Incomes Jul15

One of the great myths of our time has been that vast numbers of people in the developing world have suddenly become “middle class”.  This myth seemed to grow out of a confusion between the phrase ”middle income” and “middle class”.  Every country has people who are “middle income”.   But as we discussed in Boom, Gloom and the New Normal:

“Being “middle class” in China and India is radically different from the West. Income levels are a tenth of those in developed markets and will remain so for decades to come. This has major implications for the nature of consumption in China and India – the type of products that will need to be made if companies are to prosper.

Thankfully, however, recent developments in China and other major developing countries have begun to challenge the myth.  And now an excellent new Report from the Pew Institute highlights the reality in great detail, as the chart above from the Financial Timesshows:

  • “Just 16% of the world’s population lives on incomes that would take them safely above the US poverty line
  • “71% of the world’s population still ranked as poor or low-income in 2011, the latest year for which all global data are available, compared with 79% in 2001
  • “Almost 670m people rose above the $2 a day global poverty line in the decade to 2011. That is far below the poverty line as defined in the US, which stood at $15.77 a day in 2011
  • “The change still left 3.4bn people, or 56% of the world’s population, living only just above the global poverty line, on $2 to $10 a day — equivalent to a family of four earning $2,920 to $14,600 a year
  • “The vast majority of the world’s well-off households — those living on more than $50 a day — are still in North America and Europe. About 87% of the world’s “high-income” population lived in the two regions in 2011, down only marginally from 91 per cent in 2001
  • “By contrast, just 1% of high-income populations live in Africa, 4% in South America and 8% in Asia and the South Pacific”

Or as Pew summarise the true position in developing countries:

“People who are middle income live on $10-20 a day, which translates to an annual income of $14,600 to $29,200 for a family of four. That range merely straddles the official poverty line in the United States—$23,021 for a family of four in 2011.

The Financial Times similarly summarises its analysis of the Report as follow:

“The study will give pause to companies that have bet heavily on a rapidly growing middle class in regions such as sub-Saharan Africa. Multinational corporations such as Nestlé have already begun to re-examine strategies in what they had hoped would be strong growth markets.”