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Middle classes in Latin America (1): Falling fortunes?

The Latin American middle classes, especially the vulnerable group, are bound for a new, essentially dramatic drop on the rollercoaster that has been on since at least the 1970s. Español

Ludolfo Paramio
14 April 2016
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A man takes a nap as a group of women gather inside a fast food restaurant in downtown Buenos Aires, Argentina, February 2015. AP Photo/Rodrigo Abd. All rights reserved.

The middle classes have always been the object of controversy in Latin America. In the 1950s, forecasts pointed to the growth of the middle class and in them saw the key to the development and democratisation of the region. In the 1990s, however, the idea became widespread that they were in freefall, following the crisis of the previous decade and a change in economic model brought on by the Washington Consensus, an opening to international markets and a shrinking role and presence of the State. But, at the beginning of this century, the perspective changed. Driven by the expansionary cycle caused by the demand from the Pacific area for raw materials, the middle class grew again, and again became a source of hope for the transformation of the region

It is arguable to what extent some Latin American countries became, after the Second World War and during the regime of industrialization through import substitution, middle-class societies. But in some countries, Argentina, Uruguay and Costa Rica for example, it is clear that this took hold as a self-perception. This may be one reason for the climate of frustration of expectations and unrest of the 1960s and 1970s, when a generation, raised in the hopes of upward social mobility and educational advancement, faced the increasing difficulties of the import substitution model and in turn, faced the authoritarian responses of many governments in the region reacting to these difficulties.

In any case, the model reached an agonised conclusion with the debt crisis of the 1980s, during which time societies saw transitions to democracy in a context of high inflation and job losses. The middle classes  also particularly felt the impact of neoliberal solutions to the crisis in the early 1990s, years marked by the diagnosis and proposals of the Washington Consensus, which entailed a sharp reduction in public sector employment, both in the government administration as in public enterprises, and corporate restructuring after which mergers came accompanied by a reduction in private employment, in the cases that did not simply result in the bankruptcy and closure of companies in crisis.

The image of decline and disappearance of the middle classes in the 1990s began to reverse in the subsequent decade thanks to a new growth dynamic that induced the boom in raw materials, especially driven by the demand and growth of the Chinese economy. It then entered a phase of optimism, as regards both the possibility of further expanding the middle classes, and overcoming some of the traditional bottlenecks of Latin American economic growth: from the hereditary nature of inequality to the predominance of low-wage employment. What is certain is that, between 2000 and 2012, a significant reduction of poverty was seen in the region, which was accompanied by a considerable expansion of the middle classes.

Figure 1: Size of social groups in Latin America; circa 2000 and 2012. Percentage and millions of persons

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Source: Developed by PNUD from estimations by country,provided by the Centro de Estudios Distributivos Laborales y Sociales (Centre for Distributive, Social and Labour Studies – CEDLAS) Universidad National de la Plata, Argentina, based on CEDLAS and the World Bank's Socio-Economic Database for Latin America and the Caribbean (SEDLAC) for year 2000 ; and from the World Bank's 'Social Gains in the Balance. A Fiscal Policy Challenge for Latin America and the Caribbean', Washington, DC, 2014 for 2012.

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Notes: Figures in parentheses indicate millions of people in each group. The percentages correspond to the weighted average of the percentages of the population of each group in 18 countries: Argentina, Bolivia, Brazil, Chile, Colombia, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Mexico, Nicaragua, Panama, Paraguay, Peru, Dominican Republic, Uruguay and Venezuela.

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In this regard it is necessary to separate out, from within what initially was called the emerging middle classes, the middle classes themselves and those termed vulnerable. The World Bank has set an absolute income (in dollars PPP -purchasing power parity-) below which a household falls into the vulnerable strata. The calculation, elaborated from panel surveys, determines the income level at which point the likelihood of a return to poverty is very low. The result based on this calculation is that, between 1995 and 2009, the percentage of the regional population in poverty has fallen from 45 to 30, while the non-vulnerable middle classes have grown from 20% to nearly 30%.

After an experience of decline and 'new poverty' in the 1980s and 1990s, the 2000s has been marked by the growth of a new middle class emerging from poverty. Marked by the above context of social crisis, and by values in many cases at a remove from those of the traditional or modern middle class – economically linked to the economic opening – its quantitative expansion has, however, been a cause for warranted optimism, while the international economic context has favoured its social advancement and its growth in expectations.

But the boom-time for primary exports seems to have come to an end, and in the majority of cases the conditions have not been created for a change in growth model: far from it, the tendency has been for a reprimarisation of economies. In this new context, the new emerging middle classes are doomed not only to see limits in the realisation of their aspirations through unsatisfying social service provision, but also threats in terms of employment and falling income that slowdown and recession bring to Latin American economies.

It can be said, therefore, that the middle classes in the region, especially the vulnerable group, are bound for a new, more or less dramatic drop on the rollercoaster that the region has been on since at least the 1970s. The most obvious political consequence is that parties and governments in the region are faced with the challenge of not only ensuring the middle class's continuation, but of assuming their future demands. The risk of a return of poverty and new growth in inequality explains the discontent of the emerging middle class and opens the door to its convergence with the traditional middle class in demonstrations against corruption and ineffective governments.

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