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Scuttling rise

Middle class aspirations harming BRICS integration

By 2022, those living in poverty will be a minority for the first time, as the global middle class- particularly from BRICS (Brazil, Russia, India, China and South Africa) nations-surges.

Increasingly, the emerging middle class in BRICS countries is becoming one of the most important international customer bases.

Over the past decade in Brazil, about 20 million people joined the middle class, which now comprises about 50 percent of the country’s population. Russia’s middle class population has also more than doubled in the same time period.

While China’s middle class population only represents 10 percent of its entire population, that group has increased from 10 million to 83 million people over the past decade. China’s middle class is expected to climb to 1 billion individuals by 2030, making up 72 percent of the country’s projected future population. The only exception to dramatic growth is India, which classified 9 million citizens - 1 percent of its total population - as middle class in 2010.

The BRICS economies already account for more than 25% of global GDP and the collective middle class for these emerging powers is expected to grow from 800 million in 2010 to over 1.6 billion by 2020. This phenomenal rise in economic, and increasingly political, clout, is not only impacting key macro-economic factors such as access to commodities, capital flows, resource management, and purchasing power, but it is also redefining political dialogue, social welfare systems, education, and culture on a global scale.

Although there isn’t a widely accepted definition of what exactly constitutes the middle class, what is unquestionable is that the collective middle class is going to further increase exponentially in these countries.

The middle class in emerging economies is transforming the economic Balance of Power across the globe. This coupled with the subsequent rise of BRICS economies is inevitable. The recent spat of protests experienced in countries like Brazil, Turkey, India and China show that there is a growing awareness in the middle class. They are viewed as the catalyst to bring change in the world order, to greater accountability and transparency.

Common concerns

However, the experiences of these countries with their newly emerged middle class have been interesting. As the new middle class increases, so do their demands and expectations from their respective governments. The governments too, realize that the driving force of their continued economic growth is going to be the middle class.

In the past few years, there have been a large number of protests in these member countries. Although the reasons for this are complex and differ from case to case, the overarching themes provide similarity.

First of all, the protesters are mainly composed of middle class people. They want their government to be more accountable and transparent. They are increasingly politically conscious and believe in the power of their newly achieved economic status to bring about change. They believe that the state is the only apparatus through which their dreams of proper health, education and infrastructure can give their middle class status a boost.

The demands vary by country, but reflect a common struggle by the governments of many developing nations to meet rising expectations. In China, for e.g., its national bureau of statistics announced in 2012 that its urban population had surpassed its rural population. Its urban population is estimated at 300 million and is increasing. With China’s economy growing rapidly in the past decades, there have been numerous opportunities for business and entrepreneurship. This is happening as a result of its model for growth.

Consumer spending has increased and constitutes 35% of China’s total economy. Its model for growth is based on money in peoples pockets as opposed to growth based on export and big government spending, thereby increasing the proportion of the middle class. Pushing more people into the cities helps balance economic development because their purchasing power helps them spend more on commodities.

In addition, the Chinese are increasingly capable of purchasing luxury goods, which are in huge demand. More cars are sold in China hourly than in any other country and major luxury brands from all over the world have set up successful outlets there. Retail and real estate are booming in China.

But ironically, just as they are earning enough to lead a comfortable life, the Chinese are growing increasingly frustrated with income inequality. Luxury brands and millionaires are increasing while many average citizens believe they are not getting their fair share of economic gains.

They realize they have advanced economically but the middle class is growing restless, particularly due to inequalities and political corruption. Also, rising incomes have led to rising expectations. Concerns about the environment and demands for stronger consumer protections are also increasing. The Chinese middle class wants a fair shot at economic opportunity, protection against environmental dangers, accountability and transparency in public life.

The people in China, though economic stable, are seeking a bigger and participating role. They want political liberty, access to modern technology (freedom from internet censorship) and transparency in the government’s decision.

Unlike the Chinese however, the Brazilian middle class, who has benefitted from a decade of strong growth is still railing for basic services. Booming commodity exports, increase in consumer spending and ambitious social welfare programs furled the decade’s long economic growth.                          

However, when millions of Brazilians took to the streets to demonstrate against the increase in fare in public transport, they exposed the thin line that leaves them vulnerable to slipping back into poverty. The protestors had many concerns, ranging from corruption in public life to spending lavishly on hosting the World Cup Olympics while basic facilities like education and health remained scanty due to negligible government spending on such public services. According to a study, less than 5% was spent on public services in 2012.

Political awareness

The middle class was not only demanding more investment in public services but they were also demanding more as awakened political citizens. People want a say in the decision-making. Their demands arise out of the concern that despite high taxes, they get little in return that doesn’t fully compliment their new-found middle class status. They were also demanding more job opportunities, less crime and corruption.

Although the government moved quickly to recognize these concerns and promised to increase public spending, the larger question of accountability and slowing growth could again agitate the middle class.

Unlike China or Brazil, South Africa is not an economic powerhouse. It doesn’t have the profit potential or the productivity of either India or Brazil. It cannot match Russia’s economy. South Africa also lacks the kind of population its BRICS counterparts have. However, it does have an emerging middle class that has the potential to increase even further, provided the government takes the right steps.

South Africa is Africa’s largest economy and therefore South Africa’s inclusion in BRICS makes strategic sense. South Africa is the gateway to Africa and trade and economic expansion will boost bilateral ties and the standing of BRICS as a whole. South African government has forged ties with each of these countries individually.

Therefore, although South Africa’s inclusion had little to do with economics and more to do with politics, South Africa can gain economically from its inclusion. Now, after many years in poverty, South Africa’s emerging middle class is grabbing the attention of market-hungry retailers while driving growth and embracing democracy.

Consumer demand is the main component of South Africa’s economic and investment boom as middle class consumers enjoy increasing disposable incomes. Global demand for their commodities has boosted strong investment and growth as millions aspire to make their way out of poverty and into the middle class. The country has also achieved relative stability in politics which has allowed the middle class to grow.

However, the pace of reform, lack of infrastructure and the government’s inept policies, not realizing the expectations of the middle class, is disturbing the growth potential. South Africa’s increasing youth unemployment, social tension and a volatile labor market could cripple the countries’ growth story.

However, unlike in other emerging economies, the South African middle class is not relying on the government for better facilities. Their growth is motivated by the belief that a middle class independent of the state and supportive of private enterprise could indeed sustain economic growth
and also help ease social tensions. Entrepreneurship is taking shape and the black middle class in particular has doubled since South Africa first held all-race elections in 1994.

High levels of unemployment, illiteracy and sporadic protests coupled with heavy state control, the South-African middle class has a long way to completely secure its middle-class lifestyle but currently, it is doing whatever it can under the shadow of heavy foreign investments and businesses.

In contrast, Russia is the most prosperous of all the BRICS countries. According to some estimates, all households of Russia will be part of the middle class by 2015. While economically, the middle class Russian is comfortable, economic power has not been able to bring about political power. Middle class Russians want modernization in every sense. They want to be able to be free politically as well.

Better opportunities

Moscow’s middle class is employed by private companies and are financially self sufficient. However, they are increasingly becoming conscious of their political rights as citizens and are demanding better state given facilities like health and education. The judicial system is also political and corrupt and the state’s hand is too overarching. This threatens the freedom of the middle class Russian. This is precisely the reason why thousands of middle class Russians grudgingly protested against the re-election of Putin, fearing even more state control.

Lastly, India’s emerging middle class is one of the fastest growing in the world. Compared to Russia or Chin, India’s middle class composition stands lower at 25%. With the rise in income, consumption patterns have changed and a new middle class has emerged which is growing at a fast pace. It is plausible to suggest that in the next decade, the middle class will be the dominant section of the Indian population.

The reason for the increase of the middle class clout in India has been its consumption driven economy. Spending in India has increased manifold and is expected to increase.

This growing middle class with its disposable income provides many investment opportunities. While private consumption has been the driver of India’s GDP, this has resulted largely due to rising incomes.

Growing urbanization, young working age population, higher income and spending sustains this consumption boom as more and more people are pulled out of poverty. Although state managed public services are improving, there is still a long way to go.

However, the demands of the Indian middle class mainly focus on the endemic problem of corruption which is believed to be the root cause of all problems. Rising prices, crime against women, income inequalities, political apathy are what the new middle class Indians are fighting against. Having achieved a certain standard of living, they demand and expect more accountability from a government that is rooted in corruption.

Unlike the governments of Brazil and China, the government in India has not responded with any credible measures to protect its rising middle class which is a huge chunk of the countries population. The dilemma faced by the middle class is that they are unable to break the hold of the dominant political parties without completely toppling the state-apparatus which is not only nearly impossible, it is also self-defeating. Therefore, government has a long way to go to secure the interests of middle class.

Surely the BRICS have a lot to learn from each other’s experiences. But more than that, they have the potential to cooperate and collaborate through the platform they have created.

The countries could find huge potential in increasing bilateral ties so as to maintain an ongoing acceleration of growth that would justify its grouping.

As the middle class will increase many folds by 2020, in many respects, the middle class will be the dominant power determining political and economic decision making in the BRICS countries.

The BRICS countries are distinguished from a host of other promising emerging markets by their demographic and economic potential to rank among the world’s largest and most influential economies in the 21st century.

What happens to the development of the middle class really depends on what happens politically in terms of the development of constructive, strong government institutions, which requires maintain a fine balance.

Consequently, the BRICS countries should adopt a rational approach and needs to do careful planning for the smooth governance, so that the benefit is equally distributed to the various sectors of the society.

While essentially the BRICS is a political grouping emerged out of the commonalities of their economic characteristics, it is in this area that they can truly cooperate to moderate the demands of its people and also enjoy peaceful economic growth. The BRICS platform can thus promote policies that compliment their economic growth with the rising demands of the emerging middle class.