Economists, social scientists and policy makers highlight the rapid expansion of the middle class in Latin America, but Jamele Rigolini, a senior economist at the World Bank, emphasizes that this growth is not exclusive to the region. In an article published today in Americas Quarterly’s Fall 2012 issue on the middle class, Rigolini writes, “while the industrialized world was facing a challenging decade, many emerging economies surfed past the global turbulences and continued to grow, lifting people out of poverty and feeding the ranks of their middle classes.”
According to Rigolini, the BRIC countries—Brazil, Russia, India, and China—are all experiencing varying degrees of growth in their middle class, with growth in some regions more substantial than in others. When 50 million individuals joined Latin America’s middle class in the past decade, about 20 million of them were Brazilian. The middle class now comprises about 50 percent of the country’s population, making Brazil an increasingly middle-class society.
Russia and China’s middle classes have also grown remarkably, with the middle class more than doubling in Russia to comprise over half the population, and increasing from 10 million to 83 million individuals in China over 10 years—an eightfold increase. China’s middle class is expected to expand to 1 billion individuals by 2030, making up a predicted 72 percent of the country’s projected future population.
According to a November 9 World Bank report, the size of Latin America’s middle class has grown to equal the number of Latin Americans living in moderate poverty for the first time ever.
Nonetheless, inequality and poverty in the BRIC countries remains a formidable problem. China’s new middle class currently represents only 10 percent of its population. Meanwhile, in India, the 9 million people classified as middle class in 2010 still represent less than 1 percent of that country’s citizens. And Latin America continues to be classified as one of the most unequal regions in the world, with almost two-thirds of the population yet to reach middle-class status in some countries.
“Everything else being equal, when the proportion of the middle class in a society increases, social policy on health and education becomes more active and the quality of governance regarding democratic participation and official corruption improves,” Rigolini says. “Whether the change brought by the middle classes is always good for the poor remains, however, an open question.”
Thousands of people took to the streets across Argentina on September 13 to protest generalized insecurity, heavy handed state intervention and a looming threat of constitutional reform that could pave the way for the re-election of President Cristina Fernández de Kirchner in 2015. Temperatures have hit a boiling point after a very long simmer heated by years of government-denied inflation, nationalizations, import restrictions, and now talks of constitutional reform.
It is often said that Argentines yearn for and lament the passing of the belle époque, a period at the turn of the last century when Argentina was considered one of the richest, fastest growing countries in the world. Their lingering arrogance as a European-like exception on a “lost continent” in the late 1980s and 1990s quickly crumbled with the 2001 economic meltdown and historic $100 billion default.
Today´s protests are reminiscent of the cacerolazos—or pot banging—that took place before Argentina crashed in 2001. After hitting rock bottom, things began to pick up for the country in 2003 thanks in large part to high commodity prices and an accompanying export boom led by soy.
The presidential power couple, Nestor and Cristina Fernández de Kirchner, were politically compensated for the comeback and amassed considerable power and wealth during the first decade of the millennium. It now appears the credit was misplaced as Argentines once again pine for economic stability, safety and security, and rational governance –despite continued strong commodity prices!
From the Americas Society/Council of the Americas. AS/COA Online's news brief examines the major—as well as some of the overlooked—events and stories occurring across the Americas. Check back every Wednesday for the weekly roundup.
Term Limits, Economic Liberalization, and a Leadership Shuffle for Cuba
Cuban head of state Raúl Castro proposed enacting term limits in order to rejuvenate the country’s political leadership, currently dominated by geriatric revolutionaries who rose to prominence in the 1950s and 1960s. Castro made the proposal at the opening of Cuba’s Sixth Communist Party Congress, where the island’s leaders evaluated a slew of proposals designed to allow a greater role for private initiative and pare back the role of the state. The Congress officially retired Fidel Castro, bumping Raúl Castro up to the position of first secretary of the Cuban Communist Party. José Ramón Machado, an octogenarian, was named to replace Raúl in the number two spot and The Christian Science Monitor notes that none of the top three spots went to an official under the age of 78.
Read an AS/COA News Analysis about the reforms considered by the Communist Party Congress over the weekend.
Obama Administration Ready to Move on Panama FTA
U.S. Trade Representative Ron Kirk told Congress this week that he is ready to begin technical discussions for the ratification of the pending free trade agreement with Panama. The Obama administration took the decision to move forward on the deal after Panama’s Congress passed changes to its tax law that will allow the United States and Panama to share information on bank accounts in their countries. Bloomberg reports that the trade agreement with Panama could be worth some $6.5 billion to U.S. companies, based on U.S. Census Bureau data. Obama will meet with Panamanian President Ricardo Martinelli at the White House on April 28.
Latin America's Middle Class Makes Strides
The Economic Commission for Latin America and the Caribbean released its 2011 review, with a focus on the rapid expansion of the region’s middle class as well as how expanded ties with China affect exports. Thanks to rising GDP, falling poverty rates, and better income distribution, Latin America’s middle class grew by 56 million since 1999. Brazil accounted for the largest portion of that growth, given that 38 million people joined middle class ranks there over the past decade.
World Bank Applauds LatAm Growth, but Warns of Challenges ahead
Latin America and the Caribbean weathered the economic crisis better and bounced back more strongly than the United States, Europe, and Central Asia, with an average 6 percent growth rate last year, according to a World Bank report released last week. But the report warns that Latin American economies remain dependent on the rebound of high-income countries and high commodity prices. Inflation, the inflow of speculative foreign capital, and the possibility of local currency appreciation also threaten to undermine the region’s continued economic wellbeing.
Two weeks ago I started a serialized essay on Latin America’s middle class that will appear every other week on the AQ blog. As I wrote at the time, Latin America’s middle class has received a lot of attention of late, including worry about its size, praise and high expectations for its growth and debate about its future. It’s also sparked a fair amount of speculation by businesses about its market potential.
But as I wrote two weeks ago, Latin America’s middle class is much more heterogeneous and, quite frankly, poorer and marginalized than many of us in developed countries would believe. In the last post, I talked about the definition of the middle class. In this one I talk about access to banking. And not to give away the punch line: it’s lower than you think. In later ones I’ll talk about wage security, education, access to health care, access to insurance, quality of housing, levels of satisfaction, and support for democracy. But more about this in subsequent posts.
Now it’s about the integration of Latin America’s middle class into the formal banking/financial system.
Consider this: according to an article that appeared in The New York Times on August 18, 2009, in New York City (notice how as a resident now I capitalize City as if to give it special meaning. Why I don’t know.) “in the world’s banking capital, 12 percent of households do not have a bank account” compared with 8 percent nationally.
That’s in New York and is a statistic that transcends socioeconomic groups—upper class, middle class and the poor.
Consider this: in Latin America, in Mexico, for example, the middle class’s access to formal credit averaged just over 20 percent (in other words, just under 80 percent of the Mexican middle class did not have access to formal credit sources—banks, credit agencies, credit cards, etc.). And in Peru under 18 percent had access to savings accounts.