Is it possible to have a wealthy country without a middle class?

Question

I'm trying to create well-off country, which judging solely by GDP per capita would be considered wealthy with something like 60,000 USD per capita. However the country middle class is very small.

Is such economy possible?

If that helps my story is about failure of the country to democratize, since rich are afraid that populist will take all their wealth. The working class on the other hand could always find job, but has largely given up on trying to improve, unless you are very talented or very lucky.

The story happens in present age.

So far I'm pondering below things:

• Low taxes and little redistribution of income
• Suppression of unions
• Modern sector made of Capital intensive industry which that pays high wages but employs few and high skill services which only hire brightest and best educated
• Unproductive traditional sector which soaks surplus labor (South Korea but many times worse
• Expensive private vs low quality public/religious education
• Part of the population works very little due to religious reasons (inspired by Haredim in Israel) and lives off government handouts
• Very few public jobs (small administration, professional army etc)
• mechanized agriculture

Answer 1

Gated Nation

One scenario that comes to mind is Monaco. One in three is a [multi-] millionaire. Most of the working-class do not live in Monaco, but commute from France. The "country" is full of rich people (is that a "rich country"?), but has a small if not non-existent middle class citizenry.

"From Each According to His Ability, To Whatever."

Another scenario that comes to mind is pure State ownership. I know this has not really panned out in real life, but in theory, the "country" can be "rich" if all wealth is owned and distributed by the state. Distribution can be absolutely even, thus rendering everyone in the same class, or it can be uneven such that some get most and the rest get sh*t.

Feudalism / Oil Oligarchies

Another scenario is common in the middle east. Vast wealth is owned by a small ruling class or even a single ruling family. This family has mechanisms to generate vast wealth, and it's up to them to allow or forbid anyone else in their turf to do or own whatever they deem fit.

Of course, prior to the post-war rise of the middle-class, there was no middle-class. So, if we take feudalism as an example, if any king could generate wealth then you would say that that king's country is "rich." Was ancient Egypt "rich" or was it mostly a country of slaves forced to collect gold and bury it with a select few powerful individuals?

You, Robot

I think a lot of this would be easier if there was a large robotic or mechanized work-force. The middle-class are indeed useful for advancing and stabilizing a free society. One option, then, is to not have a free society. You could obtain your skilled labor from robots, thus keeping a lower class relatively unskilled and thus uneducated and unempowered. The resources generated by these robots could then be used to appease (free sandwiches) or control (police) the lower classes. These robots could be designed/owned/manufactured by the ruling class, or, the ruling class could have just purchased them from another country.

Answer 2

What does it mean to be wealthy?

If you'll forgive a Frame Challenge, you're trying to define wealth in terms of money and then you want to level out the playing field. That doesn't work.

Wealth must be defined in terms of luxury, influence, and power. In other words, a wealthy person is one who can secure the services of others in circumstances when the majority cannot do the same. After all, what does it mean if everyone in a nation "owns" the same mount of land or "earns" the same amount of money?

Answer: nothing. To quote from Pixar's The Incredibles, "Everyone's special, Dash. ... Which is another way of saying no one is."

Producers, Consumers, Givers, and Takers

A viable society requires everyone to be some percentage of producer, consumer, giver, and taker. This is where a great many people don't get it. Now, because this isn't the place to write whole books, I'm going to really simplify this.¹ Let's consider five classes of people:

• The institutional poor (e.g., the homeless, the chronically ill) are 0% producers, 5% consumers, 0% givers, and 100% takers.² The amount of consumption they represent is negligible while as takers, they absorb vast amounts of resources. Or, perhaps more accurately, vast amounts of resources are consumed on their behalf — whether they benefit from that consumption is dubious. The institutional poor exist because there are always costs that exceed society's capacity to bear. The only stable means of support beyond frugal taxation is through charitable donation, but because there are always cases where people won't or can't benefit from the assistance to rise above this social class, the class will always exist in every society. Members of this group can rarely be elevated to other social classes.³

• The material poor (e.g., the uneducated, disenfranchised, debilitated, disabled) are 20% producers, 40% consumers, 0% givers, and 80% takers. That might be a particularly harsh summary as individual cases vary widely. Nevertheless, this class tends to hold minimum-wage jobs (low productivity) and yet want the benefits of greater affluence (medium consumption). They rarely contribute charitably due to lack of resources and/or time, but often rely on charity to help them overcome rising costs of living. This class is often better assisted to enter more affluent social classes due to judicious social programs that improve education and life skills.

• The middle class are your workers. This is incredibly important! 80% production, 80% consumption, 50% givers, 5% takers. The wealthy of any society depends pretty much exclusively on the existence of this class. Farmers, miners, loggers, bakers, teachers, shop keepers, tailors, etc., etc., etc. Eliminating this class is always a really bad idea because perceived wealth often results in perceived entitlement. It isn't the wealthy classes that need to be expanded, it's this one. To use a phrase from The Scarlet Pimpernell:

  Chauvelin: We shall execute our king instead, sir, and exalt our tailors.

  Sir Percy: More's the pity. Then your tailors will rule the land, and no one will make the clothes. So much for French fashion, and French politics.

• New Wealth are often industry builders (e.g. Steve Jobs). They became wealthy (and stay that way) by producing. 100% producers, 100% consumers, 80% givers, 0% takers. They build businesses, creat jobs, meet demand, and then continue to fund (both as investors and as philanthropists) production. These wealthy people are usually producers, consumers, and givers on a massive scale.

• Old Wealth are often represented by "old money" heirs and heiresses (e.g., Paris Hilton), but not always. They are often 0% producers, 100% consumers, 40% givers, and 10% takers. I give them that 10% for being takers because these folks are frequently looking for loopholes to keep their wealth rather than opportunities to invest it.⁴

Yeah, yeah... but what has this to do with my question?

Here are your problems:

1. You can't equalize people via money. As Dash said, it's "another way of saying no one is [special]." It doesn't matter if everyone has an equal income of \$1,000,000 or just \$1. By normalizing society you both devalue the money and remove the incentive for workers to work harder and the new wealthy to invest. Here's a key: it's the movement of money through an economy that makes it strong, not the amount of money in it. If no one is willing to make the clothes because everyone is wealthy, there's nowhere for the money to go, so you might as well equalize everyone at \$1.

2. You can't lift people with just money, either. This is the problem most people don't understand about arbitrarily raising (or using at all) minimum wages. It may temporarily lift people from the material poor to the middle class, but it does so by inflating the economy and devaluing the education that made the middle class what it is in the first place because you haven't made the material poor better producers. Production/productivity is the key! Not money.

3. Remember that "wealth" isn't about money, it's about luxury, influence, and power. A shop keeper can be those things, so can an industry mogul. But if you measure those things only by money it's impossible for the shop keeper and the industry mogul to have the same amount of money — or you've reduced the mogul to a shop keeper.

So, the easy answer to your question is "no." You can't reduce or eliminate the middle class because those are the people doing the vast majority of producing in any country. If you try to make them wealthy, what you'll do is devalue the money such that it's not worth anything, thereby reducing the wealthy to the middle or material poor classes.

So, look at wealth another way

It is my recommendation that you stop thinking in terms of money and possibly stop thinking in terms of "fairness" or "equality." What you need is a society that's egalitarian in that everyone has access to opportunities that allow them to make the most of their abilities. What you want is for everyone to be productive. That's what makes everyone "wealthy."

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_{¹ The following list is not meant to be offensive, but a simple (and simplistic) set of descriptions. It could be considered brutal by some. I apologize if it offends. However, if you choose to complain, please help me find a way to express the ideas in an accurate way and not simply a more "politically correct" way. Clarity may not be sacrificed on the altar of vicarious affirmation. Thanks.}

_{² I've little doubt my percentages will cause arguments. No, I don't have citations that back them up. They're my "gut feeling" based on years of economic, community, and pastoral experience. If someone can improve the numbers, let me know. You'll note quickly that there isn't a baseline that "adds up to 100%." Maybe I'm wrong, but I've not found inter-social challenges to ever add up to 100% of anything.}

_{³ It's their children who can be elevated. Once an adult enters this social class it is very, very difficult to lift them out again because there's often a systemic reason for them being in the class: untreatable illness or injury, mental limitation, behavioral institutionalization, etc. People have (nobly and justly) been trying to eliminate this class for... well... forever, with little success. A "just" society continues to make that effort anyway despite the cost, and improves socially by learning how to most efficiently balance cost with opportunity. Examples: educating the public such that more charitably donate to reduce the burden of all or improve healthcare efficiency to cover this non-paying class.}

_{⁴ I loathe this class as much as I admire the "new wealth" class. Just in case I didn't make that clear.}

Answer 3

This looks like a common situation with countries becoming quickly rich on natural resources, like Russia or Arabic oil-rich countries. The question is - for how long the country can prosper without a middle class.

If working class conditions aren't improving (i.e. thee is no viable path to financial independence), its discontent would only grow, and government has to become increasingly oppressive. Providing a plenitude of low-paying jobs or government assistance can help, but only a little.

In longer term, because upper class is unrestricted and country's fortunes aren't likely to grow forever, corruption should turn the country to a less affluent place with social unrest and possible revolution in the making.

Answer 4

You'll probably always have a local middle class even if they're loaded by the standards of their neighbours. If the local middle class is not defined by being the traditionally middle class, having more than the working class but not being rich, then they are defined by being the merely rich among the super rich.

Answer 5

You might enjoy reading The Dictator's Handbook by Bruce Bueno de Mesquita and Alastair Smith which, among other things, attempts to explain why dictatorships in resource-rich countries seem so durable. It's summarised in this video.

In particular:

• You have a lot of GDP from natural resources (oil, diamond mines...) that the Glorious Leader can control easily and don't need lots of educated people.
• Only a small fraction of the population has influence on who the Glorious Leader is (army chiefs, village heads etc)
• The Glorious Leader gives that population quite a bit of stuff to buy their support. He'll have to spend quite a bit, as if he doesn't they'll replace him with someone who does.
• The international community officially frowns on this, but unofficially it's much cheaper to buy your UN votes and suchlike with "development aid" because they only need to convince/bribe the few powerful people, unlike a democracy where they'd need to convince/bribe almost everyone.

Answer 6

Singapore model

I could imagine a large impoverished rural nation with a single prosperous city that was very different economically from the rest of the nation.

Imagine if Singapore had stayed in Malaysia. Singapore has 5.6 million people and a GDP of 65,000 - economically they have a lot of good stuff going on, and not by lucking into mineral wealth. Malaysia has 32 million with a GDP of 11,000; pretty different. But imagine if Malaysia were an agrarian nation more like Bangladesh: 162 million, GDP of 4000.

The people in the city are not a rarefied millionaire class like in Monaco. They are well paid skilled workers, traders, bankers etc and in the city there is a middle class providing services to these people. The folks in the city would want to defend their good thing which they claim is the result of their hard work and enlightened policies. I could imagine it even being a walled city Constantinople-style: access to the city would be limited because the people in the countryside know that even the trash in the city is richer than they are.

Re your religious nonworkers - if you are inspired by Haredim that is fine. You could also base your nonworkers on Buddhist monks and get the same point across. https://buddhism.stackexchange.com/questions/24877/what-is-the-reason-why-buddhist-monks-dont-work-to-support-themselves-do-the-m

Answer 7

Yes, and I can think of several reasons why, two being based on real-world countries/places I've visited.

Some existing answers have made what seems to me an error of principle. They correctly point out that wealth is relative ("if everyone is rich, nobody is"). But the question doesn't ask about wealthy people, it asks about a wealthy country. It's a crucial difference. A country where everyone was equally rich, or very polarised between rich and poor, could still be a wealthy country.

It could have rich natural resources, or a different culture, or longer established, or control some widely used technology, or dominate because of a religion it's established elsewhere in the past, or some such. So it would be a wealthy country, and yet might not have a middle class nowadays.

So we have to consider how a country might have gained long term stable control or access to something cultural or tangible, of any kind, which means it no longer has a middle class, but it has quite universal wealth, or large surplus of national income beyond national budget expenditure, or large per capita assets, compared to other countries.

Underlying reasons

• Colonialism/religion. It has left other nations paying tribute, and to prevent internal upheaval, has gradually moved to a state of internal equality among its own citizens. Other countries pay taxes/tribute, they just receive it. Their policy decrees are followed by everyone else and would be unthinkable to break, from tradition or from fear of what they might do (even if it's a hollow belief). Not much production these days.

• Unique role. They "speak to the gods", or are traditionally a nation of priests, or the world has reached peace because everyone funds this country which has become the sole monopoly provider of dispute resolution between other powers. Or they are academics, and develop knowledge that all gain from.

• Low expenditure. In combination with other reasons why there's a small middle class, it could be that the country's leadership style values frugality. No healthcare, let people die; no need to travel much, we have enough here; no military, we are pivotal enough in some way (see other bullets) that no country will allow any other to invade or gain undue influence, or we have some technology they don't, which negates the need for defence, or we have a social contract that anyone who invaded would end up with only a Pyrrhic victory for some reason.

• Monopoly over a resource. Some resources are limited. Set in today's world, if a country has some rare mineral ore that's essential for industry (rare earth's, as in the news, or intellectual property as in the current Qualcomm dispute also in the news), then they might simply license others to mine/use it, avoid all the heavy work, for a monopoly license fee. If the ore or whatever, is essential enough and the pattern is established early and then grows, the economy will simply "grow that way" - they will reap ongoing fees, check who is taking/using how much, and enjoy the income. If wise perhaps they distribute it equally. So there's no privileged class, hence little middle class, but it's definitely a very rich country.

  (Perhaps, following the Qualcomm example, they have developed some area of technology which they alone hold IP rights to; their leverage has allowed them to pressure all other countries into accepting laws that would let them hang onto their control indefinitely and act on any attempt to bypass it.)

Two real world cases

The real-world examples I mentioned are of this last kind.

In the middle of the Pacific Ocean, lies the widely dispersed island group of Kiribati. It's a bunch of tiny atolls thousands of miles from major industry, and unable to support any of its own. Coral and a smattering of mangrove+coconut trees aren't exactly great for any kind of valuable production. But the islands are definitely wealthier than you'd think. They have a university - well funded and comprehensive. They have free public healthcare including air ambulance between islands. They own, under international law, some huge swathe of the Pacific, as territorial waters - something like 2 million square km if I remember correctly, and they license it to other countries to fish in. Even given illicit fishing, they have a continual and large income. They're wealthy. They have a very simple cultural lifestyle without much consumption, and few tourists to push up prices or introduce inflation via marketing, so they also don't have a societal demand to spend much compared to some other countries. They would not need to develop or retain a middle class to enable them to remain a relatively wealthy country in future. It wouldn't take much to imagine that they could could lose almost whatever middle class they have, and still remain a wealthy country, or individually have comparative wealth if they travel overseas. So that's an example. Disclaimer, that was some years ago, might be the same now, might not. Probably is.

A second near example is found in the Shetland Isles in the UK, which - when North Sea Oil was discovered - turned out to be such a valuable place to locate onshore oil platform support, of the few islands in that area, that they could demand very beneficial terms. The oil companies were - excuse the pun - over a barrel. Again, it's a much richer place than you'd expect for its size and resources. Add sovereignty and oilfields that last centuries not decades, and allow the middle classes to fall away as people enjoy the income benefits, and it would be similar.

Answer 8

Maybe the most straightforward way to model a society without a middle class would be to use earlier feudal societies, before the emergence of middle classes, as a template.

In that structure you have Nobility (who own all the land) and serfs (who own none of the land, live on the land owned by the nobility and pay rent to the the nobility). If you can imagine conditions that would allow this setup to exist in a contemporary, wealthy country then you may be some way towards creating the country you alluded to.

Answer 9

Probably not, on several fronts.

Mechanized agriculture is going to be a problem. Mechanized agriculture requires a large technically-savvy infrastructure to develop, manufacture, and support the machinery, and a large transportation infrastructure to distribute the produce. Mechanized agriculture would seem to imply mechanized transportation. None of this is likely in the absence of a middle class. Unless you're going to wave your hands very hard, mechanization doesn't occur when the mechanics are blacksmiths. In order to be efficient, you need common standards to make interchangeable parts, and mass production.

Equally, the presence of a large dole population requires significant bureaucratic resources to administer the distribution of wealth, yet you've postulated a very small public jobs force. And the presence of this dole population implies that the economy as a whole is very productive on a per-capita basis. The agricultural practices are likely to need artificial fertilizer to do this, and this requires more physical and intellectual infrastructure.

Answer 10

@Xplodotron, has two potentials.

Another possibility is a high tech society where distribution of goods is automatic. Think of a totally automated Amazon run by an AI. There is no one to make money collecting goods and reselling them. This pretty much does away with the middle class.

The wealth issue can be handled by how evenly the goods are distributed and where the goods come from.

This will work best if the sources of the goods are 3rd world countries. That way, the wealthy nation can retain its wealth by paying as little as possible for the goods. This is generally what Monaco does with it's labor.

Being a conquering nation is good for its citizens so long as the conquered do not become citizens.

Answer 11

Is it possible to have a wealthy country without a middle class? This question could be answered in two different ways. A society with just rich and poor without a middle, or a society where the gap between rich and poor is small enough that a middle may not be a meaningful distinction. Society lacks a middle because the gap between rich and poor is too great, or too small. Both are possible.

The Big Gap

In order to understand how society could become more stratified, we have to understand the origins of the middle class. In medieval Europe at least, the vast majority were illiterate peasant farmers. There was a small middle class, mostly skilled labourers; from merchants to masons, scribes to smiths.

European society was feudal for centuries, and in this system serfdom was standard. Peasants were legally tied to their land. Land was owned by the monarch, who gifted estates to nobles as payment for loyalty.

After the Black Death in the mid 1300s much of the European population had died. Those who survived inherited more land and were better able to negotiate wages. This meant that serfdom became less strict in Western Europe, allowing greater social mobility and a larger middle class.

In the east things went the other way. The death toll from the plague in what would become Russia had been low compared with the Mediterranean, and consequently the social order was unchallenged. This allowed lords to enforce progressively stricter laws which segregated peasants from nobles. Eventually by the late 1500s Russian peasants were both an asset which came with land ownership, were forbidden from leaving their land, and could not move up the social ladder. This resulted in a smaller middle class with minimal social mobility.

Thomas Piketty's 2013 analysis of the history of capitalism (Capital in the Twenty-First Century), from the industrial revolution to modern day, concluded on a simple reality: private wealth grows faster than the economy. Thus, naturally inequality grows over time. The growth in inequality tends towards the stratification of society, but we have to understand what makes society more or less equal economically.

The Small Gap

Over the last century those societies who have seen the greatest improvements in living standards and the greatest decreases in inequality have invested in their citizens by enabling commerce and providing welfare (education, healthcare, unemployment benefits, etc).

Amongst developed nations differences in inequality exist. Some have considerably more (UK, USA, Portugal), and some have considerably less (Sweden, Japan). This is detailed by Richard Wilkinson and Katie Pickett in their 2009 book on inequality, The Spirit Level.

One notable observation is that society can reduce inequality with different strategies. Sweden has a much greater difference in pre-tax incomes, but that difference is moderated by tax and spend. In Japan, which has similar inequality to Sweden, the difference is owed to the fact differences in pre-tax income are lower, as Japanese employers do not pay their bosses in excess of their workers.

If an economy is focused on traditional sorts of primary or secondary labour (extracting resources and manufacturing), instead of tertiary or quaternary labour (services and knowledge), then most people will have working class jobs. This allows you to choose whether workers are paid less or more than average, and consequently whether the middle class is small because working class jobs are plentiful and well paid, or because the economy is stagnant owing to a lack of opportunity.

It's also worth pointing out that GDP per capita may be deceptive, as you could have an exceptionally wealthy elite, ruling over an impoverished majority, and still have a seemingly high GDP per capita if they are sitting on some sort of enormous mineral wealth; gold, oil, etc.

Answer 12

Suppose, entirely for the sake of argument, that such a fictional country exists. First, it would need to have killed off all its industry - outsourced most of it to third world countries where labor is cheap. This way the large, uneducated mass wouldn't have access to the once plenty, well-paying blue collar jobs and would be kept poor. Relegated to a life in the low-wage, long hours services industry if they're uneducated.

Second, it would need to have placed college education at such a premium - say 40,000 - 50,000 USD a year - that it's comfortably out of range for most working-class families in the fictional country you described. This means your youth, mostly sons and daughters of the working middle-class, generally won't have access to a tertiary education. Worse even - if they do decide to go ahead with it, they're kept in bondage, in the form of student loans, for the rest of their adult lives. This will ensure the elites, and only the elites, can send their sons and daughters to college, and therefore manage to stay educated and powerful.

Third, it would need 'low taxes' - but only on the rich. The government is, after all, pretty much the only body capable of bridging income inequalities and redistributing wealth - so you wanna keep it as underfunded as possible. That means things like universal health care and a decent public transportation system are all also out of reach, further compounding the burden you place on your working-class citizens.

Last, but not least: you want a fanatical, partisan media. Day in and day out, addressing the wrong problems - trying to make it all about 'personal freedoms', or guns, or foreign wars, or terrorism. Never about the clear elephant in the room which is the mounting income inequality. That would work to really drive the point home, and make sure that the rest of your citizens are kept well in the dark and alienated.

Such a country would be rich sure, even prosperous, but it would have no middle class, and would also be one of the most unequal countries in the developed world. Ring a bell yet?

Answer 13

I'm not sure that what you ask is statistically possible. If we define middle class purely by the income, then you will have a gaussian curve of income. Wherever the peak of the curve is, there is your median income - majority of people in your society will have an income nearest to median - and that will be your middle class.

It's very improbable that a natural distribution will have anything but a gaussian curve when charted. The nearest variant I can imagine is to have a curve with two peaks - that would mean, actually, two curves superimposed. And that would mean two economic systems that exist in the society with barely any contact. I'm not yet sure how that could be.

If we mean 'middle class' as social or cultural term, then yes, it's possible. Such terms are often used as forms of self-determination, so if your society thinks being 'middle class' something abhorrent, then people with median income will try to call themselves by some other name.