The Prosperity DiamondDriving Prosperity through the Middle Class
The Prosperity Diamond
The Prosperity Diamond represents our unique approach to measuring income distribution and our belief that a strong middle class drives national prosperity. This publication examines how a nation’s middle class can be a source of creativity, innovation, and growth.
- The Middle Class Drives Prosperity
- Barriers to Countries Realizing Their Potential
- How Does the Middle Class Drive National Prosperity?
The Middle Class Drives Prosperity
The Prosperity Diamond represents our unique approach to measuring income distribution in countries. From 1990 to 2005, the rapid economic growth experience in the developing world swelled the world’s middle and emerging middle class to 3.2 billion people. In 2012, low-income populations who lived on under $2-a-day were no longer the majority. The demographic shift effectively transformed the shape of the global income distribution pyramid into an economic diamond.
The diamond’s widest point is represented by the 3.2 billion people living on $3 to $13 per day at purchasing power parity (those in the middle class and those on the verge of entering it). This group, and not the very poor at the bottom of the diamond, is the driving force of prosperity.
Barriers to Countries Realizing Their Potential
A strong, broad-based middle class is associated with lower levels of income inequality. The Edelman Trust Barometer 2016 found that income inequality significantly contributes to the widening gap in trust levels. Societies will become less stable as such perceptions grow, as the middle class shrinks and there are more people at the upper and lower ends of the income spectrum.
For instance, the World Bank classifies South Africa as an upper-middle income country. However, one-third of the country’s population still lives under $3 a day and only 19% of the population lives within the $6-13 a day band.
Though South Africa has sought to grow the middle class in the past two decades, its bottom-heavy income distribution with a narrow middle represents a weak middle class. Because of this, the country has one of the highest income inequality in the world. It is not sufficient to have a rising level of national income. Countries must ensure that growth is fair and inclusive, for development to truly be sustainable and resilient.
How Does the Middle Class Drive National Prosperity?
A strong middle class helps drive national prosperity. Work needs to be done to free up the four Pathways to Prosperity, so that the middle class can be a source of creativity, innovation, and growth.
Increasing Market Participation and Job Creation
Middle income households support consumption-driven growth within a country. As incomes rise, middle class households demand a greater diversity of better-quality goods and help sustain the growth of higher value, high wage sectors. Higher consumer standards also drive domestic firms to become more competitive and innovative.
Improving Skills and Learning
Middle class families spend a higher percentage of their income on education compared to the poor. Their aspirational values promote greater public support for educational reform, as well as participation in adult education and training. This in turn allows the country to build up a stable pool of skilled workers more quickly. Apart from the quality of education, access must also be equitable and merit-based, with financial assistance for families in need.
Education and learning also equip a population with the knowledge they need to vote wisely, not fall prey to political opportunism or demagoguery, and support good elected leaders who will take their country forward.
Supporting Governance and Stability
As middle class households accumulate assets, wealth and education, they will become more effective and informed participants in the democratic process of their countries. Having a tangible stake in their country (for instance, through home ownership, savings and jobs), they tend to support policies and leaders they believe will promote future prosperity. As they become more politically and socially conscious, they may be more effective in contesting flawed or myopic decisions made by governments.
A broad-based, materially content middle class will also be more likely to shun extremist, populist politicians and parties that aim to capitalise on discontent and poverty to canvass for votes.
Empowering Future Thinking
Societies with strong middle classes are more likely to support far-sighted policies, such as those that favour long-term investments, rather than those that merely redistribute current resources to appease conflicting groups. This is in contrast to low-income citizens, who may not be secure enough to think beyond the immediate present.
A strong middle class can also save more, prepare their children for future challenges, and weather unexpected shocks – such as natural disasters – better than the poor.