Mass protests have become an all-too-common post-crisis occurrence in major cities around the world. The sheer number of them elicits key questions. What is making them so prevalent? Where will the movement strike next? And how will protests affect our international business operations? While it’s difficult to predict the next trouble spot, let’s tackle the other two questions.
The Arab Spring shocked the world in 2011 as mass protests and instability flashed from Tunisia across North Africa and the Middle East, almost overnight. Unlike these partial-autocracy cases, more recent protests in democracies like Turkey, Brazil, India, Chile, Israel, Russia, Peru, Indonesia and Bulgaria are less about regime change, but are similarly focused on localized quality of life issuescomplicating the predictability of the next flash point.
Structural changes in society are a key motivation for these events. Though the triggers for discontent vary widely across countries, by and large rising middle classesthe key beneficiaries of the burgeoning emerging marketsare driving the demonstrations. By 2020, their ranks will swell by an additional billion people. So why do they protest?
The University of Michigan’s World Values Study shows that as individual education levels rise, greater value is assigned to democracy and individual freedom. As citizens begin paying taxes and owning assets, they expect more from their governments. The gap between growing expectations and society’s ability to meet themwidened by the global economic crisisis fueling these protests.
This “gap” has been widening in many countries for some time, but it takes a specific trigger to unleash a large- scale movement. Princeton professor Mark Beissinger notes that protests are more likely to occur during times of economic downturn, austerity, (food and fuel) inflation and election years. As such, a broadly-based return to growth should lessen the likelihood of protests. Failure to shake off the post-crisis boom-and-bust blues increases the risk of further political unrest.
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The sheer size of the “catalytic” middle class has clearly emboldened protest movements. But they have been greatly aided by the advent of communication technology and social media which have enabled mass organization within minutes. A case in point is Turkey, where photos of police using excessive force went viral, galvanizing many otherwise-hesitant residents to join the protests.
So if the likelihood is higher, but location hard to pinpoint, should international businesspersons worry? Thus far, the investors see many of these protests as temporary blips and part of the “growing pains” of emerging markets. For all the coverage these protests get, with certain notable exceptions, the resulting policy changes have been comparatively small. Even so, the eventual increase in emerging markets’ economic growth will create fiscal space to address constituents’ complaints.
Even if growth returns, it will likely prove to be a partial elixir. Protests have engendered a general loss of innocence that has dimmed the halo hovering over emerging markets. Mass protests are changing risk perceptions, and yields on sovereign bonds could be impacted. New policies aimed at mollifying tensions are often costly, hurting sovereign creditworthiness. While most Canadian firms have not seen their operations impacted by protests, vandalism and sporadic violence in city centers are more present, elevating general interest in political risk insurance.
The bottom line? As Canadian firms build an increasingly global footprint, it’s critical to understand the political dynamic shaping emerging markets. In future, we should be less surprised and if possible, more prepared the next time a wave of people power hits the streets of some distant capital.
Peter G. Hall is vice-president and chief economist at Export Development Canada.