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Blog : BOARD TALK

The 'Fragile Middle' Should Cause Fear In Many Boardrooms

Posted on April 14, 2014 at 4:25 PM

Amid an often dismal global scene, some of us have been taking heart at any signs that rapid economic growth in China and other developing countries has been moving the world away from inequality, as outlined by Branko Milanovic in his work at the World Bank.


And the notion of an 'emergent middle class' in the business press has almost become a legend before its time.


Investors may be getting bored of BRICs (Brazil, Russia, India, China)  but they still toss around the acronyms as saviours - whether it be MINT (Mexico, Indonesia, Nigeria, Turkey) or CIVETS (Colombia, Indonesia, Vietnam, Egypt, Turkey, South Africa). In much of the rationale for investment, it is the lure of that 'emergent middle class' that shines like a beacon.


But valuable research by the Financial Times out today paints a different picture. In a global context, "the number of solidly middle-class people remains small, while the fragile middle has grown exponentially" says the FT.


Analysing more than 30 years of World Bank data from 122 countries in the developing world, the FT adds: "As poverty has fallen, the number of people clustered in a narrow band above the poverty line has grown. But only a relatively small number of people tend to make it beyond that. The result is that four in 10 of the world's people now live in its fragile middle." (my emphasis)


Now, as someone who wandered about intellectually in six years over three academic degrees - one of which involved a thesis on the effect of oil revenue on development (Iran) and one of which was on the effect of the 'green revolution' in Punjab (India) -  I have a geekish and personal interest in this subject. But it also very relevant for UK plc and boardrooms.  


Why is it so important ? Just do an internet search on 'emergent middle class and investors' - and you will very quickly hear one message, with a resounding echo. These are the customers on whom everyone is relying to survive.


Only they may well not materialise - and certainly not fast enough to justify many a strategic business plan, I suspect. Add into that rapid threats from outdated IT, cyberrisk and a burgeoning young population in most of the developing world that still aspires to jump out of the fragile middle - and you could see a bit of a mess.


But there is one way forward for business and investors that might have the dual good effect of reconnecting them to the rest of humanity. 


Also in today's FT, a piece headlined Social impact funds make an impression. If you don't have FT.com access (although there is limited free access if you register)  it is about the institutional investment sector "getting involved" in impact investing, which is about "using capital explicitly to create social, or other non-financial, benefit as well as financial return."


Axa Group , which appears to have the (inspired) motto 'Redefining standards', is breaking new ground with its €150m social impact fund. Responsible investment has been climbing the investor agenda, albeit slowly.


Given a fresh look at what is really going on in the world - and the FT research forms part of a series of articles I believe - it would make a lot of sense for business that wishes to perform to think responsibly on partnerships aiming at social and economic equallity, and for investors to back them by moving towards impact investment with intent.


Note: Do read my interview last year with Sir Ronald Cohen - also under the FT 2013 tab on this website.




Categories: Chairmen, Investors, Behaviour