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posted on 22 September 2016

Asia's Mythical Middle Class Society

by John West, Asian Century Institute

Despite the widespread hype, Asia's "middle class" society remains a myth. Only 15% of Asians could claim to be living middle class lives.

Once Singapore's Kishore Mahbubani wrote:

"The explosion of Asia's middle class is stunning ... The world has never seen anything like this before"

It is indeed true that Asian lives have improved enormously these past few decades. But yet, despite much hype about Asia's emerging middle class, the region's human and social development remain stunted. At this point, middle class Asia is still a myth. And the prospects for a continued rapid improvement in Asian lives are fading with the current stagnation of the world economy.

There is no universal agreement on what middle class means. Many economists think in terms of how much someone consumes or earns in income. Sociologists tend to reason in terms of education, occupation in a white-collar job or other status.

The Asian Development Bank once defined the middle class as those living in the range of $2 to $20 a day. It concluded that the majority of Asia's middle class lived on $2-4 day, and were part of the "lower middle class". Many Chinese just laughed. No-one could live on $2 or even $4 day today in a Chinese city. Shanghai and Beijing are among the world's most expensive cities in which to live.

The $10 a day threshold is now increasingly accepted as the beginning of the middle class in emerging economies. At the same time, income or consumption of $10 a day would not be considered middle class in any advanced Western country. In other words, middle class has become a fuzzy concept, and must be interpreted with caution.

Using the $10 a day benchmark, some 650 million Asians could today be considered middle class. This sounds like a big number by any score. And it certainly sounds like a good market for businessmen wishing to hawk their wares. But this represents at best some 15% of Asia's population. In short, middle class Asia is still more a promise than reality.

China, the country most talked about for its emerging middle class, only has 20% of its population living on more than $10 a day. And while emerging Asian countries are struggling to achieve middle class societies, advanced Asian countries like Japan and Korea are seeing their middle classes recede, as they are stalked by the new rich country problems of inequality and poverty.

While Asia has only made very limited progress in achieving a middle class society, it is certainly true that strong economic growth has enabled millions of Asians to escape the clutches of extreme poverty. Based on the World Bank poverty line of income of $3.10 a day, 36% of people from emerging Asia would now be living in poverty, a dramatic improvement on the 90% figure in 1981.

But the reality of Asian life is that most Asians who have escaped poverty are now caught between poverty and middle class. Fully one-half of Asians are still living in a very vulnerable and precarious situation between $3.10 and $10 a day. At such low levels of income, people are at risk of falling back into poverty in the event of a natural disaster, a sudden hike in food prices, or a personal/family problem like unemployment, or an illness.

And there are factors other than the lack of money which are also holding Asians back from joining the middle class. Some two-thirds are also exposed to vulnerability and precarity because they work in the "informal sector", without contracts or rights, for enterprises which are neither registered nor regulated. Minimum wage laws, collective bargaining, and health and safety standards are unheard of in the informal economy.

It is not only Asia's poorer countries which are afflicted with vulnerability and low-quality jobs. In Japan, the share of non-regular workers -- part-time, temporary and dispatched workers -- in the economy has almost tripled from 16% to 40% since 1990 when Japan's bubble economy burst.

Furthermore, many Asians who earn incomes like $3.10 or $10 a day may also suffer from other deprivations like no access to clean drinking water, education for their children, infant and maternal mortality, basic healthcare facilities, or personal security.

Perhaps one of the most egregious deprivations from which many Asians suffer is the lack of "improved sanitation" or, in plain English, clean, safe and hygienic toilets. Today, some 1.7 billion or 42% of the region's population still lack access to clean, safe and hygienic toilets, with close to half of Asia's "toilet-poor" population living in India. Many more Indians have access to a cell phone than a toilet!

Now what happens if you have your $3.10 or even $10 a day in your pocket, but every couple of years it gets washed away in a flood, blown away in a typhoon, or lost in an earthquake -- something which occurs all too frequently in Asia, the continent most afflicted by natural disasters. Taking account of natural disasters would add some 400 million or more people to Asia's poverty ranks.

Access to the Internet is a mark of middle class status and is increasingly seen as a human right. But despite the image of a tech-savvy Asia, less than half of Asians now use the Internet. Some 85% of Indians do not use the Internet, while 54% of Chinese are not online. There is much more that governments could do to improve access to the Internet.

But too many of Asia's non-democratic governments are imposing restrictions on freedom of the Internet. Only two Asian countries, Japan and the Philippines, are classified as having full Internet freedom, out of the 15 Asian countries covered in a Freedom House report. China was the worst abuser of Internet freedom in this report that surveyed 65 countries globally. Other notorious cases in Asia were Vietnam and Thailand.

Another hallmark of a middle class society should be the protection of human rights by sound legislation and their fair enforcement by the legal authorities. Nowhere in this world can you find a perfect situation for human rights situation. But in Asia, the state of human rights has been moving backward, especially in China where President Xi Jinping has been ramping up repression to maintain the Communist Party's grip on power, and in Thailand under the military regime.

The arrival of a middle class society would be a great achievement in terms of realising an Asian Century, and bringing social and political stability to the region. It could also provide new business opportunities, as many Asian economies are switching from export- to domestic demand-driven growth. But there is so much that Asian governments need to do, not only in terms of economic reform, but also for social and political modernisation. At best, it will take very many decades to realise a middle class Asia.

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