Thursday, August 19, 2010

Asia's New Middle Class

A decade after its emergence was forecast by investment bankers and economists, Asia’s middle class is finally starting to make itself felt, according to a new report by the Asian Development Bank, and it appears increasingly likely to assume the traditional role of the United States and Europe as primary global consumers who will help to rebalance the global economy.

The report, released Thursday, says Asia’s consumers can be expected to spend US$32 trillion annually by 2030 — 54 percent of worldwide consumer spending.

It is a middle class that is growing at astonishing speed. The middle class made up only 23 percent of developing Asia’s population in 1990, and it more than doubled to 56 percent in the 18 years to 2008.

China added more than 800 million people to the middle class during the period.

“As developing Asia’s people secure their middle-class status, its emerging consumers are very much expected to become the next global consumers and assume the traditional role of the US and European middle classes,” the report says.

At that, according to the ADB, Asians remain cautious spenders.

For more than a decade, Asian and Western companies catering to the consumer have tried to figure out how to separate them from their money, but saving rates remain very high all the way across the region, in part to make up for inadequate social services.

Interestingly, the report notes that since Asia’s middle-class consumers are poorer and spend much less than their western counterparts, companies have had to develop affordable new products and services.

“This has spawned a great deal of innovation,” the ADB says.

Importantly, this burgeoning middle class bodes well for the region’s political and economic future also.

The growth of the middle class is important for the stabilization of society itself, according to economic historians quoted by the ADB, who point out that societies with small middle classes find it difficult to reach consensus.

Societies with larger middle classes can more easily agree on a broad range of issues relative to economic growth, from education to public health and infrastructure.

In societies without a middle-class consensus, elites tend to underinvest in such things for fear they will empower their opposition.

In India, the emergence of a middle class now 250 million strong has dramatically changed the country’s class structure from one with a small elite and an enormous impoverished class to one dominated by a large intermediate class, the report notes.

With the emergence of the “have-somes” over the “have-nots,” the middle class can provide entrepreneurs who create employment and foster a culture which values education and savings as critical to economic growth.

The five countries with the largest middle class by percentage of population share in Asia are Azerbaijan, Malaysia, Thailand, Kazakhstan, and Georgia.

The five smallest are Bangladesh, Nepal, Laos, Uzbekistan and India. Armenia, China and Vietnam have made the greatest progress in increasing the population share of the middle class.

That isn’t to say these rising incomes are an unalloyed blessing. Environmental and ecological damage, rising obesity, increasing chronic middle-class diseases such as diabetes, heart disease and cancer, are all growing problems.

Currently, the average Indian uses only 40 percent of the water an average American uses.

Given the severe scarcity of water in many parts of the region, the report notes, “there are potentially large consequences if the average Chinese or Indian increases his or her water consumption to the level of the American consumer.”

Also, although carbon dioxide emissions per capita — the principal factor in climate change ¬— are dwarfed by those in the West, they are increasing at a much faster rate.

“In large part, the rising stress on the environment reflects a policy failure,” the report notes,

“For instance, water subsidies to urban consumers and to cultivators often result in overconsumption of water, while fuel subsidies in many countries exacerbate the problem of greenhouse emissions; clearly, there is a strong role for policy to help mitigate such environmental stresses, while facilitating adaptation to climate changes.”

The urban middle class also has become fatter and more sedentary as the Asian diet skews toward processed foods rich in fat.

So, keep growing Asia. But don’t forget to exercise.

By John Berthelsen the editor of Asia Sentinel ( ).

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