The Growing Global Middle Class
I recently attended a seminar on global investing. The part of the presentation that particularly caught my attention revealed how the world’s middle class is growing. Here are the surprising statistics: In 1995 the middle class consisted of 1.2 billion people. From then to 2015 it has grown to 2.3 billion, and the projection for 2025 is 3.8 billion—that’s some 35-50% of the global population.
Even more dramatic than these numbers is the enormous shift of middle class growth from the West to Asia. It is projected that by 2025 there will be 1 billion middle class in the West and 2 billion in Asia.
These projections are a sign of hope and victory…a sign that the eradication of global poverty could be within reach. In the last two decades alone over 1 billion people have been “lifted out of abject poverty”. This emerging middle class could continue to decrease poverty and rescue the global economy, although its full impact remains to be seen.
Why the Emerging Global Middle Class Matters to the Battle against Poverty
An emerging middle class indicates that economic disparity is decreasing and economic progress is increasing. The growth of the middle class results from the poor rising up, almost never the opposite.
The middle class first arose during the Industrial Revolution. For the first time, a real opportunity for upward mobility existed. This changed everything. It equalized people. It created opportunity for education, growth, self-sufficiency. It broke through the barriers of rigid class divides. History continues to show that industrialization and the rise of the middle class are closely linked, and the rise of the middle class affects overall economic growth.
Why is this? Those in the middle class have disposable income—they make enough to afford more than the absolute bare necessities. Moving from poverty to the middle class means a person has gone from surviving to living. They have money to spend on commodities, comforts, and even leisure. The middle class drives growth, pushes consumer spending, and increases demand for goods and services. It creates room for innovation and robust entrepreneurship. It impacts government as people demand transparency and the end of corruption. It advances education.
The Global Middle Class Presents Investment Opportunities
The point of the seminar was that the explosive growth of the middle class in Asia represents great investment opportunities. Asia has more potential consumers than Europe, North America, Latin America and Africa combined.
This accelerating movement into the middle class creates the potential for a significant increase in the consumption of goods and services. Capitalism has been embraced and “the good life” is no longer just the American Dream. In fact, the center of global consumer spending is shifting.
U.S. companies have since seized on this growing global trend as indicated by the percentage of gross revenue generated overseas. Nike 56%, Avon 85%, Apple 64%, 3M 64%, Coca Cola 55%, Heinz 60%, Chevron 58% and Qualcomm 99%.
The opportunities are great not only for major corporations but for mid, small sized and even startups to participate in the upcoming explosion of demand for goods and services overseas. In order for the global middle class to truly be successful at combating poverty and rescuing the global economy, we need to sieze the chance to invest internationally.
The Vulnerability of the Global Middle Class
These hopeful projections of the growing middle class in developing countries should give us reason to celebrate. The numbers are moving in the right direction! But it should also give us reason to continue striving for its growth – the victory is nowhere near complete. The emerging middle class is vulnerable.
This article on the emerging middle class tells of the rise of middles classes in Brazil and sub-Saharan African that are “unlike that which became the engine of development in many OECD countries.” Sometimes the growth in the emerging middle classes is due to an increase in workers who make enough to rise above the poverty line but whose jobs are informal and unstable – meaning their rise to the middle class can fall just as quickly.
We want to see those projects for 2025 come true. But we want to see the right kind of middle class—a middle class driven by the creation of good jobs, by better access to goods and services, by economic growth of entire regions. A middle class that truly – and permanently – lifts people out of poverty. A middle class that compels national development and social progress.
Now is the Time to Propel Entrepreneurship and Investment
What does this mean for us? It means we must press on to establish profitable, socially conscious businesses in the developing world that create stable, formal, full-time jobs and positively impact the community. It means we must equip and support local entrepreneurs and give people access to education and advancement. It means we must invest in developing world startups and SMEs. It means we must bring innovation and enterprise into new places. And it means we must fight for political reforms that enable the middle class to survive and play a transformative role in their country’s economic and social landscape.
This is an incredible time of opportunity to use the expansion of capitalism and consumerism to help those in poverty help themselves. It is for such a time as this AGORA has embarked on its mission to train, enable and support entrepreneurs to be an essential part of the growth of the global middle class. Hopefully, we can be the catalyst of lifting those from poverty who otherwise will be left behind. In our small way we can be part of the cure.
For Further Reading:
http://www.ey.com/GL/en/Issues/Driving-growth/Middle-class-growth-in-emerging-markets%20
http://www.huffingtonpost.com/2013/07/31/middle-class-study_n_3683711.html
http://www.oecdobserver.org/news/fullstory.php/aid/3681/An_emerging_middle_class.html