The Energy Regulatory Commission (ERC) recently announced that it would begin licensing cooking gas firms to operate piped gas systems in residential areas. This would mostly make business sense in gated communities and flats, where Kenya’s middle class tends to reside. This led me to think about our middle class.
The middle class is the class between the upper and lower classes, said to live by their wits rather than by their labour, which was easy to distinguish during the industrial revolution when the term came about. The people who did manual labour at factories were the working class. Those who did clerical work were the middle class, and those who owned these factories were the upper class, better known as the rich. As we have progressed, the markers of a middle class lifestyle have changed, and they vary across countries and cultures.
As we have moved to a knowledge based economy, where the focus has shifted to services, one’s role at work is not the only indicator of class. Today, a person working a low wage or low salary job may not have to perform manual labour, but that does not make them middle class. So we see other markers begin to arise. Chief of which is earnings. Or income. This income then dictates where you live, what you eat, what you wear, the places you go, what car you drive, if at all you do. Then it becomes apparent that there can’t just be one monolithic middle class. We have the upper middle class, for whom richness, or being a part of the upper class, is just around the corner. Then we have the lower middle class, many of whom are a disaster or two away from being working class. Perhaps there is a middle middle class?
According to the African Development Bank, Africa’s middle class is defined as such: Individuals or households that fall between the 20th and 80th percentile of the consumption distribution or between 0.75 and 1.25 times median per capita income, respectively. Or, Individuals who have a daily spend of between USD 2 – USD 20 per day (that is, between KES 200 – KES 2,000 at the current rate). That is 313 million people, or 34.3 per cent of the continent’s population. According to them, 44.9 percent of Kenya’s population is middle class.
On the other hand, the Kenya National Bureau of Statistics (KNBS) says that a Kenyan middle class person spends between KES 23,670 and KES 199,999 each month. This seems more reasonable than a claim that 44.9% of Kenya’s population is middle class. According to KNBS, as at 2015, only 68,676, or 2.89 per cent, of formal sector employees in Kenya earn more than KES 100,000 per month. 64.5% earn between KES 20,000 and KES 40,000. The Institute of Economic Affairs found that there are about 272,569 middle class wage employees in Kenya, with another 74,337 wage employees taking home more than the middle class. On the other hand, 2.13 million employees take home less than KES 49,000. It’s fair to say that Kenya has a small middle class.
What is the function of the middle class in a country? In a growth economy like Kenya’s, much emphasis gets paced on the middle class. A growing middle class is a sign of a robust economy. It shows that upward mobility is possible in a country, and this upward mobility is an antidote to income inequality. Which is why “middle class” is such a catchphrase in Kenya. It is there, but it should be larger.
A lot of blame gets placed at the feet of the middle class, such as “the middle class doesn’t vote, they just tweet” or “the middle class finances its lifestyle through loans, it is fake.” There is no shortage of hot takes deriding the middle class. In Kenya, they are powerful and powerless at the same time, and instead of looking at how to expand the middle class from a systemic perspective, we instead place blame on this middle class for its stagnation, as if there is much it can do about this. To expand the middle class, we have to boost the productivity of our economy and encourage investment.
What boosts the productivity of an economy, and makes investors invest? There are multiple theories, but they can all be condensed into five factors (as described by Heather Boushey and Adam Hersch). One: The level of human capital and whether talent is encouraged to boost the economy’s productivity. Two: Cost of and access to financial capital, which allow firms and entrepreneurs to make real investments that create technological progress to use in the economy. Three: strong and stable demand, which creates the market for goods and services and allows investors to plan for the future. Four: The quality of political and economic institutions, including the quality of corporate governance as well as political institutions and a legal structure that enforces contracts. Five: Investment in public goods, education, health, and infrastructure, which lays the foundation for private-sector investment.
The middle class is important in each of these five factors. First, human capital. A strong middle class promotes the development of human capital through a well-educated population. Second, the cost of and access to financial capital becomes lower and more, respectively, in countries with a larger middle class because of reduced risk. Third, a strong middle class creates a stable source for demand because they have enough disposable income to spend on what matters to them.
Fourth, a strong middle class supports political and economic institutions, and has the power to rally behind them since gift politics that may appeal to the working class have no incentive for them, while the rich are the ones buying and influencing these institutions. Lastly, a strong middle class creates and fosters the next generation of entrepreneurs, since they have an adequate social and financial safety net to enable them to start businesses. It is clear that this group is very important to our economy, so it should worry us that it is so small yet we continue to claim that we are a growing economy.
Much of this growth is contributed to by the increasing wealth of the rich at the expense of the middle and working classes, hence the income inequality in this country. We have a Gini coefficient of 0.445 (for perspective, 0 represents complete equality and 1 complete inequality).
Yes, more of us should aspire to go to university, work in formal employment so that we can pay income tax. More of us should not have to take personal loans to get by, or to buy home basics. More of us should not have to buy second hand Japanese cars because public transport in Kenya is a sham. More of us should not have to take our children to private schools because public schools are in shambles. More of us should be able to own houses without selling our souls for a mortgage.
Yet here we are. Whose fault is it that we do not have access to affordable financial capital? Whose fault is it that so many businesses fail in Kenya? Whose fault is it that human capital, better known as talent, is underdeveloped and not as skilled as we need to be to become a developed country? Whose fault is it that we have runaway inflation, especially of food? Whose fault is it that people cannot afford basic goods? That our political and economic institutions are held hostage by an elite few? That we do not invest enough in public goods, education, health, and infrastructure? Definitely not the middle class.