The Economics of Prolonged Protests in a Democracy

Protests are the bedrock of democracy. They empower people to indulge in discourse and discussions against perceived injustices. They are essential for driving political reforms and keeping the government in check. But while protests play a vital role in strengthening the polity of democracy, the costs of these sustained protests are weakening the economy.


The media seldom addresses the financial costs of a protest over the burning political reason fuelling it further. It, therefore, becomes pertinent to analyze the extent of economic damage through the lens of long-drawn, large-scale protests in the recent past. Given that protests are a pillar of modern activism, our outlook would be strictly rational and unbiased with no opinions beyond those derived from the discipline of economics.


The article bifurcates the analysis on the basis of different types of protests witnessed around the globe - ranging from legal peaceful protests to rogue violent protests. Going ahead it delves deep into the economic cost, both explicit and implicit, of the variations. Lastly, it looks into how the protests in the recent past have shaped up economically and attempt to determine an average cost of a given protest, subject to political constraints, in the 21st century


We begin with a legal peaceful protest. This entails that protesters have gained permission to carry out their demonstration at a defined public place. This type of protest has a minute cost in terms of impact on the economy. The only cost involved is the implicit opportunity cost of protestors using their time in production activity for income generation. However, since the matter of contention would, more often than not, have a correlation with their economic situation, the time spent protesting can be viewed as an investment aimed at a future increase in income. This mode of dissent does not harm anyone beyond the immediate stakeholders.


The second variant often noticed is an illegal peaceful protest. ‘Illegal’ here means the interested parties fail to gain official permission to protest. Subsequently, these protestors occupy common public spaces, often roads and borders, as their site of protest and initiate strikes to get their demands heard. Consequently, these protests lead to direct economic costs, psychological costs, and externalities.


Occupying public spaces leads to restrictive movement of goods and services resulting in disruption of supply chains. The CII report stated an 8-10% rise in logistic costs due to the farmer protests in India. Businesses struggle to find labour in these areas - some are involved in the protest itself while others fear going out. The ‘Chakka Jam’ on 6th February 2021 led to road blockades for 3 hours. Subsequently, a nationwide rail blockade for 4 hours has been announced. The farmers are calling for all-out blockades that do not just delay transportation but essentially bring the economy of protest rid states to a standstill. Freight transportations are often time-sensitive and will trickle into everyday life. A Paper titled “Economic Impact of Political Protests (Strikes) on Firms: Evidence from Bangladesh” finds that there is a substantial loss in productivity of firms with a subsequent rise in production costs. In the face of these sustained protests, small firms suffer the most due to their inability to re-optimize the factors to reduce the cost in the short-run.


The ‘yellow vest’ protests in France are estimated to have cost 0.1 percentage points of national output or 2 billion euros ($2.28 billion) in the final quarter of 2018 and more than two-thirds of the losses were borne by the private sector. Similarly, the strikes in Spain cost 0.1 percent of GDP, while in Austria, it costs around 0.46 percent of GDP. While these numbers only accommodate immediate impacts, the long-run wave of struggling small businesses hits the economy gradually.


While business costs increase, there is a fall in consumption expenditure by the local residents due to fear of trouble. A fall in consumer confidence hits retail businesses and the service industry. The ripple effect on these industries is beyond quantifiable. Both the protestors and residents suffer from the psychological costs of uncertainty, constant battles, of fear. Protestors sit on for months, away from their families, without any end in sight.


The worst type of protests is those which turn violent, which is a frequent occurrence of late. The farmer protests on 26th January 2021 and the yellow vests protests in France created havoc across the national capitals. There is an exponential rise in economic costs due to the destruction of public property, injuries to policemen and protestors alike. Private businesses and insurance companies bear the burden of damages, while the government repairs public property from taxpayers’ money.


Destruction of the property when framed as a function of taxpayers’ money brings forth how counterintuitive these impulsive actions are. The opportunity cost of allocating time on the destruction of goods rather than production is the ironic reality of protest economics.


Beyond all, the economic and psychological costs are the externalities faced by the people. The fear mongered by violent protests impacts society and its stakeholders at levels that are unaccounted for. This fear is radiated globally and is often reflected in terms of investor sentiment when stock prices and real estate prices take a hit. Businesses reduce investment in riot-prone areas while different sectors fail to recover losses.


The economic costs of a protest are far-reaching - both in monetary and non-monetary terms. As we choose sides and determine the duration, scale, and mode of protest, it is pertinent to note that beyond a point, we harm the country we are protesting for. We harm the economic growth we demand in the protests and we damage our democracy when protests go rogue. In some cases, the cost of damage weighs more than the benefit the reform would have reaped. However, this might be justified from a democratic standpoint, it adversely hollows the impact of economic welfare schemes and efforts that are taken to uplift the citizens.



References:

https://www.reuters.com/article/us-france-protests-idUSKCN1TS1RX

https://www.thenews.com.pk/print/732280-cost-of-protest

https://econreview.berkeley.edu/the-power-of-protests/

https://www.nationalheraldindia.com/national/farmers-protests-may-impact-economic-recovery-cii


Further Readings:

https://www.econstor.eu/bitstream/10419/162748/1/88509767X.pdf

https://www.ide.go.jp/library/English/Publish/Download/Dp/pdf/523.pdf

https://youtu.be/0yEHqvhFOqc


Edited by: Ayush Bakshi



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