March 24, 2017
Pakistan’s Growing Middle Class
Pakistan has always been a very poor country. While a small sliver of society lived a decent existence, the vast majority were concerned with simply getting enough to eat. But life has slowly changed in the 70 years since independence, with moderate but steady economic growth powering a transformation.
This transformation reached a critical stage around 2000, with millions of Pakistanis beginning to move from poverty-stricken to a middle-class existence. We can see these changes in a variety of statistics.
How should we define middle class and poor? If we used an American definition, the vast majority in Pakistan would still be in poverty. But if we look at what constitutes the basics of modern existence we get a very different picture. A middle-class family in Pakistan should have a television, a motorcycle or car, a cell phone, a refrigerator, a washing machine, and obviously access to electricity. A household with all those items would certainly not be considered in poverty by Pakistani standards.
Data shows that since 1990, there has been tremendous growth in household ownership of all these items. Televisions have gone from 20% of households to almost 60% now. Washing machines from 10% to almost 50%. Refrigerators from under 10% to about 40%. Motorcycle or car ownership has soared from less than 5% in 1990 to almost 40% now. Cell phones are now everywhere, even the poor have them, while the middle class is transitioning to smart phones. There was slow growth in the 1990’s, but the numbers really took off in the 2000’s, during the boom years under Musharraf.
Meanwhile, poverty rates have plunged. Using Pakistan’s official metric based on cost of basic needs, the percent of the population in poverty has dropped from 60% in 2002 to 30% in 2014. It has certainly ticked down further since then.
Data on median wealth and income also shows that Pakistan is doing well compared with India. While India’s overall GDP per capita is somewhat higher than Pakistan’s, India suffers from among the worst income and wealth distributions in the world. It is a terribly unequal society, fueled by the intense discrimination against its untouchable caste and its Muslim minority.
In India, the top 1% own 58% of all wealth. If we look at median income per person, which is the best way to assess how the average person is doing, it is 1,200 dollars in Pakistan and 1,040 dollars in India. Another measure is not income (amount earned per year), but wealth (value of what is owned/saved). According to a report by Credit Suisse on global wealth in 2016, median wealth per adult in Pakistan is 1,788 dollars, and only 608 dollars in India. Even average wealth in Pakistan is higher at 4,595 dollars per adult, versus 3,835 dollars in India. The immensely negative effects of India’s highly unequal economy can be seen. There is only one billionaire in Pakistan, while there are 85 in India.
Pakistan is entering a critical economic moment. Rapid and sustained economic growth is possible. But key bottlenecks need to be overcome. First is security. While there have been high profile bombings lately, the violence has receded in the last few years. Civilian deaths from terrorism have dropped from around 2000 in 2012 to less than 700 last year.
Electric power has been short for almost 10 years now. The government finally appears to be catching up with massive demand growth, and load-shedding has dropped from 12 hours per day to less than 6. The China Pakistan Economic Corridor (CPEC) is building out another 10 gigawatts of power, and when they come on line next year load-shedding should end. This will make life better for consumers, and help businesses keep operating.
Education is critical to sustain rising economic growth. Pakistan has made major strides in expanding university education, there are almost 1 million students in universities at present. But there are still too many children not going to school. Universal primary and secondary school must be a priority for the government.
Pakistan is at that transition phase when a country goes from mostly poor to mostly middle-income. Current per capita income is about 5,000 dollars in PPP terms. To be a modern society, that number needs to reach 20,000 dollars (similar to Turkey at present). That can be done with 7% economic growth for 25 years. That should be primary focus of any Pakistani government.
