Something of enormous global significance is happening almost without notice. For the first time since agriculture-based civilization began 10,000 years ago, the majority of humankind is no longer poor or vulnerable to falling into poverty. By our calculations, as of this month, just over 50 percent of the world’s population, or some 3.8 billion people, live in households with enough discretionary expenditure to be considered “middle class” or “rich.” About the same number of people are living in households that are poor or vulnerable to poverty. So September 2018 marks a global tipping point. After this, for the first time ever, the poor and vulnerable will no longer be a majority in the world. Barring some unfortunate global economic setback, this marks the start of a new era of a middle-class majority.
We make these claims based on a classification of households into those in extreme poverty (households spending below $1.90 per person per day) and those in the middle class (households spending $11-110 per day per person in 2011 purchasing power parity, or PPP). Two other groups round out our classification: vulnerable households fall between those in poverty and the middle class; and those who are at the top of the distribution who are classified as “rich.” Our “middle class” classification was first developed in 2010 and has been used by many researchers. While acknowledging that the middle class does not have a precise definition that can be globally applied, the threshold we use in this work has the following characteristics: those in the middle class have some discretionary income that can be used to buy consumer durables like motorcycles, refrigerators, or washing machines. They can afford to go to movies or indulge in other forms of entertainment. They may take vacations. And they are reasonably confident that they and their family can weather an economic shock—like illness or a spell of unemployment—without falling back into extreme poverty.
By classifying all households in the world into one of these four groups, using income and expenditure surveys from 188 countries, we are able to derive measures of the global distribution of income. This middle class story is probably bigger in terms of the number of people affected. In the world today, about one person escapes extreme poverty every second; but five people a second are entering the middle class. The rich are growing too, but at a far smaller rate (1 person every 2 seconds). Why does it matter that a middle-class tipping point has been reached and that the middle class is the most rapidly growing segment of the global income distribution? Because the middle class drive demand in the global economy and because the middle class are far more demanding of their governments.
Consider the structure of global economic demand. Private household consumption accounts for about half of global demand (the other half is evenly split between investment and government consumption). Two-thirds of household consumption comes from the middle class. The rich spend more per person, but are too few in number to drive the global economy. The poor and vulnerable are numerous, but have too little income to spend. For most businesses, the sweet spot to target is the middle class. This has long been true in individual advanced economies; it is now true on a global scale. The new middle class is predominantly Asian—almost nine in 10 of the next billion middle-class consumers will be Asian—but they are spread out in China, India, and South and South East Asia. In most countries, there is a clear relationship between the fate of the middle class and the happiness of the population. According to the Gallup World Poll, new entrants into the middle class are noticeably happier than those stuck in poverty or in vulnerable households. The tipping point in the world today offers opportunities for business but complications for policymakers.
