The Middle Class Is Moving to Asia: Why We Should Care

By Shlomo Maital  

      middle class


   Some  2,362 years ago, the Greek philosopher Aristotle wrote [in his treatise Politics]  that “the most perfect political community is one in which the middle class is in control… where the middle class is large, there are least likely to be factions and dissensions.”   Today, the middle class in Western countries is an endangered species.  The result is a growing threat to both our economies and our democracies ‒ divisive growing inequality in wealth and income and increasingly fractious interest-group politics.      

     Why is this happening?  Mainly, collapsing job security.  A survey by the American Pew Research Center found that 86 per cent of Americans consider a secure job to be “the most important part of the middle class”.  The middle class used to be anchored by high-wage manufacturing jobs.  No longer.  Many of the $24/hr. jobs of American auto workers have migrated to Asia.      As a result, the middle class once dominant and thriving in the West has not disappeared; it has simply migrated to China and to India.  According to a 2010  OECD working paper by Homi Kharas,   today nearly 60 per cent of total global middle-class consumption spending is done by Americans and Europeans.  But in 2050, that figure will shrink to a miniscule 10 per cent,  while the proportion accounted for by middle classes in China and India will exceed 50 per cent.  (See graph).  According to New York Times columnist Thomas Friedman, India alone has 300 million middle class people and another 300-million-person ‘virtual’ middle class comprising those who will soon qualify.

   As Europe and America offshore their manufacturing to Asia, they have become service economies. Services are bipolar. Either you are a highly-paid software engineer, or a low-paid Wal-Mart worker or McDonald’s worker, at near-minimum wage.  Services are a major destroyer of the middle class, as they displace the once-high-wage manufacturing jobs the middle class held. 

     Aristotle foresaw long ago,  “where some possess much and others nothing…a tyranny may grow.”  But the endangered species status of the middle class is not inevitable.  In the Nordic countries, for example, high taxes on the wealthy, a solid social safety net providing comprehensive services for all, strong educational systems and job retraining programs have maintained the middle classes and achieved a high rate of social mobility.  And Denmark, for instance, has per capita GDP of over $50,000.    If we do want to sustain our middle class, we must benchmark the Nordic nations and learn from them.  But there is little sign this will happen, even in Europe, where the Scandinavian model is on their northern doorstep.