Thursday, February 17, 2011

The political J-curve

What happens when countries move from closed to open societies? Ian Bremmer argues that you get a “powerful political phenomenon” called the J-curve.

The theory goes like this. If you plot the relationship between a country’s stability (on the vertical axis) and its social and political openness (on the horizontal axis) the points that mark every possible combination of openness and stability will produce a pattern that resembles the letter J. Most countries start off closed and stable (think: North Korea). Many end up open and stable (like Britain). But in between there is a turbulent transition. Some governments, such as post-apartheid South Africa, survive this transition. Others – the Soviet Union, Iran under the shah and the former Yugoslavia – do not.

The J-curve is a controversial idea. When I first floated it in 2006, it was used – in some ways hijacked – by those seeking to explain the unstable postwar environment in Iraq. But an intervention bringing democracy by force was always a poor example of the theory. The current upheavals in the Middle East, the result of internal dynamics of populations trapped between economic hardship and increasing political openness, make a much better test.

There is a J-curve in economics as well. It refers to a situation when after a currency is devalued, the short-term relatively inelastic demand for imports persists and consumers pay more for the same goods and services. Meanwhile, exports become expensive for a short time, leading to worsening balance of trade. After some adjustments, the volume of exports will start to rise because of their lower more competitive prices to foreign buyers, and domestic consumers will buy fewer of the costlier imports. Eventually, the trade balance should improve on what it was before the devaluation. If there is a currency revaluation or appreciation there may be an inverted J-curve.