Social Unrest & Economic Impact

Any Systemic risk displays common characteristics like Complexity, uncertainty, ambiguity and spill-over effects.

Social unrest is clearly systemic, given its potential to ingratiate multiple sectors and create ripple effects.

What’s interesting to understand in this subject is “The Tipping Point”:

Let’s take a critical look at some of the reasons leading to what’s famously knows as the “Arab Spring” (The most prominent social unrest movement of last decade:

  1. Demographics and Employment

With 2/3rd of population under age 30 and double digit un-employment, these countries run by autocrats were sitting ducks for social unrest;

  • Dictatorship & Corruption

Ideologically and morally bankrupt dictators, bereft of creative ideas living under the burden of self-created crony capitalists further aggravated the hopelessness with respect to future

  • Bungled State Response & Contagion Effect

The response of Arab dictators to the mass protests was predictably awful, going from dismissal to panic, from police brutality to piecemeal reform that came too little too late. The wide-spread of the protests that escalated so quickly from Tunisia to Syria, Egypt to Jordan incapacitated the administration further

What started as a stray incident in Tunisia escalated rapidly displaying the best example of the “butterfly effect”? Mehmoud Bouazizi was used to being kicked around, paying bribe to run his little shops and even after the payment, being abused by the police. However on this fateful day in December 2010, something triggered in him making him burn himself when stopped again from running his shop.

This once incident become a trigger that gave voice to disillusioned people across the region.

When a systemic risk manifests into calamity, the ripple effects can cause a dramatic sequence of secondary and tertiary spin-off impacts. They may be felt in a wide range of seemingly divergent social systems, from the economy to the health system, inflicting harm and damage in realms far beyond their own and, in the worst case, can contribute to the collapse of a political system.

It is this complexity that needs to be considered when thinking about social unrest and how it can be avoided. While all of us want a “clear answer”, usually there is no single factor that can be isolated.

The impact on economy can be observed both prior and post the “Unrest”.

Let’s look at some numbers to evaluate this closely:

GDP (Billion $) & GDP Per Capita ($)
 GDP Per Capita43424162417742914179424843283872
 GDP Per Capita20612349266828163226326433653614
 GDP Per Capita2304319166203862223823603243782485523395
 GDP Per Capita36553800405442664423465648304940
 GDP Per Capita1423110151119335517130351045365734643
Inflation & Unemployment (%)
 Unemployment18.818.618.517.719.219.2 NA

Not every country has the same issue-it however is a mix of low growth, high unemployment, high inflation or high growth but un-even wealth distribution as characterised by high unemployment or stress created by high inflation.

Case could be any, however symptoms display economic mismanagement, stifled by undemocratic politico-social structure and lack of freedom.

Even India had its movement in 2011 in the form of Anna Hazare which created the trigger point against “corruption” at the heart of it, but in an environment of slowing growth, rising inflation and unemployment.

The economic growth for several quarters post 2011 movement crashed to its lowest in a decade dropping to 4.3% in 4th quarter of 2012-13.

The recent case of social unrest in Hong Kong has also displayed the larger impact of a prolonged unrest on the economy where economic growth has plunged. The economic growth has plunged into recessionary territory at (-) 3% last quarter, most severe since 2010.

A usual autocratic response is use the heavy-hand of the govt. Apparatus and quash it (Tiananmen Square is the perfect example). However increasingly govt.’s are realizing how it doesn’t help.

Even autocratic countries have had calm periods across decades (whether it’s China [exclude HK for the moment] or Singapore) provided the economic interest of the population is taken care.

Usually lack of co-relation provides nay-sayers the opportunity to deny any kind of causation, however given how complex this phenomenon is, it’s important to differentiate between the ultimate trigger and the variety of reasons that are causing frustration with the system.

What’s Happening Here?

India is currently going through a wave of agitation.

Groups on both side of the spectrum might have justifications; however a close look at opposing groups shows one characteristic that stands out and that’s Age profile of dissenters irrespective their ethnic/religious profile.

Student agitation in India has always found resonance in popular opinion given its diverse and bipartisan nature.

This opposition comes in the wake of multi-year low GDP growth, stagnant per capita income as displayed by the increasing inequality with Top 1% population holding 51.5% of total wealth of the country while bottom 60% of the country hold only 4.8% of the total wealth and Top 9 billionaires holding as much as the bottom 50%.

Unemployment at multi-decade high with low wage growth and shrinking opportunity in an environment of increasing aspirations creates a deadly cocktail.

It is in the interest of the nation that social changes ride on the back of economic growth rather that impeding the same.

As evident from Arab spring, social unrest can accelerate a country towards recession.

While the countries recover sooner than later the social divides can continue to pain the productivity of the nation.

It’s hence prudent that the powers within Central Govt. Make a quick course correction stemming the unrest, reconcile with agitators and initiate measures to spur growth.

Lack of economic well-being can aggravate social unrest for reasons that might otherwise get taken in its strides. When govt.’s try their luck with changes that impact the country in a fundamental way or suppress the voice of the population, hoping for public support, they have to realise that all support comes for a price and easiest way to win support or continue to enjoy your rule is to ensure that the common man has enough opportunity to earn their living.

Manish Verma

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