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Economic Analysis – The Expenditure of the Middle Class Establishes Growth
Published in AL HAYAT on 09 - 08 - 2010

The middle class is expected to spend around 60 trillion dollars in 2030, thus constituting an economic and social security valve – as expenditure represents the foundation of economic growth. Hence, in their economic strategy aiming at restoring growth and reviving their economic activity from the abyss of stagnation, the countries of the world focus on promoting expenditure, especially with families. Generally speaking, expenditure is the main generator of the renewable economic capacity in the production field. The main objectives of growth intersect at the meeting point between production and consumption. Production at maximum capacity offers opportunities to labor: it absorbs the unemployed, reduces pressure from the government expenditures related to unemployment, reinforces the spending power, supports the growth of production sectors, and ensures the continuity of production and expenditure, and hence growth.
Research centers around the world depend on the development of the consumption index in the markets to adopt previsions in light of which the positive and negative growth trends will be studied. Based on this, the concerned countries might take measures that aim at preserving an acceptable indicator level, whether by reducing taxes on salaries to reinforce buying power, or by supporting the sales of certain goods, such as cars, in order to promote the sector, given what it represents in terms of a fine environment for containing labor in large quantities. It might also take various measures with employers in order to preserve the level of the buying or spending power.
However, in great financial and economic crises, such as the current one, the buying power is affected by the behavior of consumers. Indeed, most of them tend to save money rather than spend it, or to buy precious metals like gold, in anticipation of the deterioration of the value of local currencies.
Domestic markets depend on the middle class for consumption, as it is considered a guarantee for consumption. Middle-income categories represent the largest portion in global communities: they are the greatest consumers of foodstuff and household or daily products. They also represent a broad spectrum of bank debtors, who buy goods through installments. Great countries depend on this category to achieve growth, as it is a source of all types of labor, which in turn provide the largest portion of public expenditure. Hence, it almost achieves equality among the productive economic activities, as opposed to the wealthy categories whose expenditure is restricted to expensive goods with limited sources. Consequently, China for example was keen on maintaining its national currency at a lower level than its value, with the aim of protecting this social class that includes almost 350 million persons, and represents a domestic market that reduces the burden of export – before a large number of them went back to the countryside with the beginning of the global financial crisis.
An OECD work paper notes that an important middle class is forming around the world, mainly in Asia. This was the principal result of the document that was prepared by economist Homi Kharas and that was considered to be interesting due to the dearth of social facts in the world.
According to the document, the middle class around the world is made up of 1.8 billion persons, i.e. 28% of the world's inhabitants. This number will increase to 5 billion by 2030, i.e. two-thirds of humanity at that time. The rise of this category will mainly take place in Asia, from 500 million this year to 3.2 billion in 2030. Asia's share of the middle class will rise from 28% to 66% compared to Europe and Latin America's share that will diminish from 54% to 21%.
Despite the caution that welcomed the socio-economic study's conclusions, as a result of differences in the poverty line standards between developed and developing countries and rising countries, these conclusions remain beneficial for studying the trends they revealed. The study's author discusses the dynamics of China, the country that affects the study's results. He considers that the Chinese middle class currently represents 12% of the world's inhabitants. The study asks if it is possible for China to avoid the misdistribution of wealth, just like what happened in Brazil between 1960 and 1970, while South Korea achieved a similar growth to China, and was able to rise up to 53% with its middle class.
If countries around the world manage to overcome the crisis, they will achieve growth on demand. The study estimates that the expenditure of the middle class in the world will increase by 2.6 times (from 21 trillion dollars to 55.7 trillion dollars in 2030). In 2020, china will become the primary global market.
It must be also noted that the concentration of wealth negatively affects growth, and this allows for the emergence of middle-income categories, which establishes continued growth.


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