Barry Eichengreen: Wellsprings of Uprisings

BE:

Why Egypt Should Worry China by Barry Eichengreen: A strictly economic interpretation of events in Tunisia and Egypt would be too simplistic.... That said, there is no question that the upheavals in both countries – and elsewhere in the Arab world – largely reflect their governments’ failure to share the wealth. The problem is not an inability to deliver economic growth. In both Tunisia and Egypt, the authorities have strengthened macroeconomic policy and moved to open the economy. Their reforms have produced strong results. Annual growth since 1999 has averaged 5.1% in Egypt, and 4.6% in Tunisia – not Chinese-style growth rates, to be sure, but comparable nonetheless to emerging-market countries like Brazil and Indonesia, which are now widely viewed as economic successes.

Rather, the problem is that the benefits of growth have failed to trickle down to disaffected youth.... With modern manufacturing underdeveloped, many young workers with fewer skills and less education are consigned to the informal sector. Corruption is widespread. Getting ahead depends on personal connections of the sort enjoyed by the sons of military officers and political officials, but few others.

It may stretch credulity to think that a high-growth economy like China might soon be facing similar problems. But the warning signs are there. Given the lack of political freedoms, the Chinese government’s legitimacy rests on its ability to deliver improved living standards and increased economic opportunity to the masses. So far those masses have little to complain about. But that could change, and suddenly.

First, there is the growing problem of unemployment and underemployment among university graduates.... [T]here is the problem of less-skilled and less-educated migrants from the countryside... consigned to second-class jobs in the cities.... The migrants’ predicament underscores the need to reform hukou, China’s system of residency permits.... Finally, China needs to get serious about its corruption problem.... If Chinese officials don’t move faster to channel popular grievances and head off potential sources of disaffection, they could eventually be confronted with an uprising of their own – an uprising far broader and more determined than the student protest that they crushed in Tiananmen Square in 1989.