The Mirage of the Global Middle Class

On October 31st, the United Nations announced that the global population was projected to be at seven billion people. Right after that, many of us began to see and hear financial prognosticators talk about how, due to economic growth, some 850 million people were now middle class. So, in other words, 12.1% of the world in late 2011 could be described as middle class.

A recently released book puts these and other relative wealth factoids in sharp perspective. It is entitled THE HAVES AND THE HAVE NOTS with the subtitle “a brief and idiosyncratic history of global inequality” (Basic Books, 2011). The author is Branko Milanovic who is the lead economist at the World Bank’s research division. He also does double duty as a professor at the University of Maryland.

Milanovic breathes life into global demographics, which, if not handled adroitly, can be a breathtakingly boring subject. In the book’s best chapter, he questions the concept of a global middle class. Oh yes, it exists but not necessarily in terms that a U.S. marketer or private investor would see it.

The problem is that middle class is a term that tends to be defined LOCALLY. Most nations use it as plus or minus 25% of the countries median income (to refresh the memory of some of you 40 years away from a statistics course, the median is the 50th percentile; approximately half of the population is above that statistic and half below).

So, India has a median income which is somewhere between one 15th and one 17th of the United States. Middle class in India, thus, would translate to dire poverty in the U.S. Adding more fuel to the demographic fire is that the cost of living, especially housing, varies widely across the globe.

Milanovic makes a marvelous point about many in the financial world who use superficial analyses to measure a middle class lifestyle. He rails against those who look at cell phone penetration as the silver bullet to determine entry into a middle class existence. I am told that in parts of West Africa, for example, many have cell phones. But, their villages have no electricity. So, when the phone runs down, they have to travel to a city to re-charge it. They do not have the $100 to buy a solar phone charger. They are hardly middle class.

So, what does this mean to you? If you are brand manager and your boss wants you to go hell bent for leather in Latin America, be careful where you place your media dollars. If the product has broad appeal such as Tide, you may do fine. But, if you are selling dishwasher detergent, the odds are good that a Brazil or Chile, for example, will generate per household sales five to seven times most other countries on the continent. Should you be a private investor, just be careful period. Yes, the middle class is growing and certainly faster than in the United States these days. Just keep in mind that there is no way that one eighth of the world is what we consider to be middle class yet. Caveat emptor!

If you would like to contact Don Cole directly, you may reach him at doncolemedia@gmail.com