Political stability

Why political stability? It is sometimes said that political stability leads to prosperity. The argument goes that instability is an investor’s nightmare, so the market hates instability.  But this is not true. For the contemporary capitalistic system, instability is interesting. It makes it possible to create new markets and earn quick money. Milton Friedman’s research shows that chaos and political changes actually make it easier for investors to do good business, see i.e. the sell-out of Russia, described in Naomi Klein’s book The Shock Doctrine.

The animation above shows the factors that lead to economic growth.  The system of economics is much more dynamic than the system of politics. Economic growth implies political stability. If people are better off, they don´t need to change politics, so they give the politicians renewed confidence.

This incentive has been a reason for political leaders to control and try to stimulate economic growth. But the reverse implication is not true. Political stability does not imply higher economic growth. Economic growth comes from innovation, and political stability counteracts innovation. Innovation comes from chaos.

Democracy is the chaotic, dynamic factor in the political system – impossible to control. The excitement a national referendum creates depends on the dynamics of democracy. Political stability is the opposite of democracy.

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