We all know Middle Class, both experientially and perceptively. Most readers have been there, up or down the middle class pole, mostly up. We also know middle class values: notion of 'respectability', living within means, investing in children, appearing better than you actually are, and honouring the laws of hospitality.
What we don't know is how to measure Middle Class (MC). There are as many measures as experts.
Some experts define MC by income or expenditure. For others, it is lifestyle that decides whether you are MC or not. Still others think it is simply a state of mind.
Scholars employ all kinds of tools to measure MC - income, wealth, consumption, aspiration (home ownership, health and retirement security, good education for kids), and demographics. Each measure throws up a different number, and each is clear as mud.
Per capita, mean, or median income numbers don't quite help. As the hackneyed joke (Bill Gates walks into a bar and on an average everyone in the room becomes a billionaire) illustrates averages can't be trusted.
Gini coefficient (that measures income distribution) doesn't help either. If we go by the official figure (30%) we are up there in terms of equality, among the top 27 countries, not too far off Finland at the top of the equality league at 21.5% (source: CIA's World Factbook, using official numbers).
We have had our Household Income and Expenditure Surveys, and now Integrated Household Surveys (to capture non-income variables like education, health, fertility, etc., as well), but in terms of defining MC they are no more precise than Alan Greenspan estimating economic activity by looking at the sales of men's underwear.
Do we have an authentic figure for Pakistan - how many strong constitute MC? It is an important number to have, not just for public policy purposes but for business and investment decisions as well.
We have had various estimates of the size of MC, but all are as challenging as folding water. Durr-e-Naayab (2011) estimated it to be 35% of the population but her classification was not by income alone and the dataset she used (2007/08 Household Income and Expenditure Survey) had a poverty level of a dubious 17%!
Estimating MC on the basis of 'median' is an accepted methodology (incidentally, it shows the MC size shrinking, from 43% in 2001/02 to 38% fourteen years later), as is the standard $10 per capita per day (adjusted for purchasing power parity) expenditure basis. But both leave us with a wide swathe, necessitating further classification into lower, middle, and upper middle classes.
What we are looking for is the size of a group of people with sufficient disposable income to drive business decisions. This is the cohort that will influence investment decisions and government policies. Some publications have put this number at 85 million, a size bigger than the entire population of some much richer countries.
Perhaps the case of India, that has been studied more, and covered by the World Inequality Report 2018 as well, would be a fair reference point. The Economist (11 January, 2018) extensively covered India's 'missing middle class'. Apparently, the Indian MC did not turn out to be a repeat performance of China that the MNCs were looking for. "In trying to tap the Indian 'bird of gold' opportunity an awkward truth is making itself felt: a lot of this middle class has little money to spend". It goes on to add that for the kind of goods the global middle classes aspire to experts clock the number at 50 million, and no more.
Study by Paris School of Economics (Piketty, Chancel, et al) concludes that less than 10% of Indians make $10 a day, the minimum MC threshold set by India's Council of Applied Economic Research.
We are one-sixth the size of India. Would it be fair to assume, on the Indian analogy, the segment of our middle class that would excite businesses, is no more than 8 to 20 million?
At first blush at least that looks low. It flies in the face of burgeoning sales of motorcycles, mobile phones, and white goods. Part of the reason of higher sales might be the declining costs (thank you China; thank you technological advances) but we suspect 'tax-friendly' informal economy, aided by easy consumer finance, is the bigger reason.
Economic Survey 2018 brings the glad tidings that only one-fourth of population was below the poverty line in 2015/16 (compared to 50.4% 10 years ago). But you tinker with it - question if monthly per capita income of Rs 3,030 is a correct demarcation of poverty line, or make a distinction between chronic and transient poverty (the latter just above the line but so vulnerable that the smallest shock pulls them down) - and you are perhaps looking at something like 70% of the population who can be classified as poor.
Whatever the numbers, a large middle class is a sign of greater social justice and national cohesion. It fuels the economy. Growth of middle class, more than GDP growth, is the true measure of the state of our development and wellbeing. If MC is not growing fast enough, or if the gap between the rich and the rest continues to grow, as appears to be the case, both savings and investments will be constrained.
We have enough rich people to keep the fancy shopping malls crowded or the upscale restaurants fully booked. But how many meals can they have; how many exquisite outfits can they wear?
For both business and government what is imperative is not a few fatter wallets but to have many more wallets that are reasonably stuffed. This is where government and business interests coincide. Both need a rapidly growing middle class with a much greater disposable income. Business needs greater spending power and the government greater savings potential- and the twain can only meet if the envelope becomes much bigger and thicker.
For both - the government and business - the key is job creation and lower cost of living. Both are failing us. Business is not creating enough jobs, especially for the educated, and instead of becoming more competitive it mindlessly passes on the cost of its inefficiencies to the consumers.
The sturdiest tool available to the government, to level the field and build the middle class, is taxation. It knows not how to use it.
shabirahmed@yahoo.com