|Wall Street is hoping, with fingers crossed, that the BRIC home markets have
sufficiently developed to compensate for a downturn in their exports to the
OECD countries and to act as new engines of growth for the world capitalist
Jim O'Neill is chief economist for Goldman Sachs and a proponent of the
"decoupling" thesis. What he sloppily calls the "middle class" is the urban
working class in these newly emergent markets, and his assertion that
inequality is "declining significantly, not increasing" in these nations is
But his article is interesting both as a description of the rapid expansion
of the working class on a global scale, and for the opportunities these new
worker-consumers present to multinationals seeking to burst the confines of
the slower-growth imperialist nation-states where they originated and are
still, for the most part, based.
Boom time for the global bourgeoisie
By Jim O’Neill
July 15, 2008
IN THE MIDST OF the current widespread gloom and doom in the west, it is
important not to lose sight of the true structural themes shaping our era.
Linked to the current mood, commentators often depict an embattled and
shrinking middle class, with sharply rising financial inequality. However,
globally, this is simply not true. One of the most startlingly positive
phenomena for many generations continues to unfold around the world. We are
in the middle of an explosion of the world’s middle class.
As two of my colleagues, Dominic Wilson and Raluca Dragusanu, showed in a
paper Goldman Sachs published last week (The Expanding Middle: The Exploding
World Middle Class and Falling Global Inequality), about 70m people a year
globally are entering this wealth group, as defined by those on incomes of
between $6,000 and $30,000 (€3,800-€19,000, £3,900-£15,000), in purchasing
power parity terms.
The phenomenon may continue for the next 20 years, with this global middle
accelerating to 90m a year by 2030. If this happens, an astonishing 2bn
people will have joined the ranks of the middle class. This demonstrates
that, contrary to widespread opinion, global inequality is declining
significantly, not increasing.
Behind this powerful development is, of course, the unfolding story of the
Bric, as we dubbed Brazil, Russia, India and China back in 2001. In addition
to the gloom surrounding cyclical challenges in the US and other developed
economies, it is currently becoming fashionable to believe that the Bric
story is about to be tipped over the edge by rising inflation, scarcity of
resources and their own backlash against globalisation. Some slowing of
rapid growth in these economies is bound to happen. Indeed, the
sustainability of it might be helped by some softening.
But I believe this negative mood is overstated. In China, we are seeing
evidence that inflation may have peaked three months ago. This week we are
likely to hear consumer price inflation slowed to 7.1 per cent in June, the
third consecutive monthly slowing, and we think annual inflation will be
back below 4 per cent by early next year.
With this move, overall gross domestic product growth will slow below 10 per
cent, but this decline will be led by exports and investment. The Chinese
consumer is going to keep on spending. In fact, judging by the ongoing
strength of retail sales, the Chinese shopper may already be spending more
than his or her equivalent in the US.
In all our exciting 2050 projections, including those updated for the recent
paper, we have assumed that Brazil, Russia, India and China all grow at
notably slower rates than currently. The same is true for the other
countries that make up the bulk of the exploding global middle.
The emergence of this group is led by China and India but, importantly,
includes many other countries. Even without China and India, the expansion
of the new middle classes would be about 20m a year. Middle-class citizens
will appear in their millions in many other parts of Asia, central and
eastern Europe, the Middle East and Latin America. This is a Bric-driven
phenomenon, but the “next 11” are making their contribution and other
nations will also participate.
Dramatic changes in economic, social and political trends will probably
follow, some of which are already beginning to emerge. According to news
stories last Friday, Russia has already become Europe’s biggest car market,
outstripping Germany, following dramatic first-half sales. Automakers are
fleeing from Detroit to Moscow and St Petersburg. Battles about the right
way to run global businesses, countries and trading between us all will
inevitably grow. Meetings of the Group of Eight leading economies will
become redundant features of the annual calendar, with a new group driving
the world’s economic agenda.
It is also evident that poverty is dropping dramatically around the world.
According to our calculations, the number of people living on incomes of
less than $1,000 dollars a year ($2.75 a day) has already dropped
significantly from about 50 per cent of the world’s population in the 1970s
to 17 per cent by 2000. According to our numbers, it could be as low as 6
per cent by 2015. On the more familiar World Bank definition of one dollar
a day, the same dramatic shift is evident. Probably no more than 5 per cent
of the world’s population now suffers this indignity. Of course, this is too
much, but as long as the forces of globalisation continue we expect it to
It is important for everyone in the so-called developed world to be
constantly aware that these powerful shifts in global wealth are good not
only for the developing world, but for them too. If you take a look at a
chart of recent US export growth, you may well think you are looking at the
wrong data series. But you are not. US exports are indeed growing at close
to 20 per cent and it is this that is stopping the housing and credit crunch
from driving the US into a deep recession. Aspects of the same phenomenon
can be seen in Japan, Germany and even the UK.
The new middle-class explosion is going to remain the market opportunity for
us all, or certainly for those of us who are prepared to respond to the new
The writer is chief economist at Goldman Sachs.