Pragma Synesi – interesting bits

Compendium of interesting bits I come across, with an occasional IMHO

More on Middle Class

More on the same subject, including a description of the “Mohamed Atta phenomenon”:

http://www.theglobeandmail.com/servlet/story/RTGAM.20070727.wdougmiddle0727/BNStory/International/?query=

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Rift between old and new

An older, state-supported middle class is giving way to a less stable, globalized go-getter crowd

From Saturday’s Globe and Mail

MUMBAI, India — It would be easy to mistake Rajendra and Abhijit Kalekar for brothers. Aged 37 and 38, they share lanky appearances, friendly smiles and a gift of easy conversation; in fact, with the exception of Rajendra’s mustache, they might be able to trade places. As first cousins in a tight-knit Mumbai family, they know each other well and the two men have maintained close family ties throughout their lives.

To outsiders, they also appear to play similar roles in the booming Indian economy: In their neatly ironed, open-neck dress shirts, both the Kalekar cousins are easily identifiable on the clogged streets of Mumbai as members of the fast-growing Indian middle class. They talk freely and eagerly about the things that interest middle-class people worldwide – the stock market, real-estate prices, the best schools for their kids, vacation plans, the morning commute.

But if you watched them make their journeys into work this week, it would have been immediately apparent that they are members of two very different groups, playing very different roles in the global economy, with increasingly little in common.

Despite almost identical educations and family backgrounds, the two men have found themselves members of two distinct middle classes. As poor countries become wealthy, these two classes, one old and fading, the other global and aggressive, increasingly find themselves at odds. When there are troubles in the world today, including some forms of terrorism, often at root it is because two middle classes are at war with one another.

First cousins Rajendra Karlekar (top) and Abhijit Karlekar (bottom) are part of a tight-knit Mumbai family. Rajendra is an accountant for a government-supported bank and Abhijit works at an international cellphone company.

Enlarge ImageFirst cousins Rajendra Karlekar (top) and Abhijit Karlekar (bottom) are part of a tight-knit Mumbai family. Rajendra is an accountant for a government-supported bank and Abhijit works at an international cellphone company. (Subhash Kumar Sharma/The Globe and Mail)

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The Globe and Mail

Rajendra wakes every morning to his stirring wife and son in the sleeping room they share in their small but quiet three-room apartment in an older, government-built concrete structure. The couple bought the place five years ago for $18,750. It has more than doubled in value since then, he points out, though he is not eager to sell. It’s in a bustling neighbourhood in northern Mumbai.

After he and his wife load their son onto a school bus, he makes his way through the crowds to the train station, where for a 25-cent ticket he will wedge himself into the teeming second-class carriage of one of the city’s famous commuter trains and take his 40-minute daily ride. Strolling through more teeming crowds, he steps into the bank branch where he works as a manager – a dusty government-run building on a very poor street in a slum-packed section of Mumbai’s south. His wife works at another branch of the same state-run bank. The ceiling fans kick into life as customers begin to flood in. At his metal desk, he works his way through piles of papers.

By this point in the day, his cousin Abhijit usually has boarded the elevator from his building’s gym to the parking garage. He, his wife and their son have separate bedrooms in their five-room apartment in a luxurious new building surrounded by a wide, empty lawn – an extremely rare commodity in the world’s most densely populated city.

“I must admit that I chose the place because of the tennis court,” he concedes, although he and his wife find little time to use the court, the pool or the gym facilities. By 7:30 a.m., he is in his four-door Honda, making his way to a futuristic mirror-walled office building, which bills itself as Windsor Tower, in a high-tech industrial park in northern Mumbai. Etched into the glass walls are his company’s mottos, such as: “Our values: commitment, passion, integrity, speed.”

Abhijit, who has an MBA, works as a middle manager for a multinational cellphone company. His cousin Rajendra, who has a degree in commerce, works as a middle manager with a state-run bank. They are both doing very well in their jobs, and are gunning for promotions. Abhijit, who has a private office in the building’s air-conditioned halls, may get himself a corner office and a raise of $500 a month. Rajendra, who has a green metal desk, may get moved to the next desk over, the top accounting position in the bank, and for this highest of promotions might receive an extra $100 a month.

Even 10 or 15 years ago, two university-educated Indians working for a bank and a phone company would have been in almost identical positions – as would their counterparts in South America, the Middle East or Southeast Asia. They would have been making similar sums of money; their employers would have been fully owned by either government or national firms, protected by tough tariff barriers and state protections; and they would have had lifetime guarantees of employment. Having such a job automatically made you a member of the country’s elite, with great economic, social and political power.

Today, they are worlds apart. Rajendra, in a good job with an “old” middle-class employer, a government-owned bank, has a household income of $9,000 a year, $3,000 of which is provided by his wife’s job. This was regarded, until quite recently, as an excellent middle-class salary in the developing world. He is squarely middle-class, earning an amount of money that puts him well out of poverty but still requires him to work until retirement.

But Abhijit, working for a publicly traded company with major shareholders in the United States and market ambitions around the world, has found himself in a different group entirely, one that provides incomes in the top 1 or 2 per cent, but which has seized the image of “middle-class” in the public imagination. His salary of more than $30,000 a year gives him a lifestyle, a home and a set of values that would be familiar to anyone in the Canadian or U.S. middle class.

Abhijit and Rajendra both play important roles in the Indian economy. They both have mortgages: Almost non-existent here before the 1990s, home financing has lifted tens of millions out of poverty and created sources of entrepreneurship and pools of investment. They both, like so many members of the world’s middle class, see their homes as sources of equity for future growth.

Along with debt, they both have substantial savings. Rajendra and his wife manage to put $55 a month away for the future; Abhijit and his wife, a teacher, sock away $250 to $625. They both play financial markets: Rajendra puts his cash into bonds and safe securities (“I’m a risk-adverse investor,” he says), while Abhijit has joined the millions of developing-world citizens who actively play the stock market using online trading, with a preference for high-risk equities.

A stock-market mania has overtaken India, driven by the new middle-class industries, and he is one of millions who make trades, sometimes of tiny amounts, on a daily basis.

“It’s a new experience – it was not something that people in India did 20 years back,” Rajendra says. “Now, we all put a share of our earnings into Internet-based trading. But it’s important to me – I hope to retire early. I’d like to spend the last part of my career working for a charity, maybe in water conservation. And I’ll need savings and investments to do that.”

While Abhijit and Rajendra are both happy with their lives, their dreams and ambitions are rather different.

Rajendra expects to live in his small, cozy house, surrounded by books and musical instruments, for the rest of his life. He bought new appliances and a TV five years ago, when he and his wife bought the house, but his only recent major purchase was a new bicycle. He hopes to send his son to university in Mumbai. He spends his leisure time singing in a classical Marathi singing group (he plays tabla drums) and going on long hikes in the Indian countryside.

“In many ways, I live the same life as my parents,” he says, taking a break amid the chaos of the bank branch. “But my life is more stable than my father’s. There is security in my job, I know I will always have it, and my home is secure. If there’s a problem, I have enough funds saved to fill the gap.”

Abhijit, on the other hand, has traded houses nine times in the past 15 years. He and his wife both own cars (still a luxury item in India); he is thinking of hiring his own driver, for $150 a month – not for the driving so much as to have someone to handle the parking for him. He and his wife spend their weekends in shopping malls; they have recently bought a 26-inch LCD television and a nice designer watch. They would like to send their son to university in the United States.

“It is very different for me – in terms of tangible, material things, there is a world of difference. Our incomes don’t compare,” Abhijit says. He is referring not to his cousin – the two see themselves as equals and don’t discuss money – but to his father, who was also a bona-fide member of the old, government-controlled middle class, a comfortable Indian middle bureaucrat.

“I grew up with three rooms for the five of us,” he says. “Now, we have five rooms for the three of us. The whole situation on the economic front has changed for us. It was a much tougher life for them.”

It is also, it goes without saying, a much tougher life for his cousin, who lives the life of his father – but in a world where that life is no longer the pinnacle of Indian aspiration.

At the beginning of the 1990s, some dramatic changes took place in the world’s major poor countries. Their old approach to economic growth, known as “import substitution,” had tried to build national economies using government-protected industries (or, in some countries, through actual state-run economies). After two or three decades, this approach had expanded the size of government and industry, produced a comfortable, educated middle class – and created enormous amounts of public debt, state paralysis and declining exports.

Abruptly, much of the world changed tack: Either on their own or at the behest of international lending agencies, the developing world had opened its borders and welcomed international capital. Globalization arrived almost overnight.

Suddenly, countries like India, Brazil and Taiwan were real players in the world economy. Whole new categories of jobs were created. And for a small but significant number of people, it was possible to live the middle-class dream the way North Americans and Europeans understand it.

But in many places there was a problem: The old, pre-1990s middle class no longer had an important role in the economy. As the private-sector economy advanced, their salaries stayed the same or shrank. While they were still known as the middle class, they were increasingly poor and irrelevant. Governments, and the international organizations that financed them, had abandoned the largest educated and prosperous class of the impoverished world, often letting its millions of families sink into oblivion.

“After the structural adjustments in these countries, you had a larger middle class that was replaced by a somewhat smaller but more upscale middle class and a wealthier, new, entrepreneurial middle class,” says Sherle Schwenninger, a U.S. economist who conducted a major study of the international middle class for the Carnegie Endowment for International Peace.

“Now, some of that restructuring was absolutely necessary in the old developing-world economies. But it could have been more possible, and a lot more preferable, to do it in a way that could have left more openings to members of the old state-supported middle class. You could have had less loss of the old middle class and a much broader expansion of the new middle class. But they’ve ended up doing damage.”

In India, that damage is mostly psychic: It has become popular, in newspapers and books here, to lament the loss of authentically Indian figures in the country’s elite and their replacement with a group whose values are cosmopolitan, international and sometimes seen as a bit un-Indian.

In other countries, the effect has been more grim. In Russia in the 1990s, the old Communist-state middle class was dumped into poverty and became enthusiastic supporters of Vladimir Putin. In South America and Mexico, the old middle class suffered terribly and their clashes with the new middle class have led to extremist governments on the left and the right.

In Morocco, the sudden jettisoning of the old middle class – more dramatic than anywhere else in the Middle East – created a generation that was bitterly unhappy with its loss of stability, comfort and elite status. “In this moment of historical transition between the nation state and globalization,” says British scholar Shana Cohen, who watched this process unfold in Morocco, “melancholia, the loss of an ideal, a past object of identification, … becomes the psychic unifier of a seemingly disparate group of people and the basis for social action.”

This “social action” has become painfully visible recently as explosions have rocked Morocco’s tourist cities. Morocco has done better than most African countries in building a new economy and cultivating political freedom. But it has done very badly in maintaining its middle class.

“It’s the Mohamed Atta phenomenon,” says Mr. Schwenninger, referring to the Sept. 11 bomber, who came from a displaced, old-middle-class family in Egypt. “You have a lot of educated Moroccans whose fathers were educated bureaucrats, who are now finding themselves lost and without a role in the economy, and their sons are often becoming jihadis.”

In other places, the old middle class has been alarmed to lose its status to a new middle class that often has radically different politics.

That pattern was readily visible in last weeks’ Turkish elections. The victorious AKP (“peace and jobs”) party of Prime Minister Tayyip Recep Erdogan, often seen as the voice of the poor and religious, was re-elected to a powerful majority despite the huge protests it received from the urban elite. But Mr. Erdogan’s party serves another, less well-known role: It is in many ways the party of the new, multinational middle class.

The old, bureaucratic middle class, located in the centres of Istanbul and Ankara, was a loyal backer of the army, the centralized state and the system of rigid secularism that has governed Turkey since the 1920s. But, just as the mosque-going villagers flooding into Istanbul felt alienated from this old middle class, so did the young computer technicians hoping to find work in a Europeanized economy. They, as much as the poor and disenfranchised, are the ones who have seized Turkey away from the old middle class.

Of course, in many of these countries the new middle class is not middle-class at all: It is a new wealthy elite, whose members happen to be employees rather than owners. They are often wealthier than successful entrepreneurs in the old, national economy. In post-Communist countries such as China, they are simply members of the old middle class who got lucky. In other places, such as Turkey, they have emerged from an entirely different group of people, from poor peasants who often had very different values from the old elite.

If managed well, with a government that is willing to spend money and energy transforming its economy, the old and new middle classes can become a harmonious group. The Brazilian governments of Fernando Henrique Cardoso and Luiz Inacio Lula da Silva are often credited with accomplishing this elegantly; South Africa, Taiwan and Korea have done a passable job. Here in India, which only 60 years ago had no middle class at all, it remains to be seen whether the old and the new can be reconciled peacefully.

In the Kalekar family, the two middle classes happen to be getting along quite well, thank you very much. That’s partly because Abhijit and Rajendra are happy with their lives. They wouldn’t want each other’s hassles.

Rajendra, the banker, is spending his summer vacation on a long visit to a nature park with his son. He takes leisurely, two- or three-week vacations in the nearby countryside, often hiking on foot or travelling by train. He cooks, plays music and spends long nights with his friends.

“My cousin? I do not feel a gap between us,” he says. “My view is that there is no space for financial matters to interfere with friendship.”

Abhijit, the cellphone manager, is hoping to take a vacation some time in the next year or so, maybe a week or so in Singapore, or at the Disney resort in Hong Kong. He tries to get away with his wife and son. But there is so little time.

“We are not people who work to live; I’d say we are the ones who live to work,” he says, repeating the oft-repeated lament of the new middle class. “There isn’t much time left over for fun.”

Doug Saunders is a member of The Globe and Mail’s European bureau.

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July 31, 2007 - Posted by | economics

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