Decline (and rise) of the middle classes

Screen Shot 2013-10-17 at 12.43.12It’s not quite as bad as the title of Evelyn Waugh’s novel (pictured), but things are changing rapidly for the middle classes.

Once upon a time, we all wanted to be middle class. Bigger car, bigger house, better holidays twice a year.

But now it’s the ‘squeezed middle’. Bigger bills, bigger overdraft and one holiday a year of you’re lucky. Oh, and another 8.2% on your energy bills.

A report released recently from the Red Cross shows just how bad it is across the whole of Europe: mass unemployment, growing waves of illegal immigration matched with rising xenophobia, rising risks of social unrest and political instability, and growing levels of insecurity among the traditional middle classes. All combine to make a European future more uncertain than at any time in the postwar era.

You’re probably thinking that it’s different here in the UK. But Europe impacts us. The value of our exports to Europe varies between £12 to £14bn per month. That’s half our total exports abroad.

But if the middle class is on the decline in Europe, it’s a different story elsewhere.

In total, the Brookings Institution reckons there are 1.8 billion people in the world who are middle class, and it estimates this will grow to 3.2 billion by the end of the decade.

It’s Asia that is almost totally responsible for this phenomenal growth, and Latin America to a lesser extent. Middle classes in Asia are forecast to grow to 1.7 billion in 2020. That’s 53% of the world’s total. And by 2030, Asia will host 3 billion middle class people. That is ten times more than North America and five times more than Europe.

What makes someone middle class? According to the UN and OECD, you hit middle class when you earn or spend between $10 to $100 per day. (Don’t forget we are talking very different economies here.)

So, what has this got to do with the UK?

It’s when you get to the $10-$100 income per day that you start acquiring disposable income and start thinking about buying things like refrigerators, cars and the like.

In turn, this means greater competition for resources. China is the number one exporter of goods, but internal demand for what it produces is growing. Think of this. China just inherited the number one net importer of oil, away from the US. In 2010 the country became the world’s largest new car market. In 2012, it saw 18m car sales, against 14.5m in the US.

Increased demand internally means increases in prices, which down the line means imports into the UK are likely to become more expensive. Which means further impacts on the middle and lower classes. Despite what we might hope, the middle classes aren’t going to be what they once were. As we all know, for the first time, life chances of our children aren’t as good as they were for us parents.

Clearly, brands will need to readjust to a less well-off middle class here in the UK. This means getting a close understanding of their changing everyday lives, values, attitudes and experiences. The pressure’s on. A part of this is around providing transparency and showing you really do care. I have never seen so much negative PR for brands. Increasing fuel bills and train costs, brands not paying their perceived fair share of tax. People’s demands of companies and their own personal needs are changing, and brands need to respond.

Steve Smith PhD is head of thought leadership at SMV Group.