Page 78 - Accelerating out of the Great Recession

THE NEW REALITIES

Increased Political and Social Tensions

As consumers try to manage the new realities of life after the
Great Recession, there will be a concomitant shift in social
mood. The period of economic expansion, easy credit, and
reduced global tensions since the end of the Cold War created
an atmosphere of optimism and confidence. The abrupt eco-
nomic slowdown, along with the return of protectionism and
other forms of economic nationalism, will have a clear impact
on the political climate, as follows:

• Social unrest. The deeper the economic slump and the
greater the additional destruction of wealth and savings,
the more tensions will rise. There have already been signs
of social unrest in countries such as Iceland, Bulgaria,
Latvia, and Lithuania as local economies have slumped.
And in China, police chiefs were summoned for a briefing
on the potential for social unrest in light of that country’s
economic challenges.
• Political instability. Although government spending will
prevent a repeat of the unemployment and poverty of the
1930s, the political stability of the past three decades is at
risk because of the magnitude of the crisis.

Social unrest and political instability could drive govern-
ments into the arms of some very different policies. In partic-
ular, they could promote fundamental doubts about the free-mar-
ket economy. The old faith in the superiority of the free-market
model is certainly being eroded—not only in traditionally less
free-market societies such as France and Germany but also in
Anglo-Saxon countries such as the United Kingdom. Even in

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