The Great “Middle Class Myth” Further Exposed

China, Company Strategy, Economics, Environment, India

Pew

By John Richardson

A GOOD argument is only a good argument if it is backed up by sound data. Agreed? Yes, nobody is going to disagree on this point.

And yet for many years now, I’ve been scratching my head with bafflement every time a senior chemicals company executive has talked in a very one-dimensional fashion about the great potential offered by the rise of the middle classes in the developing world.

I may have talked to the wrong people here, but not once have I heard an executive qualify her or his comments by pointing out that being middle class in the developing world is vastly different from being middle in the West, despite all the data that has long supported this critically important conclusion.

Why? Maybe this has been a case of The Emperor’s New Clothes. If everyone else believes that the Emperor is dressed when, in fact, he is stark naked, why bother to take the risk of pointing out the obvious? If you speak put there is also the risk that is your eyesight is proven to be faulty, as everyone else demonstrates that they have 20:20 vision.

And, anyway, even if people have harboured private doubts, the middle-class myth story has been a great way of talking up share price.

But as fellow blogger Paul Hodges pointed out in this excellent post from earlier this week, times have started to change.

Greece, Iran, China – suddenly real world issues are starting to dominate the headlines.  And few people now believe that printing more money is the way to solve these issues.  Instead, political leaders are being forced to take the hard decisions they have ducked for so long.

Financial markets are clearly reflecting the change.  They are starting to make the long journey back to being based on the fundamentals of supply and demand.

So you can make a reputation yourself of standing on the edge of the crowd and shouting very loudly, “The Emperor is, in fact, naked!”

To back up your claim, here is some new data from the Washington-based Pew Research Center. In a Report published last week, Pew Research found that:

  • Seventy one per cent 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%t of the world’s “high-income” population lived in the two regions in 2011, down only marginally from 91% 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.

Instead of wasting more time in one-dimensional discussions with investors and other stakeholders about the rise of the emerging world’s middle classes, chemicals companies need to instead be upfront about how the real picture is more complex and nuanced.

This kind talk must also, of course, work through to the strategic approach of companies.

Affordability, affordability and affordability have to be three of the key priorities in providing chemicals and polymers to the developing world.

Of equal importance will be “demand management” – i.e. ensuring that you become a preferred supplier to countries in the emerging world.

This might, for example, include  helping poorer countries deal with the challenges of climate change.

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