Seriously, how many slice of life stories do we really need to read about Manuel the carpenter/mechanic/cab driver in Toluca/Cali/San Jose who just paid for a new dishwasher in monthly installments with remittances sent from his 1/3/7 relatives in the US ?
Enter, unexpectedly, the World Economic Forum on Latin America, which just wrapped in Peru the week before last. I never expected a WEF gathering to nail it, but nail it they did in a panel entitled, “Unleashing the Power of the Middle Class“, whose commentary I promise you is far more compelling than the session title.
I don’t blame anyone for not having an hour to sit through this (that’s what I’m here for), so what we have here instead are two of the smartest things I’ve heard anyone say about the so-called “middle class” of Latin America since I don’t know when:
At about 16:00, Marcelo Cortes Neri, Brazil’s Minister of Strategic Affairs:
Just one small point with respect to this in terms of definition. I think when we talk about middle class, we talk very much about US or European definitions, where you have two cars, two dogs, two kids and I don’t think this is a good definition in my opinion.
I think we are having two kids which is important, gives you sustainability, but I think if we look at the US and Europe, we will see ourselves as poor–they are the richest in the world–so I am very much in line with the Minister’s idea, we have to look within our communities and countries, and I think if we do that, the world here…because Latin America actually in terms of its income and its very high inequality, but this is a very good picture of the world, so I don’t think we should import definitions from developed countries, otherwise we are not going to see ourselves moving; we are going from someone whose income changed from $1,000 to $2,000, and you look up, you say well nothing changed in this guy’s life, but there’s a revolution going on.
One last point: I think it would be very tough to respond to the aspirations of the Latin American middle class because we have very high aspirations. Latin Americans are very positive toward their future, it’s more…if you are controlling for income, nobody is more optimistic to the future than Latin Americans. So this is tough.
I’ve been saying this in some way or another for years now, but Minister Neri actually put it in far more eloquent language.
The second comment, which comes at 30:00, is Augusto de la Torre (no relation to yours truly) Chief Economist, Latin America and the Caribbean, World Bank. And disregarding the aforementioned inappropriateness of the phrase “middle class”, what he has to say could not be more true:
I’d like to add a dimension which we highlight in our report. We are excited about the growth of the middle class because people have a better life. But we are also excited because we believe deep down that the bigger middle class will make for better societies. So there is this correct perception that the middle class is associated with citizenry. That middle class people are more educated, they have better jobs, they have a better understanding of what the common good is, and they can push for better institutions, they can reduce the levels of corruption, monitor the government so they can produce better education, etc.
So we did some exercises on this and we found it is not so simple. When we look at the world as a whole and you do the statistics, you do find very good positive associations. Countries that have larger middle classes have lower corruption, better institutions, better government spending, quality, freer markets, better property rights. So these associations are what inspire us. But we have also found, and this is the troublesome part, that the Latin American middle class does not seem to be opting into a better social contract. In fact, what we found was evidence that the middle class in Latin America has a tendency to opt out of the social contract.
Let me give you a couple examples to explain what I mean. The moment a Latin American household becomes a middle class household, the first thing they do is take their kids out of public schools and put them in private schools. They no longer are concerned about the quality of public education as a result. You go to the Dominican Republic, the moment you are a middle class family, you buy your own electricity generator, because you don’t want to trust public electricity services. So once you have your generator, you don’t care about the quality of the public good of energy.
Or when you become a middle class in many Latin American cities, you try to buy a house in gated communities, they have walls, they have private security, because you’d rather not rely on the public police. So you could end up in a bad equilibrium.
So rather than what you would expect, which is a middle class which contributes to better institutions, more public goods, more cohesive society, better citizens, you may end up with a middle class that opts out and finds private ways of solving their own problems. And their interests may diverge from the public good.
Now let’s close this by going back to the meta. It seems to me that so many people are so desperate for certainty that they resort to the flimsiest of evidence and the sloppiest of explanations to lean on for decision making. In short, sounding like you know what you’re talking about has in some ways become more significant than actually knowing what you’re talking about. And the pithier you sound, the more you’ll be quoted, and the more you’ll be recognized, which just goes around and around until you wind up with some signalling phrase like “Latin America’s growing middle class” which really, when you get right down to it, has absolutely zero meaning.