Tuesday 10 February 2009


It's been a very civiliised economic crisis to date. People are a lot poorer and many are facing financial ruin. There must be some anger building. The young unemployed? HECs indebted graduates? Victims of AAA rated investment products that are now worthless?

Commentary on the economic crisis and its likely impact on China frequently refers to a nominal growth threshold of 8% below which China's political stability is said to be threatened. I am curious about what that number is in the developed world?

It is conventional wisdom that countries with a functional safety net are a better bet for social stability during crisis than countries like China where the safety net is weak or non-existent. Of course they are.

Yet it occurs to me that there are many more complex issues at play in this question - and Western countries would do well to run an analysis about the fragility of their own systems.

I hope confidence in our social and political institutions is proven better founded than the confidence we once held in our financial institutions and their governance.

A rarely acknowledged factor mitigating against political instability in China is the relatively recent experience the Chinese have of the terrible hardship and brutality of political chaos. The ruthless effectiveness of Chinese authorities in dealing with political insurrection is another factor.

A decision to launch a major political challenge in China is a massive commitment for which one must be ready to face the harshest penalties and even death.

A Chinese citizen may make the entirely reasonable choice that, based on the past century of history, the corrupt strong arm of the Communist Party is preferable to the likely alternative should things start to deteriorate. That decision however will depend on how desperate things become and how effectively the government can manage the crisis.

While Chinese expectations of prosperity have shot through the roof during the past decade, Chinese people also have a cautious appreciation of how fragile periods of prosperity can be. Stability and order remain amongst the most cherished things in the Chinese mindset. Even the youngest Chinese workers can see that bitter hardship remains a reality for most of the population. And they are also aware of the profound improvements of the past two decades. They are proud of their country's elevated status in the world and they credit the government for this.

It will take a massive souring of the economic landscape to turn the increasing number of sporadic protests, usually about local land and corruption issues, into a national movement.

Western analysts spend plenty of time pondering China's fragility. I have not yet seen any speculation on the likely political implications of the crisis in Western countries. Yet it seems very possible that a continuation of the current collapse may also precipitate an outpouring of anger in developed countries. While the Chinese threshold for radical political action is tempered by their collective memory of hardship, what of developed countries? What is the unemployment threshold for political instability in the developed world?

In the West, all but the most elderly have no memory of serious hardship. World War II and the Depression are remembered only by those in their late seventies and older. Political stability is taken for granted.

The developed world has provided a linear life course for most of its people for more than fifty years. Things don't change very much and people's lives progress along a reasonably predictable course. Increased wealth and technology sweetens the course - but most people in their forties and fifties seem to be doing things the same or similar to what they were doing twenty years ago. Not so in China.

In Australia, the past decade has created new expectations of ongoing prosperity from rising property values, soaring equities - and the bonanza from a booming resources sector. There seems to be a great danger that the promise of a linear life is threatened.

Yet it's not like the boom was that good. Plenty of wealth was created and huge chunks of it found its way into the pockets of the financial engineers that brought us the present crisis and their friends in the top 1% bracket of wealth. And despite all that prosperity, our health system is a shambles, our public schools and universities are run down and our infrastructure is in a state of neglect . We couldn't fund our projected health care and pension costs during the good times - six months ago. How are we placed now?

If China's political fragility is based on a disempowered minority facing severe economic hardship, Australians might consider the situation here. We should not assume that our democracy and a freeish media provide empowerment for all stakeholders in the community - especially the disadvantaged. And we should not assume that a safety net that leaves its dependents in poverty - especially those who didn't see poverty coming - is a guarantor against fury.

Once there's enough rice in the bowl, poverty is relative. And a vote alone does not a democracy make.

Let's hope that the doomsayer who predicts "this crisis will get worse before it get worse" is wrong.

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