Many hopes and assumptions are pinned on the middle class in developing countries, not least in Latin America. The Economist has praised its growth; economists and statisticians have struggled to define and measure it; and many have hailed it as the answer to the region’s political and developmental ills.
But for all this talk, we really don’t know much about this middle class. Who are they? Where do they work, and what is the nature and stability of that work? Do they have access to basic public goods such as health care, pensions or insurance? And now how have they been affected by global economic and financial crisis?
Many observers impute to this vague, amorphous category of the emerging economies’ middle class a whole set of assumptions based on concepts of the European or the United States middle class that drove economic development and ushered in an era of political stability. The truth is, though, that Latin America’s nascent middle class is more inchoate, informal and fragile than most people realize. We’re not talking here about Father Knows Best.
To say this is not to diminish their importance, but it is a call to recognize the limitations and vulnerabilities of one of the most talked about trends in the developing world today.
This is the first in a multi-part series of blog posts based on an ongoing AS/COA and Americas Quarterly research project dedicated to identifying, measuring, understanding, and evaluating the middle classes in Latin America and their roles in and potential for economic and political development for the region. In this first part we will explore the definitions of the middle class and the strengths and weaknesses of those definitions. In subsequent posts we’ll look at some of the basic socioeconomic and infrastructural features of the middle class: access to healthcare, the type of labor they are involved in, their access to credit and banking, and their basic amenities like running water. We’ll also look at what differentiates the middle class in terms of education and home ownership from poorer segments of society. And last we’ll draw from recent survey research to examine the extent to which they’re happier than their cohorts—richer and poorer—and whether they are more likely to support democracy and basic human and political rights.
The Baggage of Our Expectations:
There’s a lot of pressure and expectation on Latin America’s middle class. For some economists like William Easterly, the middle class is the route to economic development. For other groups, particularly those oriented around profit, they represent an expanding pool of consumers who, as their income expands, will soon snap up washing machines, TVs, DVD players, arugula, video games, low-hanging jeans, cell phones, shoes, cars—goods both essential and frivolous.
Others, in a long line of literature and research stretching back to Barrington Moore, Theda Skocpol, Robert Dahl, and Juan Linz and Alfred Stepan, have argued that a stable middle class can cushion the zero-sum resource conflicts between extreme socioeconomic divisions and bring with them values and denser social networks that are essential to democratic consolidation. And last, the formation and stabilization of the middle class also has implications for immigration. If we accept that immigration is in part driven by poverty, then a growing middle class, tied to a community through stable employment, access to some services and the prospect of improvement, dampens potential for outward flow of humans looking for a better life.
All of which leads us to the question: what do we talk about specifically when we talk about the middle class?
Who constitutes the middle class has been a subject of wide ranging debate and conflicting definitions. In large part this definitional fuzziness stems from observers’ own efforts to project their hopes and values onto these arrivistes. In a special feature on the middle class, titled Burgeoning bourgeoisie, The Economist makes the case for an aspiration definition. The article cites Eduardo Giannetti da Fonseca saying that these are “people who are not resigned to a life of poverty, how are prepared to make sacrifices to create a better life for themselves…” While this may make us feel all warm and fuzzy it doesn’t give us much of a metric to measure the parameters of who’s in the middle class and how and if they’ve grown.
Enter the economists and statisticians. In the 1980s Lester Thurow defined the middle class around the median per capita income of each country. For Thurow the middle class was within a 75 percent range below the per capita median income of a country and 125 percent above.
The problem was this was largely a convenient tool to show the shrinkage of the middle class, especially in developed countries. What it didn’t capture—much to the frustration of economists and social scientists working in developing countries—was subtle changes in the growth of the middle class out of poverty. Enter Martin Ravallion. Ravallion redefined the middle class at the lower end as those who are no longer defined as poor by the World Bank standards, in other words earning in 2005 purchasing power parity (PPP) more than $2 per day. For the upper range Ravallion selected earning in PPP of $13 per day as the cap of the middle class—what is defined as poverty in the United States. Not surprisingly, by using this broader range, Ravallion was able to show that the middle class in the developing world had grown by 1.2 billion people from 1990 to 2005.
The problem is that this definition begins with those that are basically not poor, and uses a very minimalist and contested definition of the poverty line. As Ravallion points out in his global study one in six people in the developing world in 2005 live on between $2 and $3 per day—indicating a large percentage at the low and highly vulnerable end of his middle class.
Most other analyses have used slight variations of these measures. The one which I’ll refer to in a later post that provides more details on the living standards and employment patterns of the Latin American middle class is used by Abhijit Banerjee and Esther Duflo of the Poverty Action Laboratory at MIT. Banerjee and Esther Duflo examine consumption, based on household surveys, and define the middle class as those who have a daily consumption per capita of between $2 to $10. They then break up the group into two from $2 to $4 and $6 to $10. Focusing on consumption avoids the constraints of an income-only metric and breaking it in two permits a variety of useful comparisons within their definition of the middle class.
But more on this in the next post next week. A teaser? In Latin America they’re not as rich or well placed as we would hope.