Rupert Murdoch Transcript: The Global Middle Class, Poverty and Globalisation

A Golden Age of Freedom?

I have produced a video in response to Rupert Murdoch’s Lectures. This is the Lecture on The Global Middle Class roars.  This is recorded by ABC Boyer Lecture series.  The audio is found by clicking the download link.

A wise woman told me last year that the key to prosperity is the retention of a middle class. She noted the decline of the Australian middle class.  Perhaps the global middle class is an attempt to retain wealth and prosperity.  Will this work?

Rupert Murdoch’s recent trips to China and India have convinced him of one thing: there is no alternative to economic growth as a remedy for poverty. Caste and communism have condemned hundreds of millions to wretched lives.


Rupert Murdoch: Poverty is not pretty, poverty is not ennobling. Poverty is neither romantic nor rustic. We all have a responsibility to create the conditions for the poor to be less poor and then to be middle class and beyond. We all have a responsibility to challenge ideas and ideologies which have incarcerated hundreds of millions in poverty for far too long.

There is cause for modest celebration. One of the most underreported stories of our days is the rise of a huge new global middle class. People have emerged from poverty or, I should say, have lifted themselves out of poverty, given this chance through market reforms. A world dominated by a new middle class of course is not what supposed radicals had in mind a century ago when they spoke of revolution.

In 1848 a German journalist looked at the industrialised world and predicted its own destruction. ‘There’s a spectre haunting Europe,’ he wrote, ‘the spectre of communism.’ Karl Marx had a newspaperman’s flair for the catchy phrase. But his prediction could not have been more off target. For one thing, communism did not come via the industrialised world. Instead, the communist revolution was led by relatively underdeveloped societies, notably Russia and China.

Second, far from losing their chains, workers who lived under communist rulers were treated far worse than those in the capitalist world. The environment in these countries was degraded, and that most precious of human commodities—trust—was undermined. At the apogee of communism in China during the Cultural Revolution, neighbour did not trust neighbour, and father was alienated from son. Whatever the social idealism of communists, the reality was very different and almost made our planet unliveable.

One-hundred-and-sixty years after Marx predicted revolution, a revolution is indeed changing our world, and for the better, but the revolution we see today is very different from the one he imagined. This revolution is a consequence of three billion people entering the global economy. Around the world, countries that have been blighted by civil war, political instability and communism are taking advantage of these new opportunities, and the success of these once cursed countries is a lesson for the rest of the world and for us.

Entrepreneurs and workers are creating wealth, and in the process they are fostering something many societies have never before known, a middle class linked to the global economy abroad and expanding opportunity at home. Elitists are almost dismissive of the very words ‘middle class’ because the fashionable have ersatz contempt for middle class values and taste, yet our country is built on an egalitarian ideal, a sense that we are all middle class and that to be otherwise is to be unacceptably arrogant.

In my earlier discussions I’ve spoken about the increased competition this new global workforce means for nations like Australia. In their own countries too, the transformation from sleepy agricultural backwaters into modern, industrial economies has brought enormous challenges. The industrial revolution in China (and that is what we are all witnessing) has created a growing middle class but also a growing environmental problem.

Yet despite the many pressure on them, leaders of once poor nations can see the virtues of free markets. For example, they do not see the mayhem on Wall Street as a fatal flaw but, rightly, as a symptom of an excess that the system is purging. Far better to purge excess than to purge millions of innocent people.

The former UN secretary-general, Kofi Annan, who I probably do not agree with on many things, but he put it very well when he described the entry of these nations into the global economy this way: ‘The main losers in today’s very unequal world,’ he said, ‘are not those who are too much opposed to globalisation, they are those who have been left out.’ If Mr Annan is right, one of the greatest services we in rich countries can do for the poor is to open markets for their goods, and in this Australians can take some pride in our national record, at least in recent decades.

Through our leadership in the Cairns Group, a group of nations committed to liberalising trade in agriculture, Australia has helped open global markets to the things that poor countries actually produce, and I reckon that we probably do more for poor people around the world by opening up agricultural markets than we do with all our foreign aid combined.

In some sense, globalisation is not new. A century ago, for example, the international economy was more linked, and it was in many ways easier to trade and travel. But in our day the reach of globalisation has been greater, its effects are more extensive, and we are far from its final phase.

The era of great globalisation began after WWII. In the Pacific the allied victory led to the emergence of a free and democratic Japan. This was followed by the rise of Asia’s ‘tiger’ economies, and its success is now inspiring leaders from Belgrade to Bogota to do the same for their people. The ‘tiger’ economies were Hong Kong, Singapore, South Korea and Taiwan, and their dramatic success should teach us that we should never write off a country as hopeless. None of these societies had any natural resources to speak of. Two are British colonies, the other two were part of split nations that were more or less at war with their neighbours for decades. They also endured decades of autocratic rule.

The ‘tigers’ had different governments and very different histories, but they all had one important thing in common; they relied on exports and they wanted to compete with the best companies and countries in the world. That meant that their businesses had to be internationally competitive. And we can see the results. Japan transformed itself from a cruel imperial power to a democratic trading nation that became a model for others. Singapore faced a communist insurrection, was kicked out of the Malaysian federation and later abandoned by Britain, yet it built a wealthy society that is known throughout the world as the Switzerland of Asia.

Hong Kong absorbed more than a million refugees from China in the 1950s, and maintained one of the world freest economies. As a result, these refugees were given the chance to use their resourcefulness, and this former British colony surpassed Mother England in terms of per capita GDP. South Korea went from dictatorship to democracy, transforming a war torn country into a world trading power. Like South Korea, Taiwan transformed herself from a poor nation living under a one-party rule into a world trading power, and the world’s first Chinese democracy.

In more recent years, the success of Japan and the four ‘tigers’ has been emulated by a new group of Asian nations; Malaysia, Indonesia, and Thailand. In the 1990s the World Bank described the success of these nations in a study called ‘The East Asian Miracle’. Here is how the World Bank described their economic take-off. Between 1960 and 1985 real income per capita increased more than four times in Japan and the four ‘tigers’, and more than doubled in Indonesia, Malaysia and Thailand. If growth were randomly distributed there is roughly one chance in 10,000 the success would have been so regionally concentrated.

There were many factors that helped these countries turn themselves around, but the main ingredient was their openness to international markets and international competition, and their success helped pave the way for the most revolutionary development of the 20th century; China’s decision to enter the global economy.

In late 1978, Deng Xiaoping faced a China devastated by the Cultural Revolution and years of Mao’s misrule. He made a courageous decision. He was going to embrace the market and end China’s isolation from the world, and he did. It did not come all at once. It suffered some terrible setbacks, notably Tiananmen Square, and it is a revolution that remains far from complete, but it is also real.

Back in the 1970s the left wing was fond of the analogy of a spaceship Earth to describe the global economy. In this model, the space capsule had five astronauts. Each astronaut represented about a billion people which, added up together, equalled the world’s population. One of these astronauts consumed most of the resources in the space capsule. This astronaut represented the developed world, which is said to be consuming more than its fair share of the world’s resources.

What those who invoked the spaceship Earth model never pointed out was that the same astronaut produced more than 85% of those resources. The rest were producing almost nothing. If these astronauts would become as productive as the other, the world would grow fantastically richer and everyone would be better off.

And that’s exactly what has been happening. China, for example, is one of these astronauts, and by every measure—diet, education, life expectancy—Chinese today are better off than their parents or grandparents. That’s because after decades of punishing wealth and suppressing human capital, the Chinese have been liberated.

In a recent book called The Elephant and the Dragon, Robyn Meredith focused on the rise of China. One example struck me as a good metaphor for what is happening and it involved the Dutch multinational, Philips. Miss Meredith points out that Philips moved many of its lighting factories to China to cut costs. That means lower prices for Western consumers and better profit margins for the company. But Philips’ presence in China is also playing a big part in China’s own development. The more housing that is built, the more lights that Chinese people need. The same is happening with infrastructure. For example, when the Chinese government decided to modernise its highways, it needed street lights. For Philips that meant $195 million in street lights in 2005 alone.

Not everyone of course is sharing in this wealth. One of my nephews just returned from two years in China where he taught English to poor kids in rural farm areas. Many people, he told me, might see meat only at Chinese New Year or some other holiday, but as the economy grows and reaches these areas, these people will begin spending it on fish and meat and other sources of protein. This is already affecting the prices of our own supermarket shelves. But it’s also creating untold opportunities for Australian farmers, as well as for farmers in some of the world’s most impoverished countries.

In the coastal areas that have been open longest, China is seeing the rise of a middle class. Miss Meredith reports that by 2011, 290 million Chinese are expected to reach the lower rungs of the middle class. By 2025, about 520 million Chinese should reach the upper middle class. These people want the same things we do; good housing, a first-rate education for their children, and so on, and meeting this demand will be the story of our century.

The other large nation Miss Meredith writes about in her book is India. When India achieved independence from Britain, it embraced its own version of stultifying socialism. As a result, India largely cut itself off from the world. Its industries were heavily protected from outside competition. They became weak and outdated, and experts excused the poor performance by talking of a Hindu rate of growth.

There was no better symbol of India before economic reform than the Hindustan Ambassador. This is one of its most popular cars, especially for cabbies. But it is in fact a copy of a 1956 British car, the Morris Oxford, and it is still being produced today.

Now, India too has opened up. I was there this past July. What I saw was genuinely amazing. I met a group of ambitious young entrepreneurs who are bringing the internet to the most remote villages, giving them the same access to information that you or I have. We all feel a certain shame when we witness humiliating, avoidable poverty, but we should be equally uplifted when we see people striving to end that poverty for their families and their society.

India is becoming a world centre for innovation. Where Indian car makers were once content to produce copies of old British models, the Tata Group recently unveiled the world’s most inexpensive car. Called the Nano, it is planned to sell for 100,000 Indian rupees, about A$2,500, and it will put car ownership within reach of millions of newly middle class Indians. It is hard to overestimate the impact this revolution is having on the lives of ordinary people or the role that the competition and markets have played. Miss Meredith quotes a former Indian finance secretary who puts it this way: ‘We got more done for the poor by pursuing the competition agenda for a few years than we got done by pursuing a poverty agenda for decades.’

Other countries have noticed and launched their own revolutions. Look at Colombia. Until the presidential election of 2002, Colombia was a country plagued by drugs, violence and corruption. Two armed groups of Marxist rebels fought the government, and private paramilitaries were raised to fight them. Foreign investors fled, the economy sagged, and the innocent were caught in the crossfire. In 2002, a charismatic leader named Álvaro Uribe ran for president, and won. In his short time in office he has launched bold reforms that have taken on the drug lords, reduced corruption and expanded opportunities for the poor. As a result, Colombia last year had among the highest growth rates for all of Latin America.

Colombia is still not out of the woods. Rebel groups have not been fully defeated, the drug trade is still a problem, and the democratic controlled United States congress is holding up a pre-trade agreement with the United States. But the Colombian people are showing the world that a society that reforms and opens itself up can solve many problems that others think are intractable.

Close to these shores, Vietnam is another interesting example. Vietnam’s tragedy was to win a war that united the nation under communism just as communism was collapsing. So for almost two decades Vietnam slumbered while its Asian neighbours prospered. But in the 1990s Vietnam’s leaders made the same decision China did and embraced the capitalist investors they used to decry. The results are beginning to show. In recent years Vietnam has been the fastest growing Asian economy after China. Ho Chi Minh City, after being almost frozen in time, is again the commercial hub of the country. Foreign investors are queuing up. The country was welcomed into the World Trade Organisation, and it is producing a middle class that is not only better fed and better dressed but also more demanding of its own government.

Like China, Vietnam has many rural citizens who are not nearly as wealthy as their urban counterparts. It is also dealing with serious problems like double-digit inflation and state spending that is making it more expensive for people to provide the basics for their families. And the government will have to make some tough decisions if it wants to keep its economy humming. The toughest decision for any government is to transfer power from itself to its people.

I once met Prime Minister Nguyen Tan Dung. We were in Davos surrounded by snow drifts that you will never see on the streets of Hanoi. Mr Dung made clear that he understood the lessons of Chinese reform and promised that Vietnam would travel farther down that road. He was conscious of his country’s backwardness but proud of its recent achievements, and in a small symbol of that pride he wanted to show me that his smart suit, almost the equal of any on Savile Row, was made in Vietnam. His message was that Vietnam is more than capable of competing with the best of them. Every day, more of the country’s 85 million people are getting the chance to prove it.

And there’s Africa, a continent written off as being too hard, too difficult to reform, a basket case. Fortunately that continent is changing, and that change is coming from the most blighted of countries. Take Rwanda. Rwanda is landlocked. Most of its people are engaged in subsistence farming. As if this were not bad enough, in 1994 a civil war exploded into genocide that left a million dead, some at the hands of their own friends and families. If ever there was a nation with an unpromising future, Rwanda was it.

Yet Rwanda is starting to pull itself out. Its president is a former guerrilla leader named Paul Kagame. Under his rule, national reconciliation had become a national priority. Rwandan troops have been dispatched to Darfur because Rwandans believe they have a special role to play in stopping genocide. And Rwandan voters recently became the first nation in the world to elect a female majority legislature.

At the same time, Rwanda has launched a program of privatisation and liberalisation. The aim is clear; to transform Rwanda from a nation of subsistence farmers into a modern, industrial society. No one should underestimate the challenges. The World Bank notes that most Rwandans live on less than one dollar a day, and only a tiny portion of the population has regular access to electricity and clean water. President Kagame looks at these challenges, he looks at Asia’s success, and he has reached a conclusion. ‘We in Africa,’ he says, ‘must either begin to build our scientific and technological training capabilities or remain an impoverished appendage to the global economy.’ In other words, Africa needed to invest in its human capital and take its place in the global market. I like a man who thinks that way.

Rwanda has a long way to go to pull its people from desperate poverty, let alone produce a vibrant middle class but, as President Kagame appreciates, other countries have overcome difficult obstacles and they have succeeded. He believes there is no reason Rwanda cannot do the same.

Colombia, Vietnam, Rwanda, these are just a few countries that have been dismissed as hopeless but are turning themselves around. Others will have their own lists. My point is that the global economy is empowering millions of people around the earth, and as these nations rise, the global economy is going to be responding to a very different set of incentives.

The reason is simple. What separates poor nations from rich nations is not talent and ability. The poor have plenty of talent and ability. Usually what people in poor nations do not have is the opportunity to develop their talents. That is why trade is such a powerful engine for prosperity and upward mobility. When the poor are given access to the global economy they build a better life for their families and a brighter future for their countries. And when they are successful they become something else; middle class.

In a recent study, Goldman Sachs estimates that this new global middle class is expanding by 70 million people each year. I think that 70 million could well be an underestimate. They also estimate that the middle class will reach two billion more people by 2030; another underestimate by my more optimistic reckoning. But whatever the total, that means wealth and power on a scale unprecedented in human history.

Some will tell you this means more problems. It would mean that white collar workers in developed countries will increasingly face the same kind of threats of off-shoring that factory workers now face. It means that there will be more demand for basics like food, energy and other commodities. This new demand coming from a new global middle class will increase competition, put new pressures on the environment and force us to change our business models.

I cannot predict how it will all turn out. It is far too easy to focus on the problems. But these vastly better educated, better fed groups of fellow human beings have minds as well as mouths, and everything I have experienced in my life persuades me that people living in freedom have the ability to rise to new challenges and change the world for the better. Above all, I know this; the world is in a much better place when we are dealing with the challenges of expanding prosperity rather than the miseries of expanding poverty. We should all have more faith in ourselves and in each other. Thank you.

Mohandas Gandhi

“Only as high as I reach can I grow, only as far as I seek can I go, only as deep as I look can I see, only as much as I dream can I be.”