Does fiscal consolidation lead to social unrest? From the end of the Weimar Republic in Germany in the 1930s to anti-government demonstrations in Greece in 2010-11, austerity has tended to go hand in hand with politically motivated violence and social instability. In this paper, we assemble cross country evidence for the period 1919 to the present, and examine the extent to which societies become unstable after budget cuts. The results show a clear positive correlation between fiscal retrenchment and instability. We test if the relationship simply reflects economic downturns, and conclude that this is not the key factor. We also analyse interactions with various economic and political variables. While autocracies and democracies show a broadly similar responses to budget cuts, countries with more constraints on the executive are less likely to see unrest as a result of austerity measures. Growing media penetration does not lead to a stronger effect of cut-backs on the level of unrest.
That’s the abstract of a long Centre for Economic Policy Research working paper (pdf), “Austerity and Anarchy: Budget Cuts and Social Unrest in Europe, 1919-2009” by Jacopo Ponticelli, Universitat Pompeu Fabra and Hans-Joachim Voth, UPF-ICREA, CREI and CEPR. Thanks to Duncan Law.
The dynamic is long familiar in social movement theory, often referred to as the ‘relative immiseration’ effect. It’s also familiar to people with more than one child. Basically, when you give folks stuff and then take it away, or give them relatively less stuff than reference groups, they get way more pissed off than if they never had anything to start with or deprivation is evenly distributed.
Relative immiseration is an important corrective to vulgarizations of Marxism in which capitalism is supposed to precipitate its own demise only if it reduces the working class to absolute abjection. Not so – just as all needs beyond mere subsistence are relative to particular social formations, revolutionary immiseration is relative to the general standard of well-being of particular social formations. Nowadays the poor in Western societies mostly have indoor plumbing that was not available even to kings just a few centuries ago. (They have fridges and microwaves, yes.) But that’s not the relevant measure of degradation – it’s where the poor stand in relation to the rich now. And as is well-known, that gap has been widening. The borrowing powers of governments have been filling the gap for the past several decades, but that compensatory regime seems to be hitting its unsustainability threshold. We live in interesting times.
Of course there’s nothing that says capitalists have to keep driving relative immiseration toward the brink. At least since Bismarck and the Gilded Age smart elites have recognized the need to spread the wealth to some degree to purchase social peace and secure the conditions for continued profit. All it takes is withdrawing some capital from speculative ‘investment’ and using it instead, directly or through government transfers, to build the consumption side of the economy – namely by hiring people and paying them well, whether they ‘earn’ it or not – compensating according to need, not productivity, as Marx argued and Jim Livingston keeps arguing.
If paying people to be consumers out of scale with their productivity seems immoral, it’s worth remembering that while credit default swaps may be called ‘products’ in the ‘industry’, they’re not actually making anything but wealth either. Aren’t (relative) need and general prosperity enough to ground public morals?
UPDATE: Dave Mazella at The Long Eighteenth has been rereading E.P. Thompson on “The Moral Economy of the English Crowd in the Eighteenth Century” and finds rioters “trying to restore traditional understandings of collective rights and reciprocities, traditions that elites disrupted or ignored at their peril.” This is consistent with both the analysis here and JohnM’s disambiguating comment below, but adding another layer: I often have to resist the activist reflex to see in every little upheaval a foretaste of revolution, and Thompson reminds us of the complex dynamic robustness of existing arrangements.
