How will Asia’s growing middle class change the world?

Despite recent economic uncertainty, Asia’s middle class is growing fast. In the coming decades, this burgeoning demographic segment will serve as a keystone for economic and political development in the region, with significant implications for the rest of the world.

The OECD estimates that the global middle class (defined as households with daily expenditures of $10-100 per person, in 2005 purchasing power parity terms) will swell to 4.9 billion people by 2030, from 1.8 billion in 2009. Two-thirds are expected to reside in Asia, up from 28% in 2009, with China home to the largest share. Indeed, if China pursues the structural reforms and technological upgrading needed to maintain rapid economic growth, its middle class should exceed one billion people in 2030, up from 157 million in 2009.

The rapid emergence of Asia’s middle class will bring far-reaching economic change, creating new market opportunities for domestic and international companies. Already, demand for consumer durables has increased in the region, with China becoming the world’s largest market for automobiles and mobile phones. But there remains substantial room for more consumption in luxury goods and technological products, as the purchasing power of the developing world’s middle class catches up to that in the advanced countries.

This convergence will contribute to more sustainable economic growth, with Asia’s economies rebalancing toward domestic demand, especially household consumption, and thereby becoming less vulnerable to external shocks. Given the decline in export demand since the global economic crisis, this shift could not be timelier. And the benefits will not be confined to Asia; as imports to the region increase, global trade imbalances will decline, improving the sustainability of economic growth worldwide.

Indeed, Asia’s growing middle class will transform a region known as a global manufacturing hub into a consumption powerhouse. As demand rises, more and better jobs will be created not only in Asia, but also globally, along supply chains and across production networks.

With rising prosperity comes improved education and health care, which promise to help drive long-term economic growth by improving productivity. In China, this would represent a significant shift from prevailing conditions, in which the children of poor households, especially in rural areas, lag in terms of nutrition and school enrollment, despite significant progress in recent decades on lowering infant mortality and raising educational attainment.

Equipped with high-quality education, Asia’s rising middle class will demand higher-quality public services. Increased confidence in their country’s political systems and institutional structures, enhanced by improved perceptions of upward mobility, will help to strengthen the rule of law. And there will be more opportunities for women to learn and work, leading to greater gender equality.

Most important, the rise of the middle class is likely to be accompanied by growing demands for political freedom and civil liberties, thereby fostering democratization. Indeed, an examination of a large sample of countries, from the nineteenth to the twenty-first centuries, reveals that a larger population of affluent, educated citizens – especially women – brings about more political participation and greater support for democracy, particularly in less-developed countries.

In the West, capitalism and democracy progressed in tandem, as the development of markets reduced the power of landlords and increased that of the working and middle classes. By participating actively in politics, basing their electoral choices on rational self-interest, and developing the sense of moderation needed to resist dictatorship, the middle class promotes democratic progress. At the same time, the growth of private organizations associated with the rise of the middle class prevents state institutions from monopolizing political resources.

In Asia, South Korea experienced a similar progression, with rapid economic growth spurring the rise of a large middle class, which in turn drove democratization in the 1980s. That history may repeat in China before long.

Given the benefits of having a large middle class, Asian countries should be nurturing theirs by improving health care, upgrading infrastructure, investing in universities and technical training, and addressing income and educational disparities. Moreover, social safety nets should be created or strengthened, in order to help safeguard the middle class from negative shocks and boost consumption growth (which continues to be hampered by precautionary saving).

Finally, public policies – aimed at strengthening the rule of law, promoting trade, and achieving sound macroeconomic management – are essential to sustain growth, thereby ensuring the continuous upward mobility of lower-income families. That upward mobility is the key to keeping in motion a virtuous circle of middle-class expansion and economic growth.

This article is published in collaboration with Project Syndicate. Publication does not imply endorsement of views by the World Economic Forum.

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Author: Lee Jong-Wha is Professor of Economics and Director of the Asiatic Research Institute at Korea University.

Image: Pedestrians walk under red lanterns which was recently installed as Chinese New Year decorations. REUTERS/Aly Song