Middle-class malaise
The surprising stagnation of Asia’s middle classes
It could shake up everything from profits to politics
In August Amalia Adininggar, Indonesia’s statistician-in-chief, appeared in parliament with bad news.
The country’s middle class had shrunk.
Between 2021 and 2024, 6m Indonesians had fallen into the “aspiring middle class”, an official euphemism for being a stone’s throw away from poverty.
The middle-class share of the population had fallen to 17% from 22% before the pandemic.
Asked about the grim trend the next day, Joko Widodo, then the president, deflected:
“This issue exists in almost all countries.”
He was not wrong.
Asia’s middle class is not growing as it once did.
Between 1991 and 2014, the average annual growth rate in the number of Asian middle-class households was 6%, according to our analysis.
In the past decade, it has slowed to 2%.
In a few countries, including China, it has shrunk.
Exclude India, where the middle class is still growing, and Asia’s middle classes have stagnated.
At stake are the futures of 2.7bn people in the middle class, or 72% of the population of developing Asia.
The pace of middle-class growth matters enormously—and not just for poverty reduction or the profits of big international firms.
An empowered middle class can expand individual rights and lead to a more accountable state.
One influential argument holds that a rising middle class spurs regulations on child labour: as technological change raises the returns to skilled labour, middle-class parents face incentives to educate their children instead of sending them to the factories.
Most stable democracies have a large middle class.
Who counts as “middle class” can be defined either absolutely, by using fixed income thresholds across countries, or relatively, by measuring from the centre of a country’s income distribution.
Many countries and scholars have their own favoured definitions.
The best data are patchy and released with long lags.
To handle this, we have created a measure to track the Asian middle class using data from the Economist Intelligence Unit (EIU), our sister company (see chart 1).
We opted for an absolute measure, defining “middle class” as households making between $3,000 and $25,000 in disposable income a year, in inflation-adjusted terms and holding exchange rates fixed.
Our data covers 3.7bn people, nearly 80% of Asia, leaving out the rich economies of Japan, Taiwan, South Korea, Hong Kong and Singapore, and also places where data is scarce, such as Afghanistan, Bangladesh, Bhutan, Cambodia, Myanmar and Nepal.
The most striking finding is a steady deceleration in the growth of the middle class.
Throughout the 1990s and 2000s, an average of 19m households in Asia joined the middle class every year, and did so at an increasingly rapid pace.
That acceleration tailed off over the 2010s.
Since 2021 just 12m households have been added to the middle class per year, and the vast majority of growth is coming from a single source: India.
Without it, the post-pandemic rate of addition collapses to only 1.7m households a year.
EIU forecasts suggest that, outside India, the Asian middle class will soon stop growing, and could even shrink.
This is not just down to slower overall population growth.
Indonesia’s middle class is stagnating despite a demographic tailwind.
In our numbers China’s middle class began declining before its population did, and the shift has been sharper, too.
In six out of nine countries we considered, the share of households in the middle class has stopped rising and in four of nine it is falling.
Even in India, impressive middle-class growth has been lopsided.
It has been propelled by the 130m households in India’s upper-middle class, or those making between $5,000 and $25,000.
By contrast, real incomes among the 150m households earning between $1,000 and $5,000 have stagnated (see chart 2).
Partly, this points to upward mobility: in this century the Indian upper-middle class has added over 100m households.
But it also reflects a divergence in fortunes within the country.
Since the pandemic, per-household real income has grown 9% slower in the lower-middle than in the upper-middle.
The gap is forecast to widen.
Stuck in the middle
Why is Asian middle-class growth stalling?
In part it is a by-product of getting richer.
As countries develop, their middle classes (measured in absolute terms) tend to approach a stable share of the population.
Yet in developing Asia, this is not the whole story.
Unsolved structural problems still hold back the middle class.
Several developing Asian countries face widespread informality of the workforce.
A study from 2021 found that Indonesian workers who fell into informality because of the Asian financial crisis of 1997 suffered a lasting 32% drop in subsequent earnings.
Covid-19 caused informal employment to rise by five percentage points in Indonesia after 2020, to 61% of workers.
Meanwhile in Thailand high household debt strangles middle-class borrowers.
Once reliable drivers of growth have also stopped working.
In the past decade foreign direct investment and exports have kept Vietnam’s middle class growing at an average 3% annual rate, faster than the regional average.
But that is half the pace it grew at between 1990 and 2014.
Vietnam has struggled to train its workforce.
Labour productivity lags peer countries and firms face shortages of skilled workers.
Even as real income growth has slowed in some places, higher inflation has created a perception of eroding living standards, enraging many middle-class voters.
Especially important is the price of food.
In developing Asia it makes up a third of consumption, compared with 9% in America.
Food prices were mostly stable during the 1990s and 2000s, until droughts caused food-price crises in 2007-08 and again in 2010-12.
The surge never entirely reverted.
Food prices were on average 46% higher during the 2010s than in the 2000s, in nominal terms, according to the UN.
The war in Ukraine, and its disruption of grain markets, has had a painful effect.
Average food prices have risen another 15% in this decade, compared with the last.
How will this affect politics?
Asia has remarkably flimsy social-safety nets for its degree of prosperity; some rankings put it ahead only of sub-Saharan Africa.
In some places leaders respond with handouts.
Thailand is currently rolling out one-off transfers of 10,000 baht ($300) to Thais making less than 840,000 baht a year.
In others, unassuaged middle-class anger threatens those in power.
Jakarta was rocked this year by protests against legislative machinations meant to install one of the sons of Jokowi (as Indonesia’s former president is known) as governor of Central Java.
Polls showed that, compared with other classes, middle-class Indonesians were the most concerned about corruption and the most dissatisfied with Jokowi’s rule, though he remains popular.
It is unlikely to be the last bout of protest.
Similarly, even though middle-class Indians have fared better economically than lower-class ones, it was they who punished the ruling Bharatiya Janata Party in this year’s elections.
The party’s middle-class vote share fell three percentage points compared with the election in 2019, according to the Centre for the Study of Developing Societies, a think-tank in Delhi.
The case of Malaysia is instructive.
In the 1990s and 2000s, a rising activist middle class demanded reformasi: greater freedom of speech, clean elections and an end to security crackdowns.
Reformasi “was able to coalesce opinion across ethnic divides, because we also had a rising [majority ethnic] Malay middle class,” creating a “middle-class consciousness”, says Johan Saravanamuttu, a political scientist.
But as the country’s middle class has been pinched, reform has faded and identity politics has risen, including a resurgence in fundamentalist Islamist politics.
Anwar Ibrahim, the prime minister, has realised “now is not yet the time for liberal reforms,” and has portrayed himself instead as an investment-courting job creator, says Ben Suffian, a Malaysian pollster.
It is too early to say if the current middle-class stagnation in Asia will lead to more demands for reform, or the unwinding of liberal politics.
Either way, a disgruntled middle class is here to stay.
0 comments:
Publicar un comentario