Emerge of "Global Middle Class" and the death of "Old Middle Class"

Happy New Year!!

We saw full of political events in 2012. U.S.A, China, Russia, France, and Japan had major elections to choose our national leaders.  All the developed countries (U.S., France, and Japan) have been struggling economic downturn since “Lehman Shock”, and it seems to be the downturn is not temporary but more structural.  The leaders in these countries are in the same boat in a sense, but what is the real issue?

I was introduced an interesting book last year.  The book is “The Work of Nations: Preparing Ourselves for 21st Century Capitalism” written by Robert B. Reich in 1991.

Reich describes how the U.S. achieved the equality of wealth through its high economic growth through 1950s, and that equality has been deteriorated and “the death of middle class” has occurred through the globalization of economy.

I think that this returning of “disparity of wealth” in developed countries essentially caused by “the global equalization of wealth”.  What we have seen in “BRICs” is exactly what have happened in U.S. in the 50s.

Let’s check if this statement holds through the analysis of annual income distribution of U.S., Japan, China, and India using “Gapminder”.

（http://www.gapminder.org/downloads/income-distribution-2003/）

Here is 1970.

In 1970, both China and India were very poor with the annual income distribution concentrated around a bit less than 1000 dollar.  The U.S. seems to have thick “middle class” concentration around 20K dollar level.  Japan surprisingly had the most “unequal” distribution among these four countries.

In 1985, we see centralization and growth of income in Japan.

The next graph is year 2000.

Japan accomplished its “the middle class centralization” at this stage.  The income is normally distributed with high concentration at 20-30K dollar.

Meanwhile, China and India started catching up the tails of the U.S. and Japan, and a mini concentration started to be shown at the level just below 10K which is “right shoulder” of the distributions of China and India.  The U.S. used to be normally distributed, but it started showing some concentration at just below 10K level which is “left shoulder” of its distribution.  I think the new but small concentrations at just below 10K at this point are “the new global middle class”.

It is a pity that I couldn’t figure out how to generate the graph of 2010, but I firmly believe that the total distributions of China and India shifted toward right to catch up the U.S. and Japan, and the concentrations at around 10K level become even clearer.

The thing is that this trend is very irreversible, changing the current social system to fit with the new form of income distribution is the real issue for the political leaders of "developed countries".