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Research Paper: The Economics of Protests

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Note: I already have a YouTube video explaining the basics of this topic: https://youtu.be/S4uLE9a6mFo

This research paper is a more detailed & informative take on the economics behind protests.

 

What is Economics? It is the study of how money, business, and industry are organized. What is a protest? A protest facilitates discourse and deliberation; it drives reform by signaling people’s disapproval of policies, legislation, and other government actions. This paper shall explore the relationship between a protest and the economy of a nation with a particular focus on India since it has been rocked with massive protests since the past year.

There are two perspectives from which this relationship can be explored. 

•How protests can impact a nation’s economy & 

•How a nation’s economy can influence protests.

Let us look at these points in detail:

How protests can impact a nation’s economy – The economic costs of protests are often overlooked. It is not hard to imagine that rioting directly damages property values and economic activity. When people smash windows, steal things, or set buildings and property on fire, that all have direct economic costs. The cost of property damage from rioting is borne across the board—by the government, insurers, and the public. Moreover, if people are rioting, they are not working. Even those who are not involved in the disturbances are affected – they cannot get to work, shop, or otherwise carry on with business as usual. Some studies have suggested that the LA riots in 1992 ultimately cost the city nearly $4 billion in taxable sales and over $125 million in direct sales tax revenue – that in addition to $1 billion in property damage and the loss of many lives. Businesses have a clear disincentive to establish operations in riot-prone areas, as they want to avoid risking their capital. Protests, therefore, can influence regional and national employment rates. They significantly increase costs for firms, as they cause a statistically significant reduction in firm productivity. Often, firms are ineffective in reallocating production factors to counter the uncertain and irregular shocks in productivity caused by protests.

Besides, protests increase investors’ uncertainty as they serve as markers for political instability. A risk premium is assigned to securities originating from politically unstable countries. After Bahrain’s protests during the Arab Spring, rating agencies Standard and Poor’s and Moody’s both lowered the Bahrain government’s bond and credit ratings—attributing the decision to the region’s political turmoil and civil unrest. Withdrawal of foreign direct investment (FDI) and capital flight, resulting from a fall in business confidence, reduces the economic growth rate of the affected country. The impact on tourism is more complicated. Predominantly, tourists are apprehensive about traveling to countries experiencing protests, for fear of being endangered by riots. However, a rise in “riot tourism” or “protest tourism” has been observed whereby activists actively seek out hotspots and travel there to participate. But, it does not do much to help the economy.

How a nation’s economy can influence protests – Many of the mass protests happening around the world have been sparked by anger over the economy, especially rising inequality and high costs of living. It then quickly evolved into larger, more potent social movements. The demand that exceeds all others prevents progress toward economic justice: a lack of what protesters increasingly frame as “real” democracy. Let’s look at examples of some countries:

• Colombia saw one of its biggest anti-government protests in recent memory, with people taking to the streets in November 2019 to protest economic inequality and call for anti-corruption measures. 

• Iran, under the weight of U.S. sanctions, saw gasoline prices surge up to 50% in November 2019, which sparked large-scale protests that transformed into demonstrations against government corruption, with thousands clashing with authorities and hundreds dead. 

• In Lebanon, the government initially proposed new taxes on messaging services like WhatsApp and combined with an unpopular austerity budget. Thus, a government many viewed to be corrupt, led to widespread protests.

Now, we shall explore in detail the economic effects of protests in India:

India – The recent protests in India began after the Citizenship Amendment Bill was passed in December 2019. The CAA amends the Indian citizenship to illegal migrants who are Hindu, Sikh, Jain, Parsi, Buddhist, and Christian from Afghanistan, Bangladesh and Pakistan, and who entered India before 2014 following the religious prosecutions. The bill does not mention Muslims and other communities who fled from the same or other neighboring countries. Widespread protests broke out over this bill. The main reason being that this bill came across as communal and Islamaphobic while in Assam, the protests took place in disagreement of anyone being allowed citizenship.

The protests continued for more than two weeks, disrupting life and businesses in most parts of India. India’s iconic Taj Mahal saw a 36% drop in footfalls in December, the Times of India reported. The tourism industry of Assam suffered a loss of 1000 crores. Often, it is not the protest itself that causes economic loss, but more so, the measures are taken to curb it. For example, certain states resorted to suspending internet services, making it challenging to book cabs through ride-hailing apps such as Uber and Ola and digital process payments. According to Business Standard (10th January 2019), India has suffered a loss of $ 1.3 Billion because of a precautionary internet shutdown lasting for 4196 hours. As a result of this, India is now the world’s third most economically affected country after Iraq & Sudan.

Demand was impacted in both business and leisure segments. While the macro-economic factors took a toll on business destinations, the leisure destinations showed higher sensitivity to non-economic factors such as civil unrest. Reports suggest that travel-related bookings went down as much as 5 to 40 percent across the country. Metros like Delhi and Bengaluru, which saw violent protests, were affected the most. In December, the bookings for travel to Delhi fell by 38 percent over the previous year, said travel aggregator ixigo. Notably, several countries issued travel advisories for India, such as the United States, the United Kingdom, Canada, Saudi Arabia, Russia, Australia, and Israel.

According to data from the Organisation for Economic Cooperation and Development, about 30% of Indian youths aged 15-29 are not in employment, education, or training. India’s economy is forecast to grow 5% in the year ending March 2020, the slowest pace since 2009, and inflation accelerated to the fastest since 2014. Global experience shows that religious polarisation and strife is bad for economic growth and that social harmony is a vital input for an economy to soar. Many experts have highlighted the fiscal and administrative cost of implementing NRC nationwide – over Rs 60,000 crore with 21 lakh officials. These short-term costs, however, pale in comparison with long-term economic ones. In Assam only, the National Register of Citizenship took ten years, employed 52,000 government employees, and cost the Government of India Rs 1,220 crore. Hence, It is believed that the government should have expended its energy on the economy instead of this act.

Why protests are necessary even when they negatively affect the economy – A parallel can be drawn between protests and Albert Einstein’s theory of bees. He said that if bees disappeared off the face of the earth, man would only have four years to live. Thus, what bees are to man, protests are to democracy. If people stopped protesting & raising their voices, the nation would start moving towards authoritarianism/ dictatorship—for example, North Korea and China. Here, we face a tough choice because although protests do cause economic loss, they also bring forth essential political discourse. According to a Harvard study in 2017, protests do not work because big crowds send a signal to policymakers. Instead, they work because protests get people politically activated, hence, making the government lose its vote bank. In fact, in many nations, protests have influenced change. In Lebanon, people protested over the state of the economy & corruption, leading to Prime Minister Saad-Al Hariri taking reform such as a 50% reduction in salaries of current and former presidents, ministers, and MPs plus cuts in benefits to state institutions and officials. He also obliged the central bank and private banks to contribute $3.3 billion to achieve a “near-zero deficit” for the 2020 budget. In Iraq, the government came up with a 7 Point plan to subsidize housing and give better loans. There are many more examples of such nations, and these show that not protesting against illogical/ discriminatory policies of the government is not sensible in a democratic nation.

What is the solution to this catch 22 – It is not possible to eliminate all economic losses caused by a protest. However, an individual effort must be made to keep protests peaceful & democratic. A certain amount of financial loss incurred through the destruction of public property, houses, buses & human capital because of loss of lives can be avoided.

References:

•https://econreview.berkeley.edu/the-power-of-protests/
•https://www.forbes.com/sites/investopedia/2010/12/22/•how-riots-can-influence-an-economy/amp/ https://m.economictimes.com/markets/stocks/news/pm-modis-nationalism-mask s-a-bad-economy-protesters-say/amp_articleshow/73628339.cms
•https://m.economictimes.com/news/politics-and-nation/view-caa-and-nrc-are-dee pening-divisions-creating-mistrust-and-hurting-the-economy/amp_articleshow/74 070411.cms

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  1. mjay

    While I thoroughly enjoyed the reading, I must also add it isn’t yet worthy of being called a “research paper”. It’s basically common sense backed by a lot of statistics.
    Also, the political inclination is clearly visible (which shouldn’t have been there if you are purely talking about economics) and you have missed many key elements and as it seems deliberately overstepped some of the issues.

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