Jammed onto a spit of land that juts into the azure Atlantic near the center of Recife, in Brazil’s northeast, Brasilia Teimosa was until a couple of decades ago a favela of wooden fishermen’s huts. Now its streets are lined with brick houses, some of three stories and clad in decorative tiles but others jerry-built. It has seafood restaurants, shops and a couple of bank branches, but also piles of uncollected rubbish.
Many marketing experts and economists would hail its residents as members of Brazil’s burgeoning "new middle class," who have become avid consumers.
That is not how Francisco Pinheiro, a community leader who was born in Brasilia Teimosa, sees it.
"Economically it’s much better off than it was," he admits. "But a middle-class person is someone who lives in Boa Viagem (a nearby beach-front residential suburb) with a car, an apartment and an income of 3,000 reals ($1,500) a month."
In Brasilia Teimosa, Pinheiro says, the majority earn less than $613 a month, often shared among a family of four or more.
As it happens, Pinheiro’s finely tuned sense of social class fits neatly with the definitions deployed by the World Bank in a groundbreaking new study. Having crunched the numbers from household surveys across the region, it reckons that Latin America’s middle class expanded by 50 percent, from 103 million to 152 million, between 2003 and 2009. That represents extraordinarily rapid social progress, but it means that only 30 percent of the region’s population is middle class. A larger group has left poverty, but only barely, as have many of those in Brasilia Teimosa.
What it means to be middle class is a matter of definition and debate. Sociologists and political scientists define the middle class according to education, occupational status and ownership of assets. Economists, by contrast, tend to see income as determining class.
The World Bank’s economists nod in the direction of sociology by defining the middle class in terms of economic security. They reckon that, for a Latin American household, to have no more than a 10-percent chance of falling back into poverty for a five-year period requires an income of at least $10 per person per day. They define those with an income of more than $50 per day — only two per cent of Latin Americans — as rich.
The bank calls those with a daily income of between $4 and $10 "the vulnerable" or "the lower-middle class." They make up the largest group. The proportion of Latin Americans living in poverty, defined as a daily income of less than $4, has fallen from 41.4 percent in 2000 to 28 percent in 2010.
This social progress is the result of a rare combination of faster economic growth, low unemployment and falling income inequality. Income per person in Latin America grew at an annual average rate of 2.2 percent between 2000 and 2010, a step up from the previous two decades. In 12 of the 15 countries for which data are available, income inequality fell in the same period, though Latin America continues to rival southern Africa as the world’s most unequal region. Redistribution, through conditional cash-transfer schemes and other social programs, has helped to reduce poverty, but most of the expansion in the middle class has come from faster growth.
In all, the World Bank reckons, two in five Latin Americans were upwardly mobile between 1995 and 2010, though few made the leap directly from poverty to the middle class. Those who moved up tended to have more years of schooling. The bank cautions that Latin America remains a land of unequal opportunity, however: Children whose parents had few years of schooling tend similarly to be less educated than their middle-class peers.
One ray of hope is that, in the past 15 years, the average number of years of school attendance among young Latin Americans has increased sharply, reducing the educational gap generated by social class. The difference in the quality of the schools attended by the rich and the poor is bigger in Latin America than anywhere else, however. Higher education is expanding, too, and tends to be a passport to the middle class — but its cost, not least in job income foregone, deters poorer students, making student loans vital.
Some other recent studies have argued that Latin America’s middle class is much bigger than the World Bank suggests. A 2010 study by the Organization for Economic Cooperation and Development, a group of mainly rich countries, reckoned that 275 million people in the region, or barely less than half the population, were middle-class. The OECD used a relative definition, counting all those whose income was between 50 per cent and 150 per cent of the median. The median income varies widely across Latin American countries, however, making it hard to put together a regional picture.
Brazilian economist Marcelo Neri has argued that the middle class now makes up more than half his country’s population. Like many Brazilian analysts, he divides society into five groups and shows that the middle group, or "Class C," has grown from around 35 percent of the population to about 50 percent since 1990. Class C is defined as those with daily incomes between $6.10 and $26.20. Many of them are in the bank’s "vulnerable group."
Why does this debate matter? First, because most people would agree that it is better to be middle-class than to be poor. Turning her country into "a middle-class society" is one of the often-stated goals of President Dilma Rousseff of Brazil.
Second, it is widely assumed that a bigger middle class brings a more cohesive and stable democracy, less prone to populism and more intolerant of corruption.
The political implications of Latin America’s growing middle class are not yet clear, however. Some commentators have argued that the "new middle class" is entrepreneurial, is partly drawn from the informal sector and will be hostile to statism and high taxes. In fact, the World Bank findings suggest that the middle class tends to be made up of salaried employees of private companies. Some of them send their children to private schools that have sprung up in many once-poor communities.
Other voices dissent, though. Brazilian political scientist Andre Singer argues that, rather than a new middle class, the rise in incomes and jobs of the past decade has produced "a new proletariat," drawn from people who were previously too poor to constitute a coherent social class.
Augusto de la Torre, the World Bank’s chief economist for Latin America, points out that the middle class could form a constituency pushing the state to provide better-quality services, or it could choose to opt out of state services, which could worsen as a result.
That matters if the growth of the middle class is to be sustained. Keeping up the progress will require the right public policies. As the boost from high commodity prices and the global liquidity glut ebbs, sustaining economic growth will demand more reforms, de la Torre warns. Preventing the "vulnerable" from slipping back means helping them remain employed with training and information programs. Creating equality of opportunity requires investment in better schools and health care.
In many Latin American countries, however, though not in Brazil and Argentina, taxes are too low to provide good-quality services.
Encouraging though Latin America’s social progress is, sustaining it is vital. As Stanford University political scientist Francis Fukuyama has pointed out, it is too early for Latin America to count these gains as permanent.
"For a true middle-class democratic consensus to emerge," he writes, "this group needs to constitute a clear majority of the population."
Otherwise it may be tempted to ally with the rich to block reform. At least, however, Latin America is halfway there.