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The rise and rise of the Asian middle classes

Asian economy | The rise and rise of the Asian middle classes Anthony Harrington

With European and US consumers busily engaged in playing down debt and cutting up their credit cards, the great hope for future consumer driven booms could well lie with the rise and rise of Asia’s middle classes. The Asia Development Bank (ADB) publication, Key Indicators for Asia and the Pacific 2010, has an excellent “Special Chapter” on the region’s middle classes.

The ADB extrapolates from current growth trends to show that by 2030, if things continue on their present path, Asian domestic consumption will be enormous:

Consumer spending in developing Asia, meanwhile, has shown surprising resilience, even during the recession. It reached an estimated $4.3 trillion in annual expenditures in 2008—nearly a third of private consumption in the Organisation for Economic Co-operation and Development (OECD) countries. Assuming consumption expenditures continue to grow at roughly the same rate as in the past 20 years they are likely to reach $32 trillion and comprise about 43% of worldwide consumption by 2030, placing the region at the forefront of worldwide consumption.

That is serious consumer buying power by anyone’s standards, and if it comes to pass, the rebalancing of the global economy will have proceeded in leaps and bounds, making the repetition of the great 2008-2009 meltdown considerably less likely.

However, as the ADB diplomatically puts it, “none of this is a given”! There is still huge poverty in Asia to be overcome. More than 1.5 billion Asians were living on less than $2 a day in 2008. And while there were 1.9 billion Asians who qualified as “middle class” under the definition of a per capita consumption of between $2 and $20 a day, the majority were at the $2-$4 end of the scale, not the $18 to $20 end of it. At the bottom end of this somewhat illusory middle class definition, there is only a wafer thin margin between destitution and having a little surplus. Any shock at all and the surplus vanishes.

What is needed, the ADB argues, for the promise of a vibrant Asian middle class in excess of 1 billion persons to become a reality, is for governments in the region to introduce policies that bolster the incomes of those already in the middle class.

That will seem a bit of an odd argument to those in the west who are more concerned with eradicating poverty than with building an army of consumers, but the opposition is more imaginary than real. Boosting the middle classes will drive wealth throughout the population spectrum, from the poorest to the richest. It will then be up to fiscal policies to implement progressive policies that benefit those left in the under $2 a day trap.

The ADB wants to see a great deal more government spending on education and health in the region. The more the State spends on these matters, the less the consumer has to, and the more surplus, therefore, they are going to have to drive the consumer led boom of the future.

Societies with a large middle class, the ADB argues, are much less polarised and less caught up in battles over wealth redistribution between a small elite of “haves” and a large mass of “have-nots”. This makes it much easier for societies with a large middle class to reach consensus on the major issues that bear on economic development. This is a must-read paper for anyone interested in Asia’s future in the world economy.

Further reading on the Asian economy and GDP growth:

Tags: ADB , Asia Development Bank , Asian middle classes , consumer led boom , GDP growth , poverty
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