Catarina's World

Middle class spending is crucial for economic growth. So now, with Western middle classes in debt and distress, many economists look to the new emerging-market middle class as the foundation for a new era of global prosperity.

Middle class spending power per capita in the Gulf is, for some reason, often overlooked by Western companies.

Last year 70 million people in developing countries joined the middle class, with incomes between $6,000 and$30,000. It is estimated that within 20 years they will surpass their Western pears when it comes to global spending power. The focus is mainly on Asia and it is estimated that in about a decade they will pick up the slack left by overspent America. Emergency market spending is in fact already bolstering the balance sheets of many Western firms.

Needless to say the worlds is focusing on China and India due to its huge populations as well as rapidly rising economies and middle classes. Correct if you look at the amount of people. But by looking at the issue that way we overlook a very potent and prosperous group of people.

When it comes to per capita spending I’m certain that the middle classes in Saudi Arabia and the other Gulf countries not only earn more but also spend far more than their Asian counterparts. It’s not for nothing many middle class Indians chose to work in the Gulf, despite the fact that they are paid less than the locals. Salaries are higher and you pay no income tax in the Gulf.

Shopping is a top leisure activity and when the weekend starts the malls are filled with people who literally shop until they drop. A woman who works in a Chanel shop in the area told me an average customer spends an absolute fortune every time they come to the shop. And the same goes for more expensive items like cars, jewellery and electronics. Considering the importance the Chinese put on saving money, I would be very surprised if middle class people in China, with the exception of some mega rich, spend that much.

The world, certainly multinationals, are already managing the economic spending shift to Asia very well. But quite a few Western companies are forgetting about Saudi Arabia and the Gulf, which in my opinion could prove costly especially for companies selling expensive consumer goods.

A large amount of Asian and Middle Eastern households have incomes today that position them just below the global middle class threshold and so increasingly large numbers of them are expected to become middle class in the next ten years.

Emerging-market leaders know that the Western system created the worldwide boom of the last quarter century that ended when Lehman Brothers collapsed 18 months ago. Now the boom has moved to emerging markets, and their leaders will increasingly choose to alter Western models to suit their countries. Consequently the fact that all eyes are on Asia and the Gulf forgotten could turn out to be a fatal mistake. The new emerging middle classes are supporters of globalization but highly nationalistic. And there is a vast difference between nationalism in China and, say, Kuwait.

Back to emerging middle classes in general, we can conclude that the Chinese bought more cars than Americans last year, and that India has as many Internet users as the U.S. Also it is estimated that by 2030, more than nine out of every 10 mobile phones will be owned by people in the developing world. Coca-Cola actually forecasts a doubling of worldwide revenues to $200 billion over the next decade, thanks to another 1 billion people expected to join the middle class by 2020. So Western companies who haven’t yet focused on developing countries middle classes should jump on the band waggon swiftly and not overlook the Gulf.

(photo: flickr – Lars Plougmann)

It seems to me that a few bankers have managed to hijack and contaminate the American Dream. To them it means looking after number one at the expense of others, which is as far from the true meaning as you can get. And the price for that is being paid by Middle America with their drastically reduced spending power.

Americans demanding big banks and Wall Street stop spending millions in taxpayer dollars to lobby against financial reform.

How long will it take before those millions of middle Americans hit by the crisis get their spending power back? And what will happen to the US economy in the meantime?

Let’s face it ,we need to get Middle America up and running again since middle class spending power is the backbone of an economy. You only need to look at Africa in the past to see what happens without it. But now with African middle classes growing, and spending more, their economies are improving.

Can not understand how those US bankers can live with themselves. Not least since many of them attend church on a regular basis. The bible obviously doesn’t have any influence on them but neither, it seems, has the materialistic point of view of wanting their children to grow up in a thriving economy. Instead short term thinking seems to have completely taken over their entire lives.

“We need to put an end to misleading and dishonest practices of banks and institutions regarding credit and debit cards or mortgage, auto and payday loans. Americans don’t choose to be victimized by mysterious fees, changing terms, and pages and pages of fine print”, president Obama said recently. And he is right since much of the blame for this recession can be put on “the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.

And since neither going to church nor materialistic common sense seem to have any impact on Wall Street, I unfortunately believe the only way to change their behaviour is to legislate. To avoid a repeat of last year’s meltdown that put the US economy on the brink of collapse, the House of Representatives approval last Friday of the biggest changes in financial regulation since the Great Depression is most likely a step in the right direction?

It’s lamentable that the only way of stopping Wall Street looking after number one at the expense of others seems to be legislation But systematic risks in the economy and dangerous financial products need to be policed somehow. And to get the middle classes up and running again a financial watchdog agency is most likely essential.

One American commenting on Reuters spoke for many Americans when he said: “A Consumer Financial Protection Agency is just the start of the regulatory oversight this country needs to put in place to get Wall Street back under control. The recent behavior and excesses of Wall Street are an embarassment and shame on this country. Anyone working for an investment/banking firm who has benefitted either directly or indirectly from the Big Bail and who is making over $500,000 this year needs to be turned out of their homes, their homes and possessions sold or donated and tax them at the rate the Europeans are taxing their financial criminals this year. Wall Street has become a blight and cancer on the landscape and needs to be brought under control. Middle America is no longer buying their schtick. Even their bought and paid for minions in the US Congress are finding it impossible to peddle their lies. “

As far as I’m concerned innovation and development should be encouraged as well as driving the economy forward into another exciting new decade of success. But risky schemes that threaten the entire economy should not.

Since Wall Street doesn’t seem to learn from their mistakes, change and move on, something needs to be done to protect the middle classes. Otherwise we will have to be content with their spending power being reduced on a continuos basis while their counterparts in Asia and the Middle East increasingly spend more and more money. Doesn’t Wall Street understand that such a development will long term be the end of the American dream? And, worse from their point of view, make sure that “Wall Street” moves to the other side of the world, leaving most US bankers behind.

(Photo: Flickr – SEIU International)

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