Unemployment and the Spark of the RevolutionWritten by Julen Madariaga on January 13th, 2009
You will excuse me for writing two serious posts in a row. It’s been ages we don’t do anything on the Crisis, and these days there’s been a series of articles on the subject that I couldn’t just let pass.
Two of them have to do with the growth projections for 2009. Yawn. We’ve been seeing new projections and discussions thereof almost every week, and after the holidays break it looks like here it is all over again. It is mostly fruitless, because there’s not enough new information between one projection and the next, and so most of the times the changes reflect the mood of the expert more than anything else.
It was however interesting to read this PD article Sunday where one CPC “renowned economist” worried that “China is likely to lose 3.9 million jobs in 2009″ if GDP growth slows to 8 percent. Well, he need not worry anymore, according to other top CPC officials quoted here the very next day, “China Risks Missing 8% Growth Target”, which will be “extremely arduous” to achieve. They are starting to change their tune, again.
And this brings us to a more interesting subject which, although it is as difficult to predict, at least it is more telling than the empty statistical artifice of GDP. I am speaking of Unemployment.
There has been two contradicting articles over the weekend, by Wang Tao from UBS and by Victor Shih. They hold different positions as to what will be the unemployment figures in 2009 and what will be their social impact. In any case, it is worth noting that both of them, with their 15 Million (Tao) and 35-50 Million (Victor) figures, are way above any calculation by the “renowned economist” of the People’s Daily, who gives 1 Million for every % of GDP lost.
Needless to say, I am with the relatively pessimistic predictions of Victor on this issue. Partly because I deeply distrust socio-economic projections issued by banks (you can hardly blame me on that). But mostly because the arguments that Victor puts forward are more solid than Tao’s. Based on his deeper knowledge of Chinese politics, Victor goes on to analyze the possible consequences of his prediction in a worse-case scenario.
Noting that, even if the government has the capacity (as he calculated here) to subsidize the unemployed families for an extended period,
the current wave of layoffs affects a young and vibrant cohort most capable of carrying violent collective action against the state. Without any systematic triggers, we at least will see a spike in localized riots which necessitate the mobilization of People’s Armed Police (PAP) units all over China. The central government would also be compelled to (and they are doing so already) roll out generous unemployment benefits for migrant workers and college graduates (to the tune of 300-400 billion RMB). If a systematic trigger occurs and instability spreads to a sizable city, we will see the large scale mobilization of both PAP and army units and possibly substantial bloodshed. In most scenarios, the CCP regime would still survive a large scale, cross regional rebellion. However, “overall investor confidence” will be lost.
What is the “systematic trigger” which I refer to? I don’t know exactly what it would be. However, if we look back in history, it can be a wide range of events, including the death of a popular leader, a serious natural disaster, the spread of a deathly infectious disease, a small student demonstration turned violent, religious groups…
This idea of the “trigger” (I called it the “Spark” on my previous post) is right on. It is exactly the element that is missing and the one that will make all the difference: when we have social tension to get the people in action, and intellectuals to draft the road map, the mix is an unstable equilibrium waiting to get in contact with a spark. Of course, Victor doesn’t know what exactly this spark would be, and neither do I because its own nature makes it unpredictable. But I would add to his hypothesis one of my own:
The emergence of a massive wave of protest on the internet that extends to all the forums and BBS simultaneously, with new sites being created faster than the government can block the old, which could create a cascade effect that would force the government to commit its worst mistake: close down the internet altogether. This would add to the protesters millions of online game addicts released from their cybercafes, constituting a serious army of instability.
Check out today’s post by Imagethief on the subject, showing with 2 nice graphs that we have an unprecedented situation in China. Also, yesterday Jeremiah of the Granite Studio did an interesting comparison of the present situation and the one in 1919 during the May 4th movement. In those times, there was a clear “trigger”: the humiliating treatment of China by the Western powers in the Treaty of Versailles after the First World War, including the unforgivable transfer of territories to Japan.
One last note for the optimists: this weekend I learnt of a reputable economics professor living in Shanghai who recently bought 3 months advance of canned food to store in case the situation gets rapidly unmanageable. In a city like Shanghai, if the logistic networks are disrupted we can run out of food in a matter of days. I am still not quite there myself, but I must admit that, since I heard this, the idea hasn’t quite left my head and I tend to go more generous on every visit to Lawson’s.
UPDATE: Oops, I completely missed this one. All Roads has been doing the same comparison and drawing his own conclusions. You can see it here.