FIVE QUADRANTS

A Methodology to Classify Risk

by David G. Munro and Claudia Zeisberger

To progress, mankind must take risk. By reaching just beyond our capacity, we build new businesses, solve seemingly insurmountable problems, and come up with astounding inventions.

“Only those who will risk going too far can possibly find out how far one can go.” T.S. Eliot

But we often do an abysmal job of weighing the cost vs. the benefit of a risk. Large or indeterminate risks are frequently assumed for negligible gains if the risk is perceived as “unlikely”. Tiny risks with the potential to yield significant gains are sometimes avoided just because the risks are so visible.

“I don’t think much about risk. I just do what I want to do. If you gotta go, you gotta go.” Lillian Carter

Demographics: The Ratio of Revolution

Youth Protests in Japan (1968), the United States (1975), China (1989)
and Egypt (2011) took place when both Youth Growth Rates and the Ratio of
Revolution were high. Who’s next?

by David G. Munro and Claudia Zeisberger

Introduction

The demographic metrics and inflationary circumstances that framed the January 2011 revolution in Egypt’s Tahrir Square were almost identical to those prevailing in Japan during the violent 1968 student‐led revolts, in the United States when millions demonstrated against the
Vietnam War in the late 1960s to early 1970s, and in China when hundreds of thousands converged
on Tiananmen Square in 1989.

Disenchantment among growing numbers of unemployed youth develops into anti‐government revolutionary potential when rapidly rising inflation enters the picture. This paper identifies time periods when two demographic metrics suggest a nation is ripe for revolution:

1) The population of 15‐29 year‐olds (“Youth”) grows at close to 50% over a 15 year period.

2) The ratio of “Youth” to 30‐44 year‐olds (“Job‐Makers”) exceeds 1.3.

Revolutions have a propensity to erupt when a nation is both ripe for revolution and beset by high inflation. A catalyst is necessary to bring the simmering revolutionary potential to the boil.

Based on the findings of this study, China’s Jasmine Revolution will evolve into little more than an aromatherapy session, Saudi Arabia is a serious revolutionary risk if inflation jumps higher,
Afghanistan has revolutionary demographic metrics from 1996 through to 2029, and the Philippines
is the only Far Eastern country that is ripe for revolution.

Egypt: Revolution is in the Air

Chanting masses of angry and defiant youth paint the picture of revolution – fists pump the air while burning effigies of their oppressors hang from trees and lampposts. Unify the crowd by waving that magic on‐line social networking wand and the message becomes more defined and singular in purpose. “Down with Mubarak/Qaddafi/Ben Ali/xyz,” the masses cry as the leaders they hold responsible for their plight become the targets of their resentment.

Political analysts, the media and the rioters themselves say that the crowds of frustrated youth want freedom of speech and assembly, a voice in their destiny, the eradication of corruption and atrue democracy.

Others claim that 30 to 40 years is the time limit for despotic rule in a resource‐ rich nation.

Yet another assessment, which gets closer to the real reason but skirts it, sees revolutions as a product of economic hardship. If you can feed, clothe and shelter your family, a radical change in lifestyle is not sought. Reverse those prospects – no job, no family, no future – and a revolution sounds like a reasonable path to follow. You have little to lose.

But why wait three to four decades? Why have the demonstrations in Northern Africa and the Middle East erupted now and not ten, twenty or thirty years ago? Egypt’s GDP per capita (inflation‐ adjusted in USD) has crept up imperceptibly from $500 thirty years ago to $2300 now. That’s an increase in personal production of just $60 per year. Egypt is not a booming and productive nation that has recently come upon hard times; it has always been deprived of growth. As a curious backpacker in 1980, I was amused by the lavatories on the third‐class Cairo to Luxor “express” –the space between train cars. Egyptians cannot claim that their fate has suddenly taken a turn for the worse.

Ripe for Revolution

Lack of GDP growth is not the reason for revolution. Nor is a desire for freedom and democracy, as noble as those aspirations may be. The underlying cause of revolution is a large and rapidly growing unemployed Youth population that constitutes a crowd (acting as one) in the face of rising inflation.

An expanding Youth demographic that follows a generation much smaller in size invariably leads to unemployment. Unemployment cannot be predicted with any degree of consistency or accuracy, but the demographic conditions that lead to unemployment are evident at least 15 years in advance.

A simple formula comprising readily available demographic and economic measures can forecast if a country is ripe for revolution. Protest before the revolutionary sweet spot and you will lack sufficient numbers to bring about a successful revolt. The incumbent government will turn on the water cannons, shoot a few people, toss the more vocal in jail, and life will continue as before. Make a call to arms after the window of revolution has passed, and your target revolutionary cohorts will have found jobs and started families. Instead of chanting in the streets, they will be changing diapers and suffering from sleep deprivation.

Revolutionary Ingredients

Job‐Makers (30 – 44 year olds)

Job‐Makers have been working for an average of 15 years. They tend to be married, have small families and their savings rise, on average, every year. They typically refrain from upsetting their idyllic sweet spot in life by igniting revolutions. The businesses they started and the jobs they gave rise to will be eventually be filled by the Youth generation. Egypt has 15.8 million Job‐Makers.

Youth (15 – 29 year olds)

Our revolutionary core have just completed their education – or are about to do so – and are looking for a decent job that will allow them to dress well, buy a car, find a mate, buy a house, get married and start a family. The likelihood of these Youth finding a job depends to a very large extent on the size of the generation that preceded them (the Job Makers). Egypt has 23 million Youth.

ΔYouth ( 15‐year rate of change in Youth population)

A large but stable Youth population will eventually find employment. Jobs will be created to match the demand for them by Youth who want to work. Wages may fall in this equation, but the Youth will be employed.

A rapidly increasing Youth demographic is dangerous for it invariably grows much faster than new jobs can be created. The 23 million Youth in 2011 exceeded the 1996 total by 7.2 million, resulting in a 46% increase in the Youth demographic over 15 years.

Even if Mubarak were a modern, growth‐oriented leader who embraced economic stimulation via lower taxes, easier monetary policy, infrastructure spending, currency devaluation and subsidized trade, he would have been unable to significantly repel the tide of unemployment.

Japan’s solution, followed by many other Asian countries, was over‐employment; hire three workers to do the job of one and pay them peanuts. Unemployment rates fall, but the three workers are miserable and just as prone to revolutionary tendencies as the unemployed.

ΔYouth ( 15‐year rate of change in Youth population)