//Briefing: Explaining the North African Uprisings: the (lost) Economic story

Briefing: Explaining the North African Uprisings: the (lost) Economic story

Special Guest writer, Jeremy Kamil, brings us a fascinating piece on the recent uprisings in Northern Africa. The key question Jeremy addresses is, ‘Why these nations, and why now?’ Whilst many in the press have offered answers to this question, Jeremy’s analysis goes beyond the standard explanations and looks at what really causes educated, civilised and well meaning men and women to take up the machinery of war against their own government. Jeremy is a current Honours student in the Economics Department at Monash University and is writing on inflation in China, and how economic policy might manage this growing headache for the rising Asian powerhouse.

Jeremy writes,

“The recent uprisings across North Africa and the Middle East have caused great unease throughout the world. So far, hundreds have been killed, and many more wounded as popular revolts have threatened, and in some cases overthrown, several long-standing authoritarian regimes. But while the world anxiously attempts to halt the spread of violence, it is first necessary to uncover the underlying cause of the violence, before proffering any viable solutions. It is therefore worthwhile investigating the main motivations behind the uprisings. At first glance, it would appear that discontent for the ruling power is driving the populace to rebel. But is a lack of political freedom enough to drive civilians to take up arms? Or is another trigger required to transform civilians into militia? Does their economic well-being factor into their will to revolt?

“The human development index (HDI) is a commonly used measurement of economic development. The human development index is a combination of a country’s life expectancy, its education, and its per capita gross national income (GNI). It is a fairly safe bet that you would be unhappy living in a country with a low HDI rating. So, it is a fair assessment that those countries in revolt will have a medium or low HDI rating (a score of 0.669 or lower). A quick look at the graph below suggests we may be right: only Morocco is not in uprising out of the countries that have a ‘low’ HDI ranking. This does not, however, reveal the quick solution we may have envisaged. Notice a lot of countries with high level HDI are also in uprising. What causes these people, who according to the HDI have a pretty good life, to uprise against the government? And what makes Moroccans an exception? Are they really averse to poor economic conditions?

Figure 1: Human Development Index (HDI) for North African and Mediterranean nations.
Figure 1: Human Development Index (HDI) for North African and Mediterranean nations.

“The answer is no. The Moroccan people respond the same way as anyone to economic conditions; we are just looking at the wrong economic indicators. Consider the variables that make up HDI: life expectancy, education, and per capita GNI are all long-term indicators. These may change slightly from year to year, and they most certainly give us a picture as to the general health of the overall economy, but they fail to truly capture the satisfaction of an individual within the economy. The everyday person wouldn’t know or care what his life expectancy is, nor would he care how much per capita income the country generates. What he would care about is his own ability to earn an income, and his ability to feed himself and his family. As useful as HDI is, it just doesn’t capture how the regular man is feeling at any point in time.

“Rather than examine the effects of HDI, it would be more prudent to scrutinize the effects of indicators that would better capture the current mood of the population. Short term indicators, such as inflation and unemployment, better reveal the capability of an individual to feed his family. A high unemployment rate translates to many people having no means to support themselves or their family, while a high inflation rate means the little wealth the unemployed may have saved is quickly evaporating, and worse, even those who have a job find their wages failing to keep pace with the price of living. This is a far stronger test of current satisfaction, and may unlock the mystery of why people revolt.

Figure 2: Unemployment versus Inflation for North African and Mediterranean nations.
Figure 2: Unemployment versus Inflation for North African and Mediterranean nations.

“For those still confused as to why Morocco isn’t in rebellion despite low HDI scores, the answer is in the graph above. Morocco’s inflation rate is a paltry 1.5%, while its unemployment is maybe a little high at 9.6%. In fact, no country with a low inflation rate is a victim of the riots. A low inflation rate means people’s wealth is not evaporating. Their money retains its purchasing power, and they are able to provide for their families, at least in the short term. Hence, the Moroccan people, for the moment, don’t actually have life that bad, so there is no popular desire to reverse the country’s economic situation.

“The bottom right hand side is a bit of a mixed bag. Israel is the lone green dot in this sector. While they have a high inflation rate, they have a very low unemployment rate: just over 2%. Low unemployment indicates that nearly everyone has a constant stream of income. As a result, the high inflation rate may not be as detrimental to stocks of wealth; there is a steady flow of income to prop up wealth.

“But why are there other countries in the bottom right sector that are in uprising? Before answering this, it is worth a quick revision of first year macroeconomics: a high inflation rate and low unemployment rate is simply a sign of an ‘overheating’ economy, where demand is outstripping supply. You should, however, also recall there is nothing to worry about, as economists have a great weapon to combat growing demand: interest rates. Raising interest rates should put an end to this excessive demand, and while demand cools, some jobs might be lost. A small rise in unemployment is inevitable, but by no means harmful, as it is necessary to curb inflationary pressures.

“Now, back to the question: Why are some countries in uprising when there is clear economic policy to tackle the issue of low unemployment but high inflation? It would be fair to surmise that these countries simply don’t trust that their policy makers will make the correct choice. In essence, they either don’t trust their government to fix the issue, or this has been an ongoing problem and the government has proven incapable of fixing it. Lastly, take a look at the top right quadrant: no country would want to be here. Again, a quick macro revision is necessary. Economic policy has an answer for high inflation and low unemployment: simply raise interest rates. Keynes also had a solution for what to do when confronted with low inflation and high unemployment: the government must spend its way out of recession. But, economists have never truly found a cure for “stagflation”: both high unemployment, and high inflation. Raising interest rates will put even more people out of jobs, while increasing spending will cause a roaring inflation.

“No country wants to find themselves in this sector, and it isn’t surprising that most countries in this sector have resorted to violence: they have no jobs, and the little money they may have saved is fast losing its purchasing power. But this isn’t quite the end of the tale. There are 3 countries in this quadrant that are not yet uprising. What do Saudi Arabia, Turkey and Oman all have in common? Are the populations of these countries simply content to live in misery and vice? As with the Moroccan’s above, obviously not. Unemployment and inflation are far better measures of short-term happiness, but these alone do not cause rebellion. We are merely missing one final piece to the jigsaw.

“If the reasons for uprising aren’t solely based around standard of living, what else could cause the populace to revolt? Civilians will take up arms and turn soldier only if they feel they have no other alternative. That is, if they don’t believe the government can change their economic well-being, and, most importantly, they don’t believe they can change the government. People who feel they have some control over the political situation will not riot as they deem they can improve their situation through the ballot box. Only those with no political rights have a need to revolt. Consider the graph below:

Figure 3: Economic Stress Index versus Political Freedoms for North African and Mediterranean nations.
Figure 3: Economic Stress Index versus Political Freedoms for North African and Mediterranean nations.

“The Y-axis, which has been called the ‘Economic Stress Index’, is the unemployment rate*inflation. High enough levels of these lead to economic stress; in other words, a great difficulty for citizens to provide for themselves and their families right now. The X-axis shows the Freedom House political freedom index, based on survey responses from within these countries: 1 indicates the country is politically free, 7 indicates they are not free. The first thing to notice is that not all countries with high economic stress are rioting. Greece and Turkey both fit the criteria of ‘economically stressed’ yet neither has descended into anarchy (though Greece has had is share of protests in the last year). Why? Because the population is politically free. That is, citizens in these 2 countries feel they have the power to implement change through a democratic process. They can improve their situation by voting in a new government; they have no need to revolt to oust a despotic leader.

“Now consider the bottom right sector: UAE, Morocco and Kuwait. While none of these countries have a fair democratic process, none of them has any need to complain either: inflation and unemployment have been kept in check. They are able to put food on the table for their families. What we learn is that people without political rights will generally NOT be guaranteed to revolt, so long as they are able to provide for themselves and their families.

“The exception here is Kuwait, but the Kuwaitis appear to be simply opportunistic. They are not rebelling against living conditions; rather, they are rebelling to improve the rights of long-term residents who aren’t citizens. Ultimately, Kuwaiti citizens don’t have much to complain about regarding their living conditions. Now compare this with the top right sector: these countries face high economic stress and their people have no freedom to pursue a change of government. Virtually all of these countries are in revolt, which is almost inevitable. They have no jobs, the money they have is quickly losing value, and they have no legal means to change the situation. It is this unique situation that causes normal people to turn to violence.

“The exception here appears to be Saudi Arabia, but the unrest throughout the world has seemingly sprung the ruling royal family into action, with King Abdullah recently promising $93 billion worth of benefits and spending, augmenting the $37 billion he pledged last month. He hopes to ease the economic stress burden his subjects endure, and reduce the incentive to riot. He has apparently learnt the lesson that happy people will not riot.

“So, to answer our initial question: what is it that reduces regular civilians to the life of militia? The catastrophic trio of no jobs, no money and no way to fix it. What other choice do they have?”

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Dr SIMON ANGUS is a computational and complexity scientist and member of the Department of Economics, Monash University. With a background across the physical and social sciences, he has diverse interests including complex systems science, data-science, networks, systems biology, evolutionary game theory and the study of technology.