When international media, organisations and governments talk of the middle class in the developing world, it is often prefixed with terms such as ‘emerging’ or ‘expanding’. In 2011, the World Bank announced that more of Latin America’s population were middle class than in poverty. Despite this landmark, middle class status is highly complex, volatile and improperly understood. Governments and policy-makers need to recognise these factors in order to maximise economic potential.
Just because a certain number of people in Latin America have been lifted out of poverty and are technically middle-class on economic indicators obscures their vulnerabilities and fails to take into account that social mobility can be downwards as well as upwards. Where governments have invested resources in programs or public policy initiatives to lift the population out of poverty, these enterprises have tended to focus on the lowest income percentile. Whilst being worthy subjects of development programs, policy-makers need to avoid the temptation to ignore the new middle classes now that statistical income brackets imply they are economically secure.
This mission is especially pertinent now that Latin America is receiving fewer benefits from the mineral boom that undergirded its economic progress in the late 2000s, and the early years of the current decade. This boom has to some extent been the catalyst for the emergence of the new middle class, and its diminished returns may inhibit upward social mobility and could cause some reversing trends.
Allowing a ‘middle class’ set of the population to fall back into poverty will bring political risk and governability challenges due to their increased expectations from the state and the social contract. What is more, following the Easterlin paradox, there is a strong indication that upward mobility or progress does not lead to increased life satisfaction. As Carol Graham, speaking at the CAF-Oxford Conference: ‘The Emerging Middle Class in Latin America’ on 31 October notes: ‘The middle class are much less satisfied with the education they receive than either the poor or the rich and they’re much less satisfied with the healthcare…You’ve made it; you expect public institutions to work. They don’t work: that’s a source of frustration’.
This new middle class engage with public services and institutions that they would never have interacted with beforehand and quickly learn of their deficiencies. They also become more world-aware, often through greater access to the internet, and demand better action from the state. An excellent example of this was the series of protests in Brazil in June 2013 during the Confederations Cup. Complaints regarding the quality of transport, education and healthcare, were set against the enormous public spending involved in staging the World Cup in 2014.
Part of this stagnation or decrease in life satisfaction that Graham speaks of is also because the new middle class have more to lose, in terms of status and finances. The new middle class have to face anxieties that they are unprepared for. Being middle class in Latin America does not require one to have an office job, but one way to determine whether someone has risen to the status of middle class is whether they work in the informal or the formal economy. Integration into the latter is important as it provides a degree of income assurances that allow for financial planning and security.
Upward mobility into the new middle class in Latin America therefore brings significant challenges, both for individuals and governments. Another of these is directly related to one of the key drivers in consolidating middle-class status and reducing vulnerability to poverty: education. A new middle class family may only be able to afford to send one child to university, which leads to a tough ethical and economic decision as to whether this can be justified if younger siblings will not be able to attend.
In all the rhetoric concerning ‘Latin America’s new middle class’, an important facet that is often overlooked or not adequately appreciated is the fact that Latin America as had an established middle class for centuries. This, secure middle-income group, a sort of mini, but not necessarily petite,bourgeoisie has long provided the region’s engineers, university lecturers and so on, but without significant economic or political power.
The implications of the new, expanded middle class for foreign policy are strongly linked to commerce and foreign direct investment (FDI). As UK Prime Minister David Cameron stated during his speech in Glasgow ahead of the 2014 Commonwealth Games:
When I came into the government I walked over to the Foreign Office and I said to the ambassadors and the officials there, ‘Your job description is changing.’ To our diplomats I said, ‘You’re not just ambassadors for the UK; you are ambassadors for UK Plc.’ To our ministers, I said, ‘You’re not just representing UK government; you are representing UK businesses.’
A broader middle class leads to greater consumption, and if the size of the middle class can be sustained, it will eventually entail an increased demand for the services industry, often provided by multinationals, which can in turn help an economy develop.
To use but one example, a company benefitting enormously from this Latin American boom, UK-based alcoholic drinks giant Diageo, is making strong progress in the market. It taps into Latin America’s love of partying, and whisky imported from Scotland brings an air of exclusivity to the gatherings of the new and established middle classes. Latin America is a key region for Diageo, and Brazil is the number one market in the world for Johnny Walker Red Label. But, as a luxury good, premium alcohol will not be a priority should the new middle classes need to tighten their belts.
Latin American governments that have made strides to economically emancipate those in poverty must continue to champion such measures, but cannot afford to neglect the new middle class who will be key to growth in the decades to come.