Austerity, Economic Decline, Social Unrest, and Political Instability

This week’s tumult in the U.K. has spurred a lot of speculation about the causes of that social unrest, and about the prospects that London-like destruction and looting will spread to other wealthy countries as their governments try to lower their debt burdens and balance their budgets. The single best piece of scholarly analysis I’ve seen on this topic so far suggests that people are right to be worried. In a Centre for Economic Policy Research discussion paper posted just this month, Jacopo Ponticelli and Hans-Joachim Voth, of the Department of Economics at Barcelona’s Universitat Pompeu Fabra, write:

Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross-country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor.

You can find a PDF of the whole paper here, and thanks are due to Erica Chenoweth for pointing it out to me. I was especially impressed that the results held when the authors used very detailed data on social unrest–from Ron Francisco’s excellent European Protest and Coercion Data (link)–that allowed them to look specifically at protests making claims about austerity measures. The global data set from which the authors derive their primary measure of unrest–the Cross-National Time-Series Data Archive, otherwise known as the Banks data set (link)–is widely used to observe social and political instability, but scholars often hold their noses as they use it because it relies exclusively on the New York Times and is not entirely transparent about how it identifies relevant events from news articles.

Now, back to the substance. As I noted at the start, these results mean that we can expect to see social unrest increase in the United States and Europe as governments cut spending in response to markets’ and lenders’ concerns about their mounting debt burdens. That’s hardly surprising, but I think it’s still useful to confirm that those expectations have a sound evidentiary basis.

Might this prolonged economic malaise lead to new civil wars, coup attempts, and regime changes? Statistical analysis I did a couple of years ago in collaboration with Patrick Brandt for the U.S. government-funded Political Instability Task Force suggests a weaker connection between slow economic growth and these other forms of political instability than is widely assumed. Our research looked only at the effects of economic growth rates, not changes in government spending. Still, I think the results are relevant to the current conversation. From our paper (which somehow got dropped from SSRN in a recent overhaul of that site but has now been reposted, here):

Consistent with conventional assumptions, we find that social unrest and civil violence are more likely to occur and democratic regimes are more susceptible to coup attempts around periods of slow economic growth. At the same time, our analysis shows no significant relationship between variation in growth and the risk of civil-war onset, and results from our analysis of regime changes contradict the widely accepted claim that economic crises cause transitions from autocracy to democracy.

If this analysis is correct, then we should not expect the global economic malaise of the moment to propel an unusually large wave of new civil wars and regime changes. Our modeling suggests that the risk of coup attempts is rising in democracies suffering economic slowdowns, but the baseline risk in wealthy democracies is so low to start that this increase is substantively negligible in much of the West–assuming, of course, that the near future bears some resemblance to the past few decades.

RELATED READING

Over at Marginal Revolution, Tyler Cowen provides links to a couple of other interesting papers on the economics of riots here.

As a source of social disturbances, rising food prices may be particularly inflammatory. In a recent working paper that analyzes monthly data from 1990 through early 2011, Duke University professor Marc Bellmare finds that food-price rises are associated with increases in political unrest. Another working paper focused on North Africa and the Middle East concludes that waves of unrest in 2008 and 2011 were caused, at least in part, by large peaks in global food prices.

Posted by Jay Ulfelder on August 10, 2011

https://dartthrowingchimp.wordpress.com/2011/08/10/austerity-economic-decline-social-unrest-and-political-instability/