The Relationship Between Perception of Economy and Political Instability Abroad

Laura is the summer Globalization Initiative Intern at NDN and a Summer Academy Fellow with the Roosevelt Institute. She is a Political Economy and Mathematical Economics double major at Tulane University in New Orleans, Louisiana.

NDN has long argued that the state of the economy is the most important driver of instability in the American electorate. Unsurprisingly, the same tends to be the case globally. The Pew Global Attitudes Project released a survey June 17th that included information on public perception of the economy in different countries (see graph).

Pew Graph
Interestingly, no countries in the survey where 50% or less of the population felt that the economy was in trouble were experiencing significant political instability. Conversely, only 5 out of 17 countries surveyed where 55% or more of the population felt that the economy was in trouble were experiencing relative political stability. The other twelve countries exhibited signs of political instability, such as governing party changes and declining approval ratings for elected officials. Below are some comparisons between the economy and the political climate in each country:

Japan: In Japan 88% of the public feels that the economy is doing poorly. This has been reflected strongly in Japanese politics: Prime Minister Yukio Hatoyama stepped down June 2nd in part due to his inability to fulfill economic improvement promises made during his campaign. The Finance Minister from his cabinet, Naoto Kan, was voted to replace Hatoyama 291 to 129.

Spain: Eighty eight percent of the Spanish public thinks that the economy is doing poorly. This has been strongly reflected in Spanish politics as well - Prime Minister Jose Luis Rodriguez’s proposals to bring down the deficit have only been seen as desperate acts to remain in office. The Prime minister, whose economic policies have been called inconsistent at best, might have to call early elections due to looming budgetary disagreements. 

France: Eighty seven percent of the French people feel that the economy is doing poorly. This has strongly affected French politics – due to the deficit fears, the French government proposed a series of austerity measures, including raising the retirement age by two years and increasing income taxes on the rich. Nicholas Sarkozy, whose ratings in opinion polls have been tumbling, has spread these reforms out over the course of several years to ease the pain, but still show that he is taking measures to reduce France’s budget deficit.

Lebanon: The economic situation in Lebanon has had less of an impact on politics, perhaps due to the strong growth prospects. The IMF predicts that Lebanon’s GDP growth could top 8% in 2010 thanks to improved domestic stability and prudent policies. Yet, serious structural problems remain, including a debt-to-GDP ratio higher than that of Greece, gaps in infrastructure (particularly electricity), and weak domestic production, which contribute to the weak opinion on the economy.

 South Korea: The economy has had a relatively weak effect on South Korean politics. South Korea recovered relatively quickly from the global economic recession and before President Lee shifted the focus of mid term elections to the sinking of the Cheonan, his public approval rating hovered around 50%.

Pakistan: Pakistan is plagued with several economic problems, including severe energy deficits, water shortages, and rampant corruption across most of the government. These problems have resulted in a very unstable political environment. In 2008, The Eurasia Group’s Global Political Risk Index found Pakistan to be the most unstable emerging market in the world, with a score of only 41, citing events like the assassination attempt on Prime Minister Yousuf Raza Gilani. 

Egypt: The improving economic outlook in Egypt is keeping the political environment relatively stable. Although surging inflation and food shortages last year led to vast public unrest, President Mubarak was able to maintain control. Now Egypt is experiencing significant growth, though markets are somewhat rattled by the lack of a clear successor to Mubarak.

The poor economic situation in Britain did in part lead to a change in party control. Britain recently underwent a change in Prime Ministers. Gordon Brown, who presided over one of the worst periods in recent economic history, was ousted for David Cameron, who pledged fiscal austerity while reviving the economy.

Mexico: Politics in Mexico were strongly affected by the economic downturn. Mexico’s economy took a hit in 2009 due to its ties to the U.S. economy, the decline in tourism due to violence and the threat of H1N1, and declining crude oil prices. President Calderon’s PAN political party took a hit in the midterm elections, losing control of Congress.

Argentina: The economy played a big role in political change in Argentina. President Fernandez lost control of Congress in the mid term elections in part due to a slowing economy. However, the recovery that Argentina is now experiencing is boosting President Fernandez’s ratings.

Jordan: The economic downturn has played a significant role in Jordan’s politics. King Abdullah II dissolved parliament in late November 2009, a move seen as an attempt to clear the way for new elections and speed up economic reforms.

Despite recent economic troubles, the political climate in Russia is stable. The Kremlin’s $200 billion stimulus package and the recovery in oil prices led to an improved economic situation, and the country has seen increased political stability.

Although there is a positive growth outlook for Nigeria, corruption and undisciplined fiscal policy prove problematic for the country and could threaten political stability. Elections are set for 2011, and the incumbent government is increasing spending and holding the interest rate at 6%, producing possible inflation problems.

Though Turkey was somewhat affected by the global recession in 2009, its economic prospects are largely positive moving forward. According to Goldman Sachs, Turkey has the 17th top economy in the world and political stability is on the rise.

Political stability is a huge problem in Kenya, though political stability threatens the economy more than the other way around. The perceived instability largely results from deep divisions in government, which have kept the Cabinet from meeting for a long time.

The current economic climate is having a significant impact on German politics. Two recent polls found that a majority of Germans believe the government won’t serve out its four-year term. Current events in Europe have created an overriding emphasis on fiscal austerity, which Chancellor Merkel has taken to heart with her own $97 billion austerity package, but this threatens to alienate some in her governing coalition.

Indonesia, the largest economy in Southeast Asia, is enjoying a period of relative economic and political stability. On June 21, 2010, Moody’s raised the outlook on Indonesia’s local and foreign debt to positive from stable, underlining the country’s ability to sustain strong economic growth and praising the stability and effectiveness of its fiscal and monetary policies.

Poland: Following a steep depreciation due to the global recession, the zloty stabilized in early 2009 and has recovered since, contributing to Poland's role as an anchor of stability in the region despite the dismal economic climate. Poland’s economic and political stability remain strong despite the plane crash killing a large swath of Poland’s top government officials.

Indian GDP has increased 7.9% over the last four quarters, and there is high political stability. The Reserve Bank of India has increased interest rates in an attempt to tighten monetary policy, though there is fear that this may squeeze credit.

Since curbing inflation and instituting market reforms in the 1990s, Brazil has shown an impressive rate of economic growth in the range of five per cent. Also, unlike most other BRICs, Brazil is a democracy, allowing it to enjoy political stability and economic growth.

China is experiencing massive economic growth, and despite recent labor protests, China’s government remains very stable.