Lee Jong-ho is a professor of economics at the School of Asian Studies at Korea University, a former head and chief economist of the Asian Development Bank's Office of Regional Economic Integration, and a senior adviser on international economic affairs to former President Lee Myung-bak of the Republic of Korea
Despite the recent economic uncertainties, Asia's middle class is growing rapidly. In the coming decades, this emerging demographic segment will become the cornerstone of regional economic and political development and will have a significant impact on the rest of the world.
The OECD estimates that the global middle class (defined as households spending an average of $10-100 per person per day at purchasing power parity in 2005) will swell to 4.9 billion by 2030, compared with just 1.8 billion in 2009. Two-thirds of them will live in Asia, up from just 28 percent in 2009, with the largest majority living in China. Indeed, if China pursues the structural reforms and technological upgrades needed to sustain rapid economic growth, the middle-class population there will reach as many as 1 billion by 2030, compared to just 157 million in 2009.
The rapid rise of Asia's middle class will create new market opportunities for domestic and international companies, leading to far-reaching economic change. Demand for consumer durables has increased in the region, and China has become the world's largest market for cars and mobile phones. But as the purchasing power of the middle class in developing countries catches up with that of developed countries, there is still plenty of room for consumption of luxury and technological products.
These integrations will help more sustained economic growth, with Asian economies rebalancing around domestic demand, especially household consumption, making them less vulnerable to external shocks. Given the decline in export demand following the global economic crisis, this shift is truly timely. And it's not just Asia that will benefit; as regional imports grow, global trade imbalances will ease, thereby increasing the sustainability of global economic growth.
Indeed, Asia's growing middle class will transform the world's leading manufacturing hub into a consumer powerhouse. As demand continues to rise, not only will more and better jobs be created in Asia, but also supply chains around the world and entire production networks will benefit.
The boom will be followed by an upgrade in education and health care, which is expected to boost long-term economic development by increasing productivity. The current situation in China will change dramatically, and despite decades of progress in reducing neonatal mortality and increasing educational attainment, children from poor families there, especially in rural areas, still lack nutrition and schooling.
With high-quality education, Asia's rising middle class will demand higher quality public services. Increased confidence in domestic political systems and institutional structures, coupled with broader room for advancement, will help strengthen the rule of law. Women would have greater access to study and work opportunities, thereby narrowing the gender gap.
Above all, the rise of the middle class is likely to be accompanied by a growing demand for political freedoms and civil rights, which in turn will drive democratization. Indeed, a survey of a large sample of countries in the nineteenth and twenty-first centuries shows that well-educated, wealthy people— especially women— especially in less developed countries, can lead to greater participation in politics and stronger support for democracy.
In the West, capitalism and democracy have made great strides together as markets have developed to weaken landlords while increasing the power of the labor and middle classes. By actively participating in politics, voting on the basis of rational self-interest, and cultivating the sense of moderation needed to resist dictatorship, the middle class has greatly advanced the democratic process. At the same time, the growth of civil society organizations associated with the rise of the middle class prevents state institutions from monopolizing political resources.
In Asia, South Korea has experienced similar developments, with rapid economic growth spawning a large middle class that led to the rise of democratization in the 1980s. It may not be long before China repeats this history.
Given the considerable value of a large middle class, Asian countries should nurture it by improving health care, upgrading infrastructure, investing in universities and technical training, and narrowing the income and education gap. In addition, social safety nets should be established or strengthened as a means of promoting consumption growth (which is still subject to precautionary deposits) and helping to protect the middle class against negative shocks.
Finally, public policies aimed at strengthening the rule of law, promoting trade and achieving sound macroeconomic management are essential to sustain economic development and, in doing so, to ensure that low-income families continue to have room for advancement. This is a key factor in maintaining a virtuous circle of growing middle class expansion and economic growth.