The term ‘middle class’ has no universal definition, but is used loosely to connote the working class in a country. Also termed ‘bourgeoisie’, this class is seen as an important component of any society for various socio economic reasons. Its role is considered eminent in terms of events like Enlightenment, French and the Industrial revolutions, and the economic success of nations. Schnieder and Weisdorff, for example, found that it was the middle class that was instrumental in pre-industrial English economic success, which then later led to the Industrial Revolution (‘Decessit sine prole’).
Not surprisingly, Pakistan’s middle class has also traditionally been seen as a bulwark of progress and an important component of economic growth. More important, as far as our discussion is concerned, is what role it will play in Pakistan’s economic future. This is an important question given our increasing economic insecurities. Many observers believe that it is Pakistan’s expanding, increasingly prosperous middle class that will ultimately bail it out of its persistent crisis mode.
But this religiously held belief needs further elaboration. The first and the foremost mistake committed by all and sundry is that they speak of middle class as if it’s a homogeneous group who presumably have the same preferences. This is utterly fallacious as the middle class itself represents a large, diverse segment of the population. It can be bifurcated into the upper, middle and lower middle class with each representing a group whose economic choices vary from one another. Of the view that the middle class is ‘expanding’, Dr Hafeez Pasha has analysed the latest Household Integrated Economic Survey (HIES) data to conclude that the middle class has actually shrunk over the last 15 years. Thus, we need to delve a bit deeper into this issue in order to understand the dynamics that drive the characteristics, behavior and choices of the middle class.
The reason that choices vary between groups of middle class is that their income levels differ, considerably so when we consider the differential in income between the upper and lower middle class. Then there is the important distinction between the nominal income (the rupee income) and real income (adjusted for inflation) which is usually not taken into account when analysing the middle class and their economic fortunes. This distinction is of critical importance since the repercussions of these two vary. However, it is beyond the scope of this article to delve into this issue. Suffice to say, it is the real income that dictates the varied choices of economic groups, and that stands true of middle class too.
The problem is that we do not have credible information about the real income of these groups. Gauging the economic potential, especially that of expenditure, based on nominal figures could present a very misleading picture. Real, disposable income and trends in its growth over time is what dictates important choices related to consumption, investment and savings. Moreover, having a car or any other asset hardly gives us information about whether it was bought using one’s own resources or if certain parts of it constitute debt. This is an important aspect to consider since middle class in some countries (like US) is highly indebted, which in turn restricts their future consumption possibilities. In countries like Pakistan, a large portion of middle class is dependent upon remittances (which is not their own income) from abroad to sustain their lifestyle. However, no statistic captures this fact.
Of further consideration is the important distinction between a necessity and luxury, which attains even more importance when one considers the fortunes of the middle class. Let me elaborate. By official classification, a person may be ‘middle’ middle class just because he owns assets like a car. This, along with nominal income, shows up as part of wealth in official records and what makes a person middle class. But nowhere does it tell that owning a car is a necessity since there is no public transport to cater to everyday requirements. Put another way, people have little choice but to own a car whatever their real income. Moreover, owning a car gives people the independence and mobility that cannot be delivered by the badly designed public transport system. Add to this the fact that the declared nominal income neither takes into account the variations in income or the fact that large item expenditures (like rent) leaves working class little real income to save or invest. A reflection of this fact comes from macro statistics on savings, with Pakistan having a low overall saving level. That is what I meant when I opined that statistics could be misleading.
Generally, when it comes to choices and economic behavior, the upper middle class’ choices gravitate towards wealth accumulation and a desire to enter the ‘rich’ classification. Their real income generally follows an upward trajectory, which allows them to continuously accumulate or save more. For the ‘middle’ middle class, it’s mostly about trying to stay afloat, maintain a certain standard of living and strive towards increasing their income and consumption possibilities in the future. Their real income does not exhibit the same stability as that of upper middle class, and can vary considerably over time. As far as the lower middle class goes, it’s a hard struggle to avoid falling into the lower strata of the society. Their real income is the most uncertain and volatile of all the middle class groups, and they are the most vulnerable to falling into the poor strata. They accumulate little (if any).
In conclusion, the question of what role will the middle class play in Pakistan’s economic fortunes is critically dependent upon certain aspects, most notably the growth in real income and how it is expended. Since there is no credible data to guide us in this matter, we can only speculate what the future holds for the middle class and its role in the economy. But we can be certain of one thing: the much hyped role of the middle class as a savior can only assume practical proportions if the growth in real income of this group is continuous, and holds particularly in the case of the ‘middle’ middle and lower middle class. Only then will middle class be in a position to drive a sustained growth momentum in Pakistan.
Not surprisingly, Pakistan’s middle class has also traditionally been seen as a bulwark of progress and an important component of economic growth. More important, as far as our discussion is concerned, is what role it will play in Pakistan’s economic future. This is an important question given our increasing economic insecurities. Many observers believe that it is Pakistan’s expanding, increasingly prosperous middle class that will ultimately bail it out of its persistent crisis mode.
But this religiously held belief needs further elaboration. The first and the foremost mistake committed by all and sundry is that they speak of middle class as if it’s a homogeneous group who presumably have the same preferences. This is utterly fallacious as the middle class itself represents a large, diverse segment of the population. It can be bifurcated into the upper, middle and lower middle class with each representing a group whose economic choices vary from one another. Of the view that the middle class is ‘expanding’, Dr Hafeez Pasha has analysed the latest Household Integrated Economic Survey (HIES) data to conclude that the middle class has actually shrunk over the last 15 years. Thus, we need to delve a bit deeper into this issue in order to understand the dynamics that drive the characteristics, behavior and choices of the middle class.
By official classification, a person may be 'middle' middle class just because he owns assets like a car. This, along with nominal income, shows up as part of wealth in official records and what makes a person middle class. But nowhere does it tell us that owning a car is a necessity since there is no public transport to cater to everyday requirements
The reason that choices vary between groups of middle class is that their income levels differ, considerably so when we consider the differential in income between the upper and lower middle class. Then there is the important distinction between the nominal income (the rupee income) and real income (adjusted for inflation) which is usually not taken into account when analysing the middle class and their economic fortunes. This distinction is of critical importance since the repercussions of these two vary. However, it is beyond the scope of this article to delve into this issue. Suffice to say, it is the real income that dictates the varied choices of economic groups, and that stands true of middle class too.
The problem is that we do not have credible information about the real income of these groups. Gauging the economic potential, especially that of expenditure, based on nominal figures could present a very misleading picture. Real, disposable income and trends in its growth over time is what dictates important choices related to consumption, investment and savings. Moreover, having a car or any other asset hardly gives us information about whether it was bought using one’s own resources or if certain parts of it constitute debt. This is an important aspect to consider since middle class in some countries (like US) is highly indebted, which in turn restricts their future consumption possibilities. In countries like Pakistan, a large portion of middle class is dependent upon remittances (which is not their own income) from abroad to sustain their lifestyle. However, no statistic captures this fact.
Of further consideration is the important distinction between a necessity and luxury, which attains even more importance when one considers the fortunes of the middle class. Let me elaborate. By official classification, a person may be ‘middle’ middle class just because he owns assets like a car. This, along with nominal income, shows up as part of wealth in official records and what makes a person middle class. But nowhere does it tell that owning a car is a necessity since there is no public transport to cater to everyday requirements. Put another way, people have little choice but to own a car whatever their real income. Moreover, owning a car gives people the independence and mobility that cannot be delivered by the badly designed public transport system. Add to this the fact that the declared nominal income neither takes into account the variations in income or the fact that large item expenditures (like rent) leaves working class little real income to save or invest. A reflection of this fact comes from macro statistics on savings, with Pakistan having a low overall saving level. That is what I meant when I opined that statistics could be misleading.
Generally, when it comes to choices and economic behavior, the upper middle class’ choices gravitate towards wealth accumulation and a desire to enter the ‘rich’ classification. Their real income generally follows an upward trajectory, which allows them to continuously accumulate or save more. For the ‘middle’ middle class, it’s mostly about trying to stay afloat, maintain a certain standard of living and strive towards increasing their income and consumption possibilities in the future. Their real income does not exhibit the same stability as that of upper middle class, and can vary considerably over time. As far as the lower middle class goes, it’s a hard struggle to avoid falling into the lower strata of the society. Their real income is the most uncertain and volatile of all the middle class groups, and they are the most vulnerable to falling into the poor strata. They accumulate little (if any).
In conclusion, the question of what role will the middle class play in Pakistan’s economic fortunes is critically dependent upon certain aspects, most notably the growth in real income and how it is expended. Since there is no credible data to guide us in this matter, we can only speculate what the future holds for the middle class and its role in the economy. But we can be certain of one thing: the much hyped role of the middle class as a savior can only assume practical proportions if the growth in real income of this group is continuous, and holds particularly in the case of the ‘middle’ middle and lower middle class. Only then will middle class be in a position to drive a sustained growth momentum in Pakistan.