The Newfound Charm of the Bourgeoisie

The middle class is in vogue. In the midst of a global economic recession, the charm of the bourgeoisie is far from discreet.

The Obama administration has put the middle class at the core of its recovery strategy. With tax breaks, reduced health care costs and increased assistance to pay for higher education, the administration is betting that "a strong middle class equals a strong America."

Beyond Washington, the growth of middle classes globally is believed to be an important buffer to the current crisis and a new engine for eventual recovery. If the developing world's middle class spends more with its new buying power, it can offset the weakening of demand from the world's greatest consumers.

"We are in the crisis in which we are, among other reasons, because of the disequilibrium that was generated in the global economy, one in which the growing economies in Asia depended on the consumption of somebody else. We have to have it more balanced," said Otaviano Canuto, the vice president for countries at the Inter-American Development Bank, in a recent interview. "The catching up by developing economies, which will include the modernization of consumption of their middle class ... may be one of the few frontiers of growth for the global economy."

Economic expansion in developing countries in the last two decades has fueled the growth of the middle class. A World Bank study released early this year found that this segment went from being one-third of the total population in 1990 to more than half in 2005. As a special report in The Economist last month put it, "the developing world is no longer simply poor."

By one measure, for instance, Brazil became a middle-class country a year ago, when more than 50 percent of its population -- or some 100 million people -- had incomes in the middle of the country's income range. According to the World Bank study, between 1990 and 2005, there were more than 85 million new members of the middle class in Latin America and the Caribbean.

Some might assume, then, that the middle class in Latin America will play exactly the role the economists hope to see from middle classes worldwide. But there are several truths that make that unlikely.

First, it is important to note that many in their ranks are barely out of poverty. The middle class in Latin America has very limited access to credit, and income for many is below poverty levels compared to the developed world. What's more, the middle class in Latin America has little to no safety net to fall back on in times of crisis.

In other words, before anyone can start asking the middle class to consume more, "their conditions, their income levels, have to improve," said Mauricio Cardenas, the director of the Latin American Initiative at the Brookings Institution in Washington.

The weaknesses of Latin America's middle class come into sharper focus as one considers how little governments can do to help it hold its ground or survive a crisis. While industrialized nations are reducing taxes, cutting interest rates and increasing unemployment insurance to help their middle-income households, in Latin America those strategies are simply not an option.

Tax burdens are already so low that reducing them wouldn't help. Also, "we don't have Central Banks that can easily reactivate consumption by lowering interest rates, since only a minority of our population has access to credit," according to Marcelo Giugale, the World Bank's director of economic policy and poverty reduction programs for Latin America. "And we don't have ... a social safety net with sufficient coverage to transfer resources to the middle class."

Despite these immediate impediments, there are obvious, but more indirect, benefits to the expansion of the middle class. A stronger middle class is good for democracy. A Pew Research Center study of 13 middle-income countries, commissioned by The Economist, found that middle classes are more supportive of democracy than poorer citizens in those countries.

It is also good for the economy, particularly when middle-class growth is the result of market forces and the private sector -- as it has recently been in Latin America -- rather than government action. As The Economists points out, it is more likely that such a middle class will have the "entrepreneurial drive, political impact or capacity to sustain high economic growth over time," all strong attributes to confront a recession.

A middle class committed to democracy and open markets might dissuade governments from pushing for harmful solutions. It may, for instance, keep it from looking inward and becoming protectionist, the path that took the world from recession to depression in the 1930s.