Dan Banik speaks with Homi Kharas about the rise of the global middle class and why it has become central to the story of modern development. The conversation explores how middle-class growth is reshaping economies, politics, and aspirations around the world, and why its future will matter for inequality, sustainability, and global change.
Dan Banik speaks with Homi Kharas about one of the most important yet surprisingly underexplored forces in modern development: the rise of the global middle class. Drawing on Kharas’s book The Rise of the Global Middle Class: How the Search for the Good Life Can Change the World, the conversation traces how the middle class emerged as a powerful social and economic force, why its center of gravity is shifting toward Asia, and what that means for the future of development. Along the way, they reflect on how the middle class shapes demand, drives growth, influences politics, and changes what citizens expect from markets and the state.
Homi Kharas is a senior fellow at Brookings and previously spent 26 years at the World Bank, including seven years as Chief Economist for East Asia and the Pacific and as Director for Poverty Reduction and Economic Management, where he led the Bank’s work on economic policy, debt, trade, governance, and financial markets.
The episode also examines the tensions at the heart of this transformation. As more people move into middle-class life, new questions emerge about inequality, insecurity, democracy, consumerism, and whether middle-class expansion can be sustained in a world under growing environmental pressure. From the anxieties facing Western middle-class societies to the optimism and aspiration associated with middle-class growth in Asia, this is a wide-ranging conversation about prosperity, possibility, and the changing social foundations of the global economy.
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[Dan Banik]
Homi, it’s always nice to see you and to interact with you. Welcome to the show.
[Homi Kharas]
Such a pleasure to be here, Dan.
[Dan Banik]
Homi, this term “middle class” is thrown about a lot. Many people use it, and abuse it. What are the origins of the middle class as you see it? And how do you understand the concept today?
[Homi Kharas]
The origins are really in Victorian England. Before the Industrial Revolution, there were basically two classes in society. You had a ruling class—an aristocracy, usually royalty—very small in number, and you had everybody else. There was a term, the “middling sort,” for a very small number of people, sometimes merchants or others. But really, there were only two classes.
The Industrial Revolution produced what we now think of as the middle class. First, in terms of the entrepreneurs and inventors we know from history—James Watt and the steam engine, Trevithick, and others—all came from what I would call middle-class families. They were the ones who had the time and education to become scientists and engineers producing the innovations of the Industrial Revolution.
Then you had the businessmen, and that spawned a whole range of new occupations. People moved to cities in large numbers. You had people working in factories. Initially, the workers were not part of the middle class because their wages were too low. But the bank clerks who were needed to write the loans that factories needed to buy machinery and expand—those kinds of people became part of it.
So with urbanization, education, and these new occupations—teachers, nurses, doctors, bankers—you see a range of roles that had never really existed before. That became basically the middle class as we know it today. It’s a professional class.
And in the book, I argue two things. First, there is something very special about the middle class. When you are poor, you don’t really make choices. You struggle to survive. When you’re rich, you don’t make choices either—you don’t have to give up anything in order to get something else. You just buy whatever you want. The middle class is actually the class that makes choices. For economists used to thinking about budget constraints and trade-offs, that is really what we are talking about: people who worry about prices, affordability, and incomes.
The other part of the middle class that I think is interesting is the idea that it is a class in the political sense—a group of people who wield political power to advance their interests. Starting in Victorian times, the first big effort of the middle class in England was the repeal of the Corn Laws. That was basically the factory-owning class saying to the landed gentry, who benefited from protection against imported agricultural products, “What we want is cheaper food by lowering tariffs, because that will allow our factories to grow.”
So it was the factory owners—that middle class—that put pressure on the establishment to lift tariffs on imported grain. That was the first big political victory of this new class. And then it went on: public education, public health, pensions, everything we now think of as the welfare state, the university system, professional civil services, professional militaries. All of these things are part of what I would call the middle class. It’s this notion of a class where merit drives success.
[Dan Banik]
It is fascinating to read your book and to follow the evolution of this group from the 1820s onwards. In the early 1800s, there were about a billion people in the world, and most of them were very poor. We’re talking about extreme poverty in Europe and really everywhere around the world, with only a very small minority that could be classified as middle class.
Fast forward to the current age, where many of us say this is the best time to be alive. We’ve made enormous progress despite some of the doom and gloom we hear about. How do you think the identity of the middle class has changed? Because as a person living in poverty, I would imagine the dream would be to achieve middle-class status.
[Homi Kharas]
I think that remains the dream. And it’s why so many people have joined the middle class. We are almost certainly living in a majority middle-class world today. If you think about it, from essentially 0 percent, possibly 1 percent, 200 years ago, today the middle class is the majority. It’s astonishing. I think of it as one of the real megatrends of global economic development over the last 200 years.
What lies at the basis of that is that the middle class is looking for security. One of the definitions I use in quantifying what it means to be middle class is that if you have some kind of shock—a spell of illness, a spell of unemployment, something like that—you have the wherewithal to recover. You have either a safety net of friends and family or your own savings, but you are not destitute.
One of the things that characterizes poverty is that this is not the case. People living in poverty are extremely risk-averse because if something bad happens, it can be life-threatening. As a result, they tend to make very risk-averse choices. Once you are in the middle class, that changes. And that is why the middle class is such a huge source of entrepreneurship in our economies today.
[Dan Banik]
One of the challenges with any definition of the middle class is the enormous diversity, right? You could have people just above poverty being classified as middle class and others just below what is considered rich. So there is enormous diversity. Going back to what you were saying about choices, I would imagine that if you are in the middle-middle class or upper-middle class, your choices are much greater than if you are at the bottom rung. So I suppose we have to make that differentiation.
[Homi Kharas]
It is precisely because of that huge heterogeneity that I prefer not to define the middle class directly. Instead, I define the poor and vulnerable, and I define the rich. Then I define the middle class as everybody who is neither poor and vulnerable nor rich.
I think it is easier conceptually to define the poor and vulnerable. When you see poverty, you know what it is. And when you see wealth, you know what it is. Those tend to be less heterogeneous groupings that you can define. Then the middle class is everybody in between, precisely because it is so heterogeneous.
[Dan Banik]
But the identity of the middle class—do you know it when you’ve arrived? When you’ve just barely crossed the threshold? I’m thinking about some of my reflections from the African continent, or maybe even from India and China. Is it about having access to certain goods—a scooter, a car, a house? What is it that makes people feel they are middle class? Is it that someday you wake up and say, “Yes, I’ve made it”? What characterizes the identity of a middle-class household?
[Homi Kharas]
I would say it is the idea that you have the opportunity to be responsible for your own well-being. You make certain choices—the jobs you take, the education you pursue—and the economy provides you with the opportunity to translate that into a certain standard of living.
Ultimately, if you are middle class, it is about what you do. It is characterized by grit, determination, responsibility, and success.
[Dan Banik]
But also greater safety nets, perhaps.
[Homi Kharas]
You need that because, as I indicated before, if you don’t have safety nets, you often cannot afford to take the risks that might have high expected returns. A high expected return is no good if you get a bad draw and end up as a casualty.
Safety nets are enormously important from that point of view. It is the safety net, for example, that allows a small farmer to move from subsistence farming—where they consume what they produce themselves—to market farming, where they are producing fruits and vegetables for the town. They have to be sure they can survive the risk. With fruits and vegetables, you are typically monocropping. With subsistence farming, you are doing a little bit of everything, so weather is less likely to wipe you out. So these are small but very important differences.
[Dan Banik]
I was thinking about the 1940s in the UK and the growth and consolidation of the welfare state. Staying on safety nets, it seems that the rise of the middle class, at least in Europe and perhaps also in America, corresponds with the state providing greater safety nets.
[Homi Kharas]
I think it has varied. In much of continental Europe, certainly, safety nets have been a much greater part of the expansion of the middle class. Sometimes, for example, I don’t know whether you would think of free public education as being a safety net. But if you go back, that was introduced in the nineteenth century, very early on, in the UK and the US.
German kindergartens, for example—we talk today about preschool education as if it were something new. But kindergartens came in during the nineteenth century. So there was very early this notion that society should invest in people and in human capital, as well as in the physical capital and infrastructure that we enjoy today.
[Dan Banik]
When one thinks about the middle class historically, at least after the Second World War, one thinks about Europe and the American Dream—the rise of the middle class and consumerism in the United States. I was reading a piece recently where somebody reflected on how it was once possible for a household in the US, with a single income, to afford quite a bit of comfort and even send children to college, which apparently is no longer possible in the same way.
So in Europe and America, you had that rise of the middle class—the American Dream, or whatever one wants to call it. And then something happened around 2016, with Brexit and of course the election of Donald Trump, where much of the analysis in recent years has been about this disillusionment with the state or with development that this middle class had become accustomed to expecting. Walk us through what happened. There was an era of great consolidation, when the middle class was prospering, and then something changed. And this is also part of the main argument in your book: the megatrend, as you argue, is shifting elsewhere now. It is no longer America and Europe.
[Homi Kharas]
Right. I think one thing that has really come to the fore is that through the 1970s, when you asked people in the middle class whether they were happy with their position in life and optimistic about the future, you got very positive responses. These are the same questions that have been asked for a very long time in Gallup and Harvard life satisfaction surveys.
Then after the mid-1970s, you start to see a change. People in the middle class in what we call the West became less satisfied, less happy, less optimistic. Exactly why that is remains a big question. Could it be immigration? It could be. I would suggest it is more likely to be globalization.
In the 1970s, the middle class was very much a Western phenomenon. When you talked about the middle class in the world, you were talking about the US, Europe, Japan, and of course Canada and Australia. You were not talking about people in developing countries.
When China joined the World Trade Organization in 2001, which is just over twenty years ago, a Chinese worker in a factory was making less than a dollar an hour—less than I made as a student research assistant in college. Now people see China, and now India and much of Southeast Asia, as these extremely large economies where people are working very hard and pulling themselves up by their bootstraps, as it were—the old middle-class ethic. And people in the West are feeling threatened. Jobs are being threatened.
When you look at how the middle class has evolved, certainly in the United States, you now have a bit of a bifurcation. Remember, I talked about it as a class, meaning a group with a commonality of interests. Increasingly, it looks as if what we call the upper middle class in the United States is allying itself with the rich and moving away from the interests of the lower middle class.
Students at universities, who were told for generations that going to university was their ticket into the middle class and that the middle class was their ticket to the good life, are now going to university, racking up large amounts of student debt, and not knowing whether they will get a good job and a decent life at the end of it all. Nobody really knows how AI is going to change our occupations. So this is a very stressful time for them.
[Dan Banik]
A couple of things here, Homi. One is the idea that the middle class in the so-called West grew up with the feeling that it was preordained. You were born into a middle-class family. Obviously there would be a job. There would be college, work, family. Maybe you would even have it slightly better than your parents. So there was this expectation that this is just how life works.
Perhaps there was not that much reflection on how the rest of the world lived. It was about being selfish, as we all tend to be. The other thing I was thinking about is that perhaps politicians and leaders were very good at giving us that sense of security. Maybe we stopped talking about the working class because everybody was being pushed into this ever-expanding middle-class category without realizing how vulnerable they actually were in a changing world order.
And this is where globalization comes in. This is where Vietnam and China and outsourcing come in. Suddenly, one wakes up in the mid-2000s and realizes: things are changing, and maybe we are being mistreated or ripped off, as a lot of politicians kept saying.
[Homi Kharas]
One of the things that is quite clear in the data is that up through the mid-1970s, productivity growth in almost every country was linked to wage growth. The benefits of technology and economic growth were being broadly shared within societies.
In the US after 1975—and probably, more or less, around the same time in Europe—you start to see a big divergence between wages and productivity growth. In Europe, it was less significant because you continued to have unions that pushed for higher wages. You had wage agreements, and so on. So one has to be very clear that the working class is often also part of the middle class because unions secured decent pay and decent working conditions.
[Dan Banik]
Scandinavia is a great example of that.
[Homi Kharas]
Exactly. But that system became harder and harder to maintain as globalization led to increased competition from abroad. That is one reason why I think of globalization as, on the one hand, the source of the expansion of the middle class to other countries, and on the other hand, a source of concern for much of the established middle class in advanced economies.
[Dan Banik]
We are seeing a phenomenal rise of the middle class in Asia. Following the rise in Europe, America, Latin America, and Eastern Europe, there have been these phases, and now it is Asia’s turn. There are obviously many positive things associated with being middle class: jobs, growth, consumerism, booming economies, people who are happier, who can send their children to university, access medical care, and enjoy greater choices.
However, there are also other aspects of this growth of the middle class that you are concerned with. One has to do with our obsession in Norway, and in many other places, with getting things as cheaply as possible. We want stuff. It is produced somewhere. We may not be so concerned about the kind of wages that people in those factories are getting. This is also related to biodiversity loss, climate change, and all kinds of other consequences of middle-class growth that we need to be more concerned about.
So give us a sense of the good, the bad, and the ugly of this megatrend where the middle class is moving toward Asia.
[Homi Kharas]
I think the economic structures we have had—essentially take, make, consume, and throw away—are not scalable on a planetary scale. As the middle class has now surpassed four billion people and is moving toward five billion people in the world, we are seeing real physical limitations in terms of climate change, biodiversity loss, and land use.
We are converting more and more land to agriculture—growing food not first for humans, but for animals, and then for humans. Unfortunately, animals are extremely inefficient converters of calories from grains into calories for humans.
[Dan Banik]
That’s because the middle class wants to eat meat.
[Homi Kharas]
Some of the middle class wants to eat meat. I sometimes joke with my friends that thank goodness the most recent emergence of the middle class is in India, where they do not eat beef for cultural reasons. Otherwise, we would really be in trouble.
So biodiversity loss, land use, climate change, and waste disposal are all part of the story. There is a whole part of the economy that we never really thought about. Now everybody is talking about microplastics showing up everywhere. But the amount of stuff we simply throw away is enormous.
So we are in the middle of a redesign of the economy to see whether we can satisfy the consumer side of our desires while putting less pressure on the planet. I have to say that the advances in technology are fantastic from this point of view. It can be done technologically. But in any big change, there are winners and losers, and we are seeing very powerful vested interests push back.
The way in which we get these technologies into economies is through government regulation, but sometimes governments put in regulations and industry pushes back. That is happening now in Europe with a whole range of environmental regulations.
That said, the trend is very clear. From a technological point of view, I am reasonably optimistic that we can solve the problem of having a very large middle class on the planet while staying within our resource limits. Whether we can get the policies and institutions to change rapidly enough is a different question.
One unique feature of our current time is that we do not have the luxury of experimentation. We do not have time to say, “Let’s see if this works, and if not, we’ll try something else.” With climate change and species extinction, there are tipping points. Once the ice melts in the Arctic and Antarctic, you cannot simply put it back together again. Once species go extinct, they are gone.
[Dan Banik]
I agree with you and sympathize with that argument. But I have just returned from India, and in Africa, in China, and elsewhere, much of the discourse, while not dismissive of the concerns you raise, is still fundamentally about economic growth. It is about moving people from having very little to having a two-wheeler, then a car. It is about development as well-being. It is about air conditioners and comfort.
And in that context, this argument often does not resonate. Of course, I agree with you: we do not want the Asian middle class to consume as much as we do. But who are we to tell them not to aspire to the kind of life we have been living?
[Homi Kharas]
This is where economics comes in, because the new economics actually says that you can have your cake and eat it too. Look at what is happening now in Africa and India. Look at India’s renewable energy generation and the price of solar power. The increased demand for electricity is being met through new technologies.
There is no question that the cheapest source of energy today is electric power generated by solar and wind. We still have some issues with storage and batteries. We still have to coordinate investments in the grid so that when you have these new plants, they can actually connect to the grid. In the United States, some new producers are waiting six to nine months just to get that connection.
[Dan Banik]
The same here. So this is where your point about technology comes in. Do you recognize this tension in many of these economies, where people say, “We do not have the luxury of thinking so far down the line; we are obsessed with helping people survive until the next day”?
[Homi Kharas]
No one is going to do anything simply to “save the planet.” What they will do is say, “This is a better, cheaper way of achieving what we want.” And what I am trying to argue and demonstrate is that those better, cheaper ways do exist.
If you were to take the best practice in OECD countries in terms of how much energy they use for transport, manufacturing, agriculture, heating, and cooling buildings, and apply that best practice across all OECD countries, you would reduce carbon emissions by two-thirds. We would not even be having this conversation about climate change.
This is not about a trade-off between technology and standard of living. That is simply false economics.
[Dan Banik]
Don’t you think there is also a moral aspect to this, in the sense that it is not as if the middle class or upper middle class in much of Asia is unconcerned about the environment? Take China, for example. People are increasingly concerned with clean air and blue skies. The same in India, where many middle-class people in Delhi are deeply frustrated with winter pollution.
So it is not that they do not want to see the bigger picture. Somehow they have to be made to see it in ways that connect to their own lives.
[Homi Kharas]
One reason I say that it is the middle class that is going to save the planet is precisely because in all of these countries, it is the middle class that is pushing governments to do something. They see the problem locally and want action, and governments have to be responsive.
Because the middle class across the world tends to want many of the same things, they can push governments to take actions that ultimately result in better global outcomes. That is the hope. And I think it is much more likely to happen that way than through governments trying to negotiate some giant planetary agreement.
[Dan Banik]
You mean like the SDGs?
[Homi Kharas]
Actually, I think almost the reverse. The SDGs are really about each government taking responsibility for what it should focus on domestically. I was thinking more of things like the Kyoto agreement. I do not think we are going to get large multilateral treaties of that sort that will solve the problem.
What we can get, though, is countries sharing experience with new technologies. The race we are in is a race to adopt those technologies. And this is why I think it is so unfortunate when people say things like, “You should not use Chinese solar panels because they are Chinese and this might affect national security,” or something along those lines.
[Dan Banik]
But staying on technology, Homi, I know the middle class is perhaps the group that is most worried about AI: about the loss of jobs, the future of their children, and the kind of careers they imagined that might disappear.
Which also brings me to another issue I would like you to reflect on. What do you think are the similarities and differences between the middle class we have in the so-called West today and the one we are seeing rapidly expand in Asia?
[Homi Kharas]
It is interesting to see how different the jobs and social profiles are in different places, and yet everybody is still called middle class. What constitutes the Chinese middle class is very different from the Indian middle class, which in turn is very different from the US middle class.
But there are some similarities and commonalities. As I said before, what is common is that the middle class should have the opportunity to take responsibility for themselves and their families, and to devote their work and effort toward making their own lives better.
AI is something quite different from what we have experienced before. Technology in general has certainly created disruptions, but it has also opened up more opportunities for people. Economic growth is not just about producing more of the same things. It is also about producing many more kinds of things, and that has usually created more jobs.
The real worry people have now is that AI threatens to do so much of this so much better than humans can. We do not really have a historical precedent that can guide us through this period. That is part of the promise of AI, and also part of the concern.
[Dan Banik]
One of the many things that we often associate with the middle class, at least in our parts of the world, is support for democracy, prosperity, the politics of hope, and maybe even solidarity with those who are less fortunate. These ideas and values are changing very rapidly in our societies.
Staying on my previous question about similarities and differences between European and Asian middle classes, do you think some of these values—support for democratic rights, support for equality—will also be adopted elsewhere? Or do you see these middle classes moving in very divergent directions?
[Homi Kharas]
There was certainly considerable hope that the middle class would be a progressive force for what we might call liberal democratic values. President George H.W. Bush, when China joined the WTO—a move he supported—basically said as much. The idea was that through trade, China would also become more democratic.
Going back even further, Keynes was a strong proponent of free trade because he believed it would reduce the probability of war. So there has always been this hope. But the empirical evidence unfortunately does not really bear it out.
The middle class wants prosperity and stability for itself. There are many authoritarian regimes that have offered and delivered that, at least for a period of time, with the support of the middle class. Remember, it was the middle class that was the force behind colonialism and military adventurism.
[Dan Banik]
The zamindars in India?
[Homi Kharas]
Zamindars in India, yes. But more broadly, the professionalization of the British military, the occupation of India—all of that was to a certain degree supported by the middle class. And of course, they were able to bring back many cheap goods from India to keep the middle class afloat.
And then, of course, the two great world wars of the twentieth century were, in essence, driven by the middle class in Germany and Italy. So the middle class has not always been what I would call a progressive force. There are many historical examples of that.
But it has often been a force that eventually recognized that the path it was on was a dead end—that it was not going to generate the kind of prosperity, not just for itself but for its children and grandchildren, that it wanted—and then changed course.
The question for us is whether we have that luxury of time. Will the middle class realize and change course rapidly enough to avoid some of these tipping points? And I would include war and conflict among those tipping points. We are clearly entering a period in the world where the use of force is once again seen as an acceptable way of resolving problems.
[Dan Banik]
We haven’t talked about the African middle class. How do you see the growth of the middle class on the African continent in the years ahead?
[Homi Kharas]
Unfortunately, it has been very limited. When you talk about the African middle class, you have North Africa, and Egypt is the only really populous country there with a fairly substantial middle class. Beyond Egypt, perhaps South Africa and to some extent Nigeria, many other African countries are either quite small in population, like Botswana, or still too poor to have a truly dynamic middle class.
So when I look at the numbers on the African middle class, they are still quite small. There is nothing that would prevent Africa from developing a large and thriving middle class, and of course one sees signs of that in certain places. But African countries are trying to do it at a time when the middle class is struggling everywhere else. So it is twice as hard for them.
The pathways are less clear. They desperately need power and infrastructure. They have to build cities and more cities. Unfortunately, they are also likely to be subject to some of the negative consequences of middle-class consumerism elsewhere. People say that the single biggest determinant of what happens in Africa may be the choices made by the middle class in Southeast Asia and South Asia, because those choices will drive climate change, which in turn will drive droughts and weather conditions in Africa, affecting agriculture, which is still a very important part of many African economies.
So Africa is trying to develop under very difficult conditions, not least because of geography.
[Dan Banik]
Homi, congratulations on this wonderful new book—yet another book—and thank you so much for coming on my show today.
[Homi Kharas]
Thank you so much for having me. It’s been a real pleasure.
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