If You Think Political Instability Is Confined To the Mid-East, You May Be Making a Big Mistake

23. FEBRUARY 2011 | POSTED IN FEATURED CONTENT, NUUKO OPEN BLOG | BY DOUG PORETZ

The political instability and unrest seen for the past few weeks in the Mid-East is not simply a Mid-

East but a global phenomenon that is at least two years old. We have not seen the end of

governments toppling. We are still at the beginning stages of political, cultural and social tumult that

will change the world and many of its institutions. The consequences will be enormous. If I am

correct, investors should be extremely cautious about where they have put their money and they

may want to reconsider the wisdom of putting money under their mattress instead of the equity

markets.

Just shy of two years ago, on March 9, 2009, I wrote a blog entitled “There Is About To Be A Very

Significant Change In Headlines Around The World.” At the time, the focus of the world – what

dominated the headlines of the time – was the financial and economic situation. The world was just

emerging from the shock of the near total meltdown of the capital markets in the Fall of 2008,

Obama had been inaugurated President just two months earlier. I began that article with the

following:

For the past several months, it seems as if there should be a singular version for the word “news”

because there has been really only one story: the economy, and what it means to people, how it

happened, what’s happening now, who’s to blame, what should be done about it. But there’s about

to be a much more significant story taking over the headlines worldwide: social, cultural and political

upheaval. There is a growing number of protests events in virtually every area of the world, where

primarily middle class anger is being vented at ruling governments for not doing enough (or for doing

too much), and also aimed at what can only be identified as the non-government upper class.

My thesis then was that the economic crisis had repercussions that went far beyond stock prices and

interest rates and other economic trends. I suggested that the impact of the economic situation

would be felt by the middle and working classes whose quality of life would decline even further,

more visibly and at a faster pace than the gradual erosion evidenced over the decades when wealth

became increasingly concentrated among the rich. At the time, I focused my attention on what was

happening in Europe, where protests by the middle and working classes were proliferating, but I also

saw the same thing happening in other parts of the world.

I now believe that the argument I made about the European protests was appropriate for the Mid-

East as well. The middle and working classes saw themselves becoming poorer and the prospects

for recovery became increasingly dim. Who was to blame? The immediate answer: those in power –

the people who possessed the economic and/or political clout who the population at large

considered to be guilty of mismanagement, greed, and incompetency. And, to make matters worse,

as the economy began to improve, the rich and powerful participated in its recovery and the working

and middle classes fell further behind.

The fruits of this situation could be seen in the US, where the Tea Party arose with no real “ism” but

a very deep and real distrust and dislike for those who have held power. It could also be seen in

London, where college students protested passionately about an increase in their tuitions. It could be

seen in Egypt where the revolution was not a religious but a sectarian movement by diverse

elements of the population complaining not about religious freedoms or adherence to certain

religious tenets, but about jobs and prices and taxes. Those same concerns are today being echoed

in protests in Greece, where two major labor unions are leading a rally against government austerity

measures.

The likelihood of more social unrest is strong and getting stronger. In January 2011, food prices

spiked to their highest prices in two decades, and according to World Bank President Robert

Zoellick, the increase in food prices has pushed 44 million people into “extreme poverty.” That is on

top of the 925 million people already considered undernourished by the UN. Oil prices have soared

as a result of the Mid-East turmoil, certain to slow down or possibly reverse the global economic

recovery that has begun to emerge, albeit very anemically. Jobs are going to be harder to find and

prices are going higher. And we are about to see the real impact of the government austerity

measures adopted to contend with the debt crises challenging governments around the world.

Who is responsible for all this dire news? Future historians will sort out the reasons and the blame,

but right now the issue is not so much how things really came to be but how broad populations

perceive this situation arose. I think – whether justified or not – the middle and working classes will

focus more and more on the rich and politically powerful as the culprits. They will be seen continuing

to prosper as life becomes more difficult for those without power and wealth. As that happens, more

people will get angrier. More people will take to their streets. More political instability will spread.

More volatility will roil the capital markets.

Two years ago when I predicted a change in the headlines throughout the world, I thought it was

less a brilliant insight than it was a keen sense of the obvious. I fear that the continuation and

escalation of the intensity of protests around the world is also a keen sense of the obvious. What is

less obvious at this point is the prospect of where this may end, but it isn’t too early in the process to

conclude that the process will be turbulent.