Tuesday, May 29, 2012

The raging bull called unemployement

The troubles just keep mounting for Spain. After GDP growth shrank in the first quarter of 2012, it formally pushed Spain into recession for the second time in two years.  Another 366,000 lost their jobs, increasing the tally to 5.6 million, unemployment rate reached close to 25%. Spain along with rest of Europe and the US are discovering that economy after all comes first. Though the linkage between economic conditions and social unrest is complex, even the first world citizens are no less tolerant or immune to shocks in economy. Some of the protests in Spain unlike Occupy movements have been more violent in nature. Why is unemployment such a key determinant of peace and well-being?

Robert Kennedy, JFK’s brother and former Attorney General in an often quoted speech said that, “GDP does not allow for the health of our children, the quality of their education, or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages; the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage; neither our wisdom nor our learning; neither our compassion nor our devotion to our country; it measures everything, in short, except that which makes life worthwhile”

While it is hard to disagree with the eloquence of such rhetoric, Spain is another pointer as to why GDP growth is after all the foundational basis upon which we seek things in life which are worthwhile. Yes, GDP does not measure the joy of our children’s play. But having almost 1 out every 4 young graduate unemployed reverses the private returns to pursuing education, making neither the pursuit nor use of such an education of whatever quality worthwhile. Yes, GDP growth does not capture the virtues of our poetry, marriages, social intelligence and public officials. Sadly, when you can’t be productively engaged and feed yourselves, let alone your family, there is no wisdom or courage in pursuing beauty instead of the beastly.  It is hard not to side with angry protestors in the age of increasing austerity in Spain.

A recent paper by Jacopo Ponticelli and Hans-Joachim Voth of Barcelona’s Universitat Pompeu Fabra presents data to validate such a theory. They put together chaotic episodes in Europe between 1919 and 2009 – a mix of protests, strikes, assassinations and attempted revolution – and in fact find a strong correlation between fiscal austerity and social unrest. Episodes of social unrest occur twice as often when spending cuts reach 5% of GDP.

Protests induced by austerity attract far more participants than demonstrations sparked by other causes. Think climate change for example. In 2010 the International Labour Organisation warned that high levels of joblessness and of youth unemployment especially, were likely to trigger above-normal levels of social unrest. Other research also points to strong correlation between income inequality and social instability.

A bit more growth and bit less austerity is after all not a bad recipe. A study at University of Sussex which examined inequality and unrest in India found that redistribution can improve social stability. That may well be the underlying message that Spain’s unemployed youth are giving the government through their protests.
I would certainly not judge the compassion nor the devotion of Spain’s youth towards their country which national income accounts do fail to measure until GDP growth first becomes a valid and worthwhile measure in Spain. To expect anything less than concerned protest from their unemployed is akin to expecting the raging bull not to chase the red flagged matador!

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