Unrest, and hope, for developing economies – by David Olive (Toronto Star – July 6, 2013)

The Toronto Star has the largest circulation in Canada. The paper has an enormous impact on federal and Ontario politics as well as shaping public opinion.

The alarming social unrest in emerging economies worldwide has a common thread: a sharp slowdown in once-torrid economic growth. The disturbances so graphically depicted in the media often appear to be ethnic or religious clashes or uprisings against autocracy. Those elements are playing a role. But the real driver of discontent in emerging economies is the failed promise of ever-increasing middle-class prosperity.

Most of the estimated 800 daily riots and public demonstrations in China result from factory layoffs. Striking miners in South Africa and street protests against the rule of Russia’s Vladimir Putin had become commonplace even before the recent weeks of rioting in São Paulo and Rio, and the military ouster this week of Egyptian president Mohammed Morsi in a Cairo stricken by blackouts, food shortages and rampant unemployment.

Hero status was once conferred by grateful new middle classes on Vladimir Putin; on Dilma Rousseff, successor to the immensely popular Brazilian president Luiz Inacio Lula da Silva; and on the Turkish president, Recep Tayyip Erdogan. They all are now struggling to regain their political credibility only a year or so since winning electoral mandates.

The earlier popularity of such leaders is understandable. Beijing’s economic reforms of recent decades have lifted hundreds of millions of Chinese from deprivation. India’s economic miracle, modeled on China’s market liberalizations, created a middle class of about 400 million people — larger than the entire U.S. population. Turkish per capita income tripled after Erdogan first took office. Lula da Silva’s dramatic makeover of the Brazilian economy, underpinned by full-employment goals, propelled tens of millions of Brazilians into a new middle class.

An awestruck financial media in the West took the widespread economic dynamism in the developing world to be permanent — an overdue industrial revolution and triumph of free-market ideology. More’s the pity, so did shoppers on the high streets of Rio, Shanghai, Mumbai and Istanbul, now lined with Cartier, Hermès and Louis Vuitton boutiques.

But the simultaneous boom in so many emerging economies was both unprecedented and unsustainable. “Normally, each emerging nation is at a different stage in its economic life,” Ruchir Sharma, head of emerging markets at Morgan Stanley Investment Management, and author of Breakout Nations, wrote in the U.K. Financial Times this week. “Crisis gives birth to reform, which flowers into a boom, which matures into political complacency, which ages into a new crisis.”

Apart from so many emerging economies boasting a new affluence at the same time, the dreary truth is that a fairly traditional boom-bust cycle has been playing out — with a few twists marking the current low point:

Artificial stimulus. When North American shoppers began their spending strike at the onset of the Great Recession, an export-reliant China compensated by ramping up its already extravagant state spending on infrastructure building.

For the rest of this article, click here: http://www.thestar.com/business/2013/07/05/unrest_and_hope_for_developing_economies_olive.html


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