Latin America's Emerging Middle Classes

Economic Perspectives

J. Dayton-Johnson, J. Dayton-Johnson

• Publisher: Palgrave Macmillan
• Year: 2015
• ISBN:
  9781137320797
• Topic: Politics & International Relations
• Subtopic: Trade & Tariffs
• Index: Politics & International Relations

Politicians, business leaders and citizens look with hope to the Latin American middle class for political stability and purchasing power, but the economic position of the middle class remains vulnerable. The contributors document the remarkable emergence of this middle group in Latin America, whose measurement turns out not to be an easy task.

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Making Sense of Latin America’s Middle Classes

Jeff Dayton-Johnson

What does it mean to be middle class in Latin America? How is the Latin American middle class changing? What are the implications of these changes for Latin American development? The contributions to this volume, taken together, attempt to answer these questions and to make sense of the emerging middle classes in Latin America. This initial chapter motivates recent interest in the Latin American middle class by situating the topic in three narratives about the region’s development experience in recent years, having to do with development success (in comparison to past decades, including the so-called ‘Lost Decade’ that stretched to almost twenty years in some countries), self-sustaining economic growth and a reduction of dependence on the US and European markets and the social critique formulated by the Brazilian demonstrations of 2013–14; each of these stories has an important middle-class dimension. The chapter then provides an overview for understanding the numerous ways the middle class has been defined and measured in recent years, arguing that the various definitions serve an array of explanatory purposes. The final section surveys the answers provided by the contributors to this volume to the research questions raised here.

What emerges from the collective work of the authors of this book is a middle class that is internally heterogeneous in terms of its socioeconomic characteristics as well as its political views and attitudes. There are vulnerable households whose circumstances are not too different from those of the poor in their countries; there is also a growing share of households whose consumption behavior is beginning to resemble that of their rich-country counterparts. Middle-class Latin Americans espouse political views consistent with a more activist, development-oriented State, while at the same time expressing reservations about the effectiveness of the State to solve social problems. This amalgamated emerging middle class is nevertheless vulnerable in the aggregate and stands to benefit from public policies that would promote its social and economic well-being and a more inclusive model of development.

What three recent narratives about Latin America tell us about the middle class

Three vignettes illustrate the growing importance of, and the reasons for our interest in, Latin America’s middle classes. Each is, to a certain extent, a caricature that partially obscures a more complicated reality; we will return to the evidence supporting each of these narratives later in this chapter.

Narrative #1: The ‘Latin American Decade’

At an international forum in Paris in January 2011, Colombian president Juan Manuel Santos made the case that the world was at the dawn of a ‘Latin American Decade’.¹ Abundant natural resources, reformed and stable financial sectors and coherent fiscal and monetary policymaking added up, in Santos’s reckoning, to a positive prognosis for the region in a global context of lingering recession in the US and Europe. Santos foresaw vigorous inflows of portfolio and investment capital and bolstered trade relationships that would maintain historically high growth rates and transform Latin American societies in beneficial ways. In this same vein, others have noted approvingly the spread of a new post-ideological pragmatism in policymaking, including the flourishing of aggressive new social policies.

The ‘Latin American Decade’ narrative envisages economic performance better than other countries and parts of the world, rich and poor alike. Moreover, the story is one of a definitive break with the region’s past, evidenced by inflection points in a broad range of social, economic and political indicators. While less than a half decade later, fewer are ready to endorse the Colombian president’s optimism, the burgeoning middle classes of many Latin American societies can be adduced as an additional element in this upbeat analysis of the region’s economic performance.

Indeed, in a very direct way, growth of the middle class can be seen as a more or less automatic byproduct of one of the most remarkable achievements leading up to – and continuing beyond – Santos’s Paris speech: the dramatic reduction in the incidence of poverty and inequality in Latin America. According to statistics calculated by the UN Economic Commission for Latin America and the Caribbean, the poverty rate declined from a high of 48.4 per cent of the population in 1990 to 27.9 per cent in 2013; that is a drop from 204 million at the earlier date to 164 million at the latter date (CEPAL, 2013, p. 51). Different countries have witnessed different rates of poverty reduction: in some, like Chile and Uruguay, the decline occurred earlier than in its neighbors; in others, like El Salvador and Guatemala, rates of poverty remain well above the regional average. In all its complexity, the decline in Latin American poverty is relevant to the discussion in this book because for many observers, Latin Americans who manage to emerge from poverty are automatically members of the middle class. Not all definitions of the middle class would embrace all of these households, as we shall see, but about a fifth of Latin America’s population that was poor at the height of the region’s ‘Lost Decade’ of growth (which lasted more than a decade) is not poor today. (Chapter 2 in this volume, by Azevedo et al., analyzes the relationship between economic growth, poverty reduction and middle-class growth.)

In this ‘Latin American Decade’ reading, the very appearance – let alone the growth and dynamism – of a middle class in Latin American countries is another indicator of positive economic performance, of success, in a region marked by decades, if not centuries, of underdevelopment.

Narrative #2: Decoupling from the Center

In 2008, when the US and Europe were plunged into economic recession, economic growth rates in Latin America were astonishingly resilient – in many cases, remaining well above growth rates registered in OECD countries.² This resilience followed on the heels of a near-decade of booming growth in the years preceding the financial crisis, during which many observers boldly declared that Latin America – and many other developing countries, indeed – had ‘decoupled’ from their dependence upon the hegemonic economies of the US and Europe. If true, this claim would mark a historic break with the patterns analyzed by Argentinian economist Raúl Prebisch’s ‘center-periphery’ framework and the vast dependency school of Latin American development studies. Specifically, the champions of decoupling averred, economic downturns in the US no longer led to downturns in Latin American economies (or, as the maxim once had it, ‘When the US sneezes, Latin America catches the flu’).³

Decoupling from the center, in a slightly broader interpretation of the narrative, means relying more on the periphery to fuel development. A major part of the decoupling story is that Latin American countries no longer depended as centrally upon US or European demand for their exports: they had expanded their portfolio of trade partners to include rapidly growing emerging economies in Asia, particularly China (indeed, China displaced the US as the principal trade partner of several South American countries during the first decade of the millennium). A secondary motif in the decoupling account is the role of domestic demand. Latin American businesses could depend not only on China for demand, but on the more robust spending power of people in the middle of the income distributions in their own countries. In this narrative, the middle class emerges, by virtue of its consumption spending, as a potential motor for economic growth. Chapter 3 in this volume, by Cárdenas et al., considers the purchasing power of the middle class as a motor for growth and compares it to the emerging Chinese and Indian middle classes. Chapter 7, meanwhile, addresses the strategic response of Latin American businesses to this new class of consumer.

Narrative #3: Bus Fares, Football and Demonstrations

On 2 June 2013, the fare for riding a bus or the subway in São Paulo was raised from R$3 to R$3.2, a move that was met with immediate protest. Four days later, 2,000 protesters voiced their disapproval along the Avenida Paulista; by 17 June, the protest had swollen to 65,000 in São Paulo, blocking major arteries, while in Brasília, protesters occupied the National Congress. On 19 June, the fare increase was reversed (and fares in Rio de Janeiro were reduced as well), but it was too late to stem the growth of the movement the initial price rise had engendered. Approximately one million Brazilians – 300,000 in Rio alone – marched on 20 June in various cities of the country.⁴ Before long, protesters linked their demands with condemnation of sizeable public spending to host the 2014 World Cup and the 2016 Summer Olympics; the opening of the World Cup in June 2014 was met with renewed demonstrations.

Observers in Brazil, and later internationally, immediately remarked upon the ‘middle-class’ character of the protesters. The content of their demands, moreover, could be characterized as a kind of middle-class politics. Their argument sees fiscal policy as a reflection of the social contract linking citizens and the government. Citizens transfer resources to government – like bus fares – in exchange for which governments provide goods and services – like bus service – of reasonable quantity and quality. The Brazilian protests were a way of refusing to pay more for a service of dubious quality. And the protesters quickly made the link to other publicly provided services, including health care and education, and to the issue of corruption in government. It was, in short, a furious defense of democratic consolidation – holding the elected government accountable for its promises – in Brazil, a country, like many of its neighbors, that emerged from military dictatorship only a few decades ago. (Chapter 4 in this volume, by Marcelo Neri, addresses the growth and characteristics of the Brazilian middle class.)

That the middle class might be a constituency for progressive, if not revolutionary, political platforms is not new: The political scientist John Johnson argued as early as the late 1950s that emerging Latin American ‘middle sectors’ of urban wage workers in commerce and industry were political defenders of State-led development efforts, public education, social welfare programs and democracy itself. Johnson credited middle-class elector support for the political success of a long series of political leaders, ranging from José Batlle y Ordoñez in Uruguay, Hipólito Irigoyen in Argentina at the start of the twentieth century, through the Partido Revolucionario Institucional (PRI) presidents that followed the ‘stabilizing development’ model in Mexico and Juscelino Kubitschek in Brazil in the mid-century.⁵ Many recent electoral processes in Latin America have likewise courted the middle-class vote: those resulting in the election of Sebastián Piñera in Chile in 2010 and Luis Guillermo Solís in Costa Rica in 2014, to name just two.

In this formulation, the emerging middle classes, represented by the Brazilian protesters, send a strong signal to their elected leaders that they will hold them accountable to respect and protect their fledgling democracies.⁶ Alternatively, it could be that the middle class protests and lobbies for things of clear value to them, even at the expense of social welfare programs and the poor. Examples include drives to maintain or increase large subsidies for gasoline and higher education, items that feature far more prominently in the consumption baskets of the middle class than the poor, and the expansion of formal sector pensions and other parts of the ‘social safety net’ that frequently does not extend to the poor, or often even the ‘vulnerable’. Chapter 9 in this volume, by Daude et al., considers these possibilities.

These three vignettes – a new decade of Latin American economic effervescence, a shuffling off of economic dependence on the US and Europe and the rise of a new form of street protests – each shine a light on different aspects of the importance of the emerging middle class in Latin America. Taken together, these perspectives raise a number of questions:

1 How is the emergence of the middle class related to recent successes in social and economic development in the region?

2 What is the relationship between poverty reduction and middle-class growth in Latin America?

3 In a related vein, how is the growth of the middle class related to the recent decline in inequality in many countries in Latin America and to changes in the income distribution more generally?

4 Can the Latin A...

Table of contents

• Cover
• Title
• Copyright
• Contents
• List of Tables and Figures
• Preface
• Notes on Contributors
• List of Acronyms and Abbreviations
• 1 Making Sense of Latin America’s Middle Classes
• 2 Inequality, Mobility and Middle Classes in Latin America
• 3 Latin America’s Global Middle Class: A Preference for Growth over Equality
• 4 Brazil’s New Middle Classes: The Bright Side of the Poor
• 5 Who Is the Latin American Middle Class? Relative-Income and Multidimensional Approaches
• 6 Covering the Uncovered: Labor Informality, Pensions and the Emerging Middle Class in Latin America
• 7 Business Sector Responses to the Rise of the Middle Class
• 8 Feeling Middle Class and Being Middle Class: What Do Subjective Perceptions Tell Us?
• 9 Political Attitudes of the Middle Class: The Case of Fiscal Policy
• Index