Business

Make way for the middle class

Indian shopping mall
Image caption India's growing middle class enjoys shopping in American-style malls

President Barack Obama said recently that the middle class in his country had "made the 20th the American century."

But which country does the 21st Century belong to?

There is a growing perception that the middle classes in the US and Europe are being squeezed by a combination of higher taxes, stagnant wages and rising food and fuel prices; but in much of the developing world, the picture is very different.

Strong economic growth in the so-called Bric economies of Brazil, Russia, India and China, is expected to result in the average household income rising by 14% a year to 2020, according to Ernst and Young's Item Club.

Improving living standards and the rapid expansion of the middle class in these and other developing economies will be a major factor in driving global growth over the coming years.

But the picture has not been uniform and in many of these emerging countries, as in the developed world, the gap between the rich and poor has been widening.

American Dream

The United States is known for its ideal of the American Dream, where anyone with enough ambition can become rich and happy regardless of where they come from.

But in recent years, middle class Americans have come under increased pressure.

The financial crisis hit the American middle class hard, believes Robert Frank, a professor of management and economics at Cornell University.

"We once had a vibrant middle class," he says.

"Economically speaking, they were the backbone of demand in the economy. Now the middle class is saddled with debt."

Professor Frank argues that globalisation has made it harder for American's to get rich, and that this has lead to huge disparities in earnings.

"Since about 1970, most income growth has gone to those at the top of the income ladder," says Professor Frank.

As this group has got richer, he argues, they have been spending and consuming much more than they used to.

The aspiring middle classes, defined by Professor Frank as having a family income of $50,000 (£31,000), have been trying to keep up and in doing so have stopped saving, are borrowing more and are working harder.

The result has been that many middle class families in the US have found themselves victims of foreclosures - repossessions of their houses - and bankruptcies.

But Professor Frank is not arguing for Americans to lower their expectations of the American Dream.

"Absolutely not," he says. "We would think ill of a person who didn't at least have that aspiration."

Poor 'left behind'

Image caption In Indonesia many believe that the gap between the rich and poor is widening

On the other side of the world, Indonesia is a country with a dynamic economy and a growing middle class.

Since the fall of President Suharto 13 years ago, Indonesia has become South East Asia's biggest economy, with growth of more than 6% in 2010.

There are obvious signs of increased wealth in the number of bars and shops around Jakarta, but according to some experts, many of the poor, who make up almost 60% of Indonesia's population, are being left behind.

"We have been seeing an increasing amount of people getting more income," says Bank Danamon economist Anton Gunawan.

"Poverty is slightly declining, but the rich are getting much richer.

"That is why the gap is getting bigger."

'Gap will shrink'

Andrew Santoso is the owner of a bar called Jack Rabbit in Jakarta. He is one of Indonesia's new middle class.

Mr Santoso sees the inequality, but is not troubled by it.

"I don't feel guilt because I don't get this for free either. I work for it. I have friends who had nothing and are living very comfortably now."

Mr Santoso believes that improving education in Indonesia would make his country better.

For its part, the government is confident that the gap between rich and poor will shrink.

"We have a number of programmes to address the kind of inequities," says Indonesia's trade minister Mari Pangestu.

"This is really the priority of this government.

"Growth and equity and equity means inclusive growth."

Opportunity

India is renowned for its hierarchical class or caste system that has traditionally been a barrier to social and economic development.

The increased urbanisation and rapid economic growth of India has been breaking down the caste system and more and more poorer Indians are becoming middle class.

According to the National Council for Applied Economic Research (NCAER) India's middle class population is set to rise by 63% in the next five years.

By 2015, India will be a country of 53 million middle class households.

This offers a huge opportunity for businesses that are increasingly directing their marketing towards these growing middle class markets.

And that is really exciting for Dilip Kapur, founder and president of Hi-design, an Indian luxury leather goods firm.

"The Indian middle class is hungry for new experiences and is optimistic," says Mr Kapur.

Hi-design, which was founded in 1978, has traditionally sold its bags overseas, especially to shops in the UK and US.

But India has become an increasingly big market place for its leather goods, with 50% of company revenues now coming from there.

"The modern cosmopolitan experience has spread rapidly within the last five years, and luxury brands such as Hi-design have now become 'premium' and affordable to the upper middle class," according to Mr Kapur.

"For retailers and brand builders like us it is explosively exciting."

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