Rising Asia is now being called upon to become the world’s new engine of economic growth. With millions of people finding themselves with rising levels of discretionary income, and years of pent up desire for Western luxuries, companies from McDonald’s Corporation (NYSE:MCD) to Gucci are looking to the East to fuel consumer spending. Yet, with the world’s resources coming under mounting pressure, one might wonder if the global economy can sustain the rise of the Asian consumer class, or if instead, our entire economic model must be rethought?
Unquestionably, Asia’s middle class is growing. According to the Asian Development Bank, developing Asia’s middle class has grown from 21% of the population in 1990 to 56% in 2008. Their numbers have increased from 565 million to 1.9 billion. These statistics do not include Japan, South Korea, Singapore, or other highly-advanced nations which feature populations that are predominately middle and upper middle class. Reuters estimates that by 2030 the middle class in Asia will account for some 64% of the world’s middle class and 40% of middle-class consumption.
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Retail companies and other businesses that cater to the middle class have not been flat footed in anticipating their needs. Starbucks Corporation (NASDAQ:SBUX) plans to have 4,000 outlets opened throughout Asia by the end of 2013. McDonald’s Corporation (NYSE:MCD) has been opening a new store just about every day in China. Newly emerging markets, like Vietnam, are already attracting global department store chains, and Wal-Mart Stores, Inc. (NYSE:WMT) is now in the midst of expanding its operations across China, South East Asia, and even India, which has long shunned international retailers.
Yet with the massive amount of waste created by the consumer economy, one must wonder if the world can really sustain billions more consumers. Even in spite of massive global efforts, deforestation continues to be a major concern, with 13 million hectares being cut down each year. As the middle class grows, demand for paper and lumber based products will likely only increase, straining forest resources even further.
Energy is a massive concern. Fossil fuels are dwindling. Estimates from 2008 predict that oil supplies will run out in 40 years and natural gas in 60 years. More worrisome, this number is based on the so-called R/P ratio, which only factors in consumption at current levels (as of 2008). Already, prices per barrel of Brent crude oil have hovered about 100 dollars, up from less then 30 dollars in 2000. Higher oil prices restrain economic growth and raise the cost of living for consumers and as the middle-class grows, oil consumption will almost certainly increase.
Meanwhile, the effects of global warming are being felt and recorded around the world. The polar ice caps are melting at a remarkable rate . The exact extent of the impact of human activities on global warming is difficult to measure and it is possible that the current global warming cycle would occur, even without humankind’s related contributions, however, the impact of 33 million tons of carbon emissions (2011) into the atmosphere will undoubtedly exacerbate the problem.
With this myriad of problems the world already faces, it’s fair to wonder if the world can sustain a huge growth in middle class consumers. As people rise into the middle class, they purchase cars, increasing carbon emissions. They increase their use of electronics, requiring more electricity. Consumers goods are usually packaged in paper, made of plastic, and other unsustainable resources.
While certainly the growth of middle classes should not be impeded and people should not be forced to live in poverty, the time may be drawing near when humanity has to collectively rethink its current consumption models. Many companies are already blazing the path to more sustainable development. Wal-Mart Stores, Inc. (NYSE:WMT), for example, is working to reduce packaging on products. Car makers are working feverishly to reduce oil consumption, and numerous other efforts are being carried out by various companies to reduce the impacts of consumption. These companies are certainly driven by profits through cutting costs, improving brand image, and preparing for the future. Whether their efforts will be enough, however, remains to be seen.