as labor and capital slowly shift at the macro level. Economic tools as much as non-economic cultural representations give us clues of the fluctuations of the middle class’ well-being at different points of time and place. Charles Dickens’ A Christmas Carol illustrates the sheer social inequality experienced in nineteenth-century London, as the direct result of the Industrial Revolution and displacement from the countryside following the repeal of the Corn Laws. The art of Norman Rockwell portrays the cheerful optimism of an emerging post-war consumer class in the United States. The present vitality of Ali Baba’s stock gives a sense of an enthusiastic Asian middle class, while populist rhetoric in Anglo-American politics show the frustration of another.

By the mid-nineteenth century, the British working class was already transitioning to fill a demand for skilled clerks and accountants to work in the setting of a new, emerging service sector. Of course this process did not occur quickly, and the unskilled were often left to their luck in deplorable working conditions, but it was the basis for England to become the global financial and economic center through the turn of the century. Hence, the legendary department store Harrods opened its doors in 1849 selling products that focused not on the aristocratic elites, but rather on a newly empowered consumer class.

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In 2015, the global middle class reached a total of three billion people who spent $33 trillion, representing two thirds of the world’s consumption. The evidence of an emerging consumer class I witnessed back in Latin America when I was fourteen represents only a small portion of this growth. China and India are by far leading this trend. Ernst & Young predicts that by 2030, two thirds of the world’s middle class will be in Asia. Population plays an indisputable role in measuring the middle class around the world. As the populations in the United States and Western Europe decrease, their consumption will remain constant. It is necessary to note that “middle class” is not an equalizing term.  The middle class on China’s east coast is not comparable to the middle class in its interior. A rising consumer class in Greater Jakarta is several thousand dollars per capita behind a consolidated middle class in Greater Philadelphia.

That being said, I contend that as past experience has shown us, the global middle classes complement each other. Here in the United States, we need to preserve our middle class by using our comparative advantage in innovation to create the intellectual property that will be demanded by consumers in emerging markets. Throughout the presidential race, both candidates have promised to preserve middle class jobs by means of protectionist measures. However, a 1994 study by Gary Clyde Hufbauer and Kimberly Ann Elliott of the Peterson Institute of International Economics showed that “tariffs and quantitative import restrictions cost American consumers about $70 billion, more than 1 percent of GDP.”  Is it really worth preserving jobs in the manufacturing sector that are better suited for other economies with the proportional level of human capital? Germany and the United Kingdom have become service-centered economies, without sacrificing their middle classes.

It is disingenuous for aspiring leaders to claim to people who have undoubtedly suffered the consequences of transitioning sectors that running against the global economic tide--that restoring their jobs in mining or manufacturing--will somehow make the middle class better off. If that were the case, Britain would still be sowing the corn seeds in season.

Sources:

http://www.ey.com/gl/en/issues/driving-growth/middle-class-growth-in-emerging-markets---entering-the-global-middle-class

http://magazine.pewtrusts.org/en/archive/trend-summer-2016/how-a-growing-global-middle-class-could-save-the-worlds-economy

http://www.economist.com/news/finance-and-economics/21704809-emerging-markets-are-popular-investors-again-back-fashion