Admir Čavalić, MA

Faculty of Economics. University of Tuzla, BiH

E-mail: [email protected]

SOCIAL CONSEQUENCES OF ECONOMIC CRISIS

DRUŠTVENE POSLJEDICE EKONOMSKE KRIZE

Abstract

Crises are the characteristics of modern economies and can occur in the form of the global economic crisis
or the economic crisis of individual countries and regions. The most common manifestation of the economic
crisis implies a fall in economic activity and consequently the lack of economic growth. This inevitably leads
to broader social consequences that could jeopardize long-term economic prospects of a country. The lack
of economic growth in a given period, in particular in undeveloped and developing countries, can
undermine social values and stability of social institutions. The social consequences of the economic crisis
are usually related to unemployment, poverty, inequality, political crisis, changing of cultural patterns,
conflicts, wars and the rise of extremist movements. All this creates conditions for long-term bewitched
circle which again leads to new economic and wider social crisis. The paper gives an overview of the
phenomenons of the economic crisis and economic growth, with a research of their causes. Consequently,
the paper discusses what is and what causes the economic crisis and what is needed for achieving economic
growth. Paper also explores the relationship between the economic crisis and certain social problems, with
the claim that there is a clear correlation between the given. At the end of the paper are conclusions, and
concrete recommendations developed based on the previously shown research.

Keywords: economic crisis, economic growth, social consequences of the crisis

JEL: A1, E6

Sažetak

Krize predstavljaju obilježja savremenih ekonomija i mogu se pojaviti u formi globalne ekonomske krize ili
ekonomske krize pojedinih država i regiona. Najčešća manifestacija ekonomskih kriza podrazumijeva pad u
ekonomskoj aktivnosti i shodno tome izostanak ekonomskog rasta. Ovo neizbježno vodi ka širim društvenim
posljedicama koje mogu da dugoročno ugroze ekonomsku perspektivu jedne države. Izostanak ekonomskog
rasta u određenom periodu, naročito u nerazvijenim državama i državama u razvoju, može da naruši
društvene vrijednosti i stabilnost društvenih institucija. Društvene posljedice ekonomskih kriza se najčešće
odnose na nezaposlenost, siromaštvo, nejednakost, političke krize, promjenu kulturnih obrazaca, konflikte,
ratove i razvoj ekstremističkih pokreta. Sve navedeno dugoročno stvara pretpostavke za začari krug koji
iznova vodi ka novim ekonomskim i širim društvenim krizama. U radu se daje prikaz fenomena ekonomske
krize i ekonomskog rasta, uz istraživanje uzroka navedenog. Shodno tome, rad razmatra šta podrazumijeva i
zašto nastaje ekonomska kriza i šta je potrebno za ostvarivanje ekonomskog rasta. U okviru rada istražuje se
povezanost između ekonomske krize i određenih društvenih problema, uz tvrdnju da postoji jasna korelacija
između datih pojava. Na kraju rada se pored zaključaka, nude i konkretne preporuke razvijene na bazi
istraživanja u radu.

Ključne riječi: ekonomska kriza, ekonomski rast, društvene posljedice krize

JEL: A1, E6
1. Introduction

In modern economies, the emergence of the crisis is a frequent event that leaves significant effects
on society, usuallyyears after the real crisis is over. The financial crisis in the US, the Eurozone
crisis, global economic crisis, and individual crisis of some countries, necessarily have a large
impacts on society, which are primarily reflected in the higher level of political and economic
uncertainty, social unrest, rise of extremist movements, but also deep social problems such as
poverty, inequality and others. It is therefore necessary to understandthese impacts on society and to
explain social context of the crisis. Consequently, at the beginning, paper presents term of the
economic crisis which is primarily related to the decline in economic activity of the country. The
concept of economic growth is presented too, as a condition opposite to crisis, that also minimizes
the social impacts of the crisis. Paper listed and explained in detail the social consequences of
economic crises, which may relate tounemployment, poverty, inequality, political crisis, change of
cultural patterns,conflicts, wars and the rise of extremist movements. Each consequence is
explained, on the basis of which is adopted the appropriate conclusion of a paper.

2. Economic crisis

The concept of crisis is most commonly used to highlight interruptionfrom the perceived state of
balance or development. It is an abnormal departure from equilibrium. Accordingly, the economic
crisis is related to decrease in rates of economic growth and the emergence of certain structural
problems within the economy of a country. It is a typically unforeseen event that leaves strong
effects on the community. The economic crisis is a situation in which the country has a sudden drop
in economic activity, often marked by decline in GDP, the liquidity crisis, inflation (rise in prices),
rising unemployment and the like. The crisis may also refer to the periods of absence of economic
growth, which is especially noticeablein less developed countries or countries in transition. The
absence of the annual growth of the economy has a significant impact on the extremely delicate
economic and social situation in these countries.

States of recession or depression of economy are commonly referred to as periods of economic

crisis. There are different perceptions of the economic crisis, according to the school of economics
which some interpreters belong. So Austrian economists like Joseph Schumpeter and Ludwig von
Mises, explain the economic crisisthrough the business cycles, a series of ups and downs that
determine the level of economic activity. The crisis is therefore always caused by the monetary
sphere, and the modern monetary system is considered to be the root of the problem (Butler 2013, p.
75). So thecrisis happens during the business cycles in the economy that are primarily caused by
monetary intervention.

Milton Friedman perceived crisis as a normal market adjustment of money and goods, while the
Keynesians see it as a deviation from the full-employment level (Sharma 2010, p. 8). For John
Maynard Keynes, the economic crisis is caused by a fall in aggregate demand. Consequently, the
solution is to increase aggregate demand through government spending (Boudreaux 2014, p. 47).

Because of the different perception of the crisis, there are also different views on solutions for the
purpose of stopping the economic crisis. So there are dominant interventionist calls that involve the
intervention of the regulator ie. the government, as well as other, non-interventionistviewsthat
assume that the market will during the period of time solve newly created crisis. Between the two
camps there are many different solutions, inherent to the nature and location of the crisis outbreak.
The history of economic thought concerning response to emergencies is largely interventionist,
except for a short period from the 1980s to 2005., which is often called “the Age of Milton
Friedman” (Koppl 2014, p. 2) because of the dominance of Friedman schools of thought. In the
recent past, the stimulus plan by US President, Barack Obama, is a continuation of interventionist
economic policies in relation to the crisis.

History of the economic crisis is very interesting, since the banking crisis of the 14th century in
Italy, over the crisis of tulips in the Netherlands in the 17 th century, the Great Depression in the
period from 1929th to 1939th up to the financial crisis of 2008. From the 1970th to 2008th world
was hit by 124 banking crises, 208 exchange crisis, 63 debt crisis, 42 double and 10 triple crisis.
Charles Kindleberger writes that from the 1725. to date, financial crisis in western capitalist
economies happenon average of every eight years (Jurčić 2010, p. 318). Major crises in the last 300
years are depressions in the 1820s, 1870s, 1880s, 1920s, 1970s, 1990s, and then in 2008 (Sharma,
Koncul 2013, p. 434). On the basis of written, it is clear that the crisis are the determinants of a
modern economy and that their appearance is usually.

That is why today, some economists believe that there should be no greater concerns since the crisis
is short-lived phenomenon and is usual fora market economy. On the other hand, many are
disturbed by the emergence of crisis and seek rapid macroeconomic reactions. Sharma states that
the only certainty is that every economic crisis leads to new business solutions and establishing of
new paradigms (Sharma 2010, p. 8).

3. Economic growth

Economic growth represents improvement of the state of a particular economy and the consequent
growth of living standard and material wealth of a society. Economic growth may be related to the
increase of production, production capacity, or other elements of the economy of a country. As such
it is a central political goal (Samuelson & Nordhaus 2007, p. 555).

History of economic growth shows that the global population mainly lived in poverty and had a
linear growth rate. Only from 1800. is coming to the incredible changes that implied exponential
growth and changing patterns of material consumption (Clark 2007, p. 2). In the period before
1800., a significant part of humanity was living in poverty without access to basic living needs
(water, food, etc.). Some authors romanticize this period by creating myths of the golden era of
simplicity (Rosenberg & Birdzell 1986, p. 3). Today world populationlives better and people are
healthier, wealthier, and live longer. Angus Deaton, winner of 2015 Nobel memorial prize in
economic sciences, wrote a book about this, trying to prove that the world is a better place than it
used to be.

There are two basic ways to achieve economic growth. First one is called "growth by brute force"
and the second is “smart growth”. The first assumes that the economic growth can be achieved by
simply adding new inputs - labor and capital which will lead to higher output. The second, "smart
growth" implies that technological solutions are the foundation of growth and development of the
economy (Baumol, Litan & Schramm 2007, p. 38). Regardless of the way to achieve growth, it is
possible to make use of the four basic factors or wheels of economic growth (Samuelson &
Nordhaus 2007, p. 558):
 human resources (labor supply, education, discipline, motivation),
 natural resources (land, minerals, fuels, environmental quality),
 accumulation of capital (machines, factories, roads),
 technology (science, engineering, management, entrepreneurship).

A combination of the above factors can achieve economic growth. In doing so, movers of economic
growth are entrepreneurs through creation of new combinations of existing factors of production
that generates entrepreneurial profits (Schumpeter 2012, p. 133).This sometimes leads to short-term
sectoral crises because it involves a change in the existing combination of certain factors. For
example, change in human capital leads to layoffs in the old unprofitable and job creations in new
profitable industry. While this causes short-term attention and public pressure, Boudreaux argues
that prevention of the change will threaten the economic growth (Boudreaux 2014, p. 44).
Capitalism should be seen as an evolutionary process (Schumpeter 2008, p. 82), which implies that
in the long-term it creates benefits for the whole society.Of course, in the long run we are all dead
(Keynes 1924, p. 80), but this does not change the crucial importance of economic growth.

By explaining economic growth and development of the western countries, Rosenbergand and
Birdzell concluded that the key assumptions of economic growth are: the autonomy of the
individual/company, the ability to experiment and diversity of legal solutions (Rosenberg &
Birdzell 1986, p. 33). This means that companies have a certain autonomy in relation to political
decision-makers, and that they can perform experiment activities through process of trial and error.
It is essential too that there are legal forms that accompany modern market trends and allow
business operations for as many individuals. The same authors argued that the development of the
West can not be attributed to natural resources, historical trends, inequality, colonialism,
imperialism and slavery, because the effects of the above are not immediately obvious as howthey
appear at first. Economic growth in contrast to the economic crisis has positive social effects. They
include increasing the rate of material well-being of individuals, higher levels of employment and
the general quality of life. Economic growth also facilitates the transition process, performs a
change in cultural patterns, but also strengthens the support network for vulnerable groups. What
can also be seen as a result of economic growth is political stability. On the other hand, the
economic crisis carries a large number of negative effects on society, which will be discussed in the
next section of the paper.

4. Social consequences of economic crisis

The economic crisis in addition to the direct economic effects which include reductionin
consumption, decline in living standard and general well-being of a society, increase of
unemployment and/or inflation, has a wider social effects that can be felt for several years after the
crisis. Among different authors there is no consensus regarding thelist of social consequences of the
economic crisis. Still it is possible to single out some of them. One World Bank report cited several
direct economic and social effects of the economic crisis (World Bank 1999, p. 1):
 Reduced demand for labor, and thus lower employment. Also, reduced wages and lower
labor incomes in the informal sector. Women are often most affected by these changes.
 Changes in relative prices, which tends to affect poor people disproportionately.
 Fiscal cutbacks, which leads to reduced public services or transfers, or higher taxes.
 Changes in asset prices-from shares traded in the stock market to cattle or other goods used
as savings by the poor.
 Changes in the community environment, in terms of both public health or public safety,
bringing increased risks of disease, violence, and insecurity.

From the above it is clear that the economic crisis directly affects the poor, and other vulnerable
groups such as women. In addition to that crisis increases total social risks. It is likely to have many
dimensions—falling incomes, rising absolute poverty and malnutrition, declining public services,
threats to educational and health status, increased pressure on women, and increased crime and
violence (Manuelyan Atinc & Walton 1998, p. 14). Some authors state the following consequences
of economic crisis (Knowles, Pernia & Racelis 1999, p. 1):
 rising of prices, unemployment and decreasing of income,
 an increase in poverty and inequality,
 violation of human development,
  reduction of social capital,
 threat to the environment,
 vulnerability of certain categories of the population.

In accordance with the previously listed social consequences, paper will analyze the following
consequences of the economic crisis, grouped in three areas:
 unemployment, poverty and inequality,
 political crisis and change of cultural patterns,
 conflicts, wars and the rise of extremist movements.

4.1. Unemployment, poverty and inequality

One of the most visible effects of the economic crisis is the phenomenon of unemployment. It is the
failure to use the existing workforce in the labor market, which implies that the economy does not
reach the border of its manufacturing capabilities and does not use human capital as the main
determinant of the competitiveness of modern economies. Macroeconomists mainly watch
unemployment in the context of the decline in real production. As a consequence, employees are
laid off and unemployment grows. Therefore, changes in unemployment rates closely track the
changes in production (Krueger 2009, p. 17).

Problem of unemployment is particularly present in Bosnia and Herzegovina, where by the

currently available dataunemployment rate by ILO definition (LFS) is about 31,7% (data for 2014).
Youth unemployment rate is as high as 57.9% according to the Regular Economic Report for South
East Europe SEE6, which is particularly problematic given that the young usually tend to join
extremist movements that are drivers of social unrest, which will be analyzed later in paper.
Unemployment is economic, but above all the wider social problem of a particular country. Due to
the negative impact of the economic crisis, unemployment in the European Union initially hit men
because it affected parts of the industry where they were mainly male workers (eg. construction), as
well as young workers and workers with little education. In high-income countries, generally
speaking, in the past male unemployment was generally lower than female unemployment. But
since the global economic crisis hit, initially male unemployment rate increased faster than female
unemployment in the developed economies, showing the convergence between the two groups
(Otobe 2011, p. 10).Women and girls may be disproportionately hurt by the economic crisis too.
That is mostly true fro developing countries where women are the first to lose their jobs, and
families tend to pull their daughters out of school. The particularly poor ones when they are pressed
by the crisis, may sell their daughters to brothelsor individuals generally connected to human-
trafficking industry. Economic decline, the corporate crisis, and a credit squeeze are causing lay-
offs, real wage declines, weak demand for new labor market entrants, and falling margins in the
informal sector (Manuelyan & Walton 1998, p. 14).

Poverty is also one of the obvious consequences of the lack of economic growth. It usually affects
the less developed countries or countries in transition. There are also cases of increase in relative
poverty in developed countries. Relative poverty is determined in relation to the overall standard
that prevails in a given society (Giddens 2005, p. 317). However, poverty can be considered as the
pre-crisis problem, but still it is a vulnerable area that is, further prolonged by the crisis (Manuelyan
& Walton 1998, p. 7). Thus, the recent worldwide economic crisis was preceded by an increase in
food and energy prices in 2007. and the first half of 2008., that in many countries worsened the
public finances and the current account balance of payments and pushed more than 100 million
people in developing countries into poverty (Jurčić 2010, p. 317).

In the context of economic crisis, there is an interesting phenomenon called "the new poor". It
describes those who are different from the "old poor" in that they are mostly educated, younger,
working age and from urban, previously developed regions in which unemployment rose the most.
“New poor” have a good chance to escape poverty as soon as the chance of findingjobs improves.
So they are in a “pass-through” mode (Družić Ljubotina 2013, p. 192) which dependents on the
duration of the economic crisis.The British economist Guy Standing has dealt with this
phenomenon with a solution in a form of “basic income”. The core of the proposal is that every
legal resident of a country or community, children as well as adults, should be provided with a
modest monthly payment (Standing 2011, p.171).

One of the significant consequence of the economic crisis is the growing inequality that can be
viewed as the inequality between different countries of the world, but also the inequality of classes
in a given society. Some authors believe that the uneven distribution of national income creates
inequality in society, causing financial and economic crisis in industrial society (Jurčić 2010, p.
321). Inequality can be considered a subjective problem because absoluteeconomic well-being does
not necessarily lead to happiness. Thus, in Japan for example from 1958. to 2004. revenues per
person increased by seven times, while personal happiness fell. Happiness does not depend on the
individual absolute well-being, but above all of that, what is his situation in relation to the reference
group (Clark 2007, p. 14).

4.2. The political crisis and change of cultural patterns

Young democracies are extremely sensitive to the economic crisis or the lack of economic growth.
Economic growth often has a significant role in the development from dictatorship to democracy,
but also the other way around, from democracy to dictatorship (Friedman 2005, p. 10). Political
freedom is linked to economic well-being (Palmer 2014, p. 103) and comes with a free market and
the development of capitalist institutions (Friedman 1997, p. 30). This link is particularly vulnerable
in times of crisis when there is public uncertainty. Then, public is wishing for specific, short-term
solutions in order to reduce the effects of the crisis. These solutions can jeopardise political stability
in the country. Because of this political crisis is the faithful companion of economic crisis.

The transition process, especially in Eastern Europe is promisedby economic well-being of society,
and the absence of that shakes the foundation of that promise and opens the way for a dictatorship.
Such situations could be seen on the example of Hungary, which in the midst of the economic
crisis, chose the dictatorship oriented Viktor Orban, who right after coming to power, made the
nationalization of the private pension fund in the amount of 13 billion dollars (Simon 2011). There
is also the example of Greece, where the extreme left-wing Syriza came to power due to the effects
of the economic crisis. The political stability of Russia also depends on the economic situation in
that country. This is really important in 2015, due to the recent economic sanctions against Russia.
China too is a good example, so Friedman writes that as long as China continues with economic
growth, China's citizens will enjoy a greater degree of political democracy and personal freedom
provjeriti kod Friedmana kako je napisao (Friedman 2005, p. 11). This is actually happening, so
from 1978. and Deng Xiaoping reforms, China had a significant increase in the growth of living
standards of ordinary citizens, but also the level of political freedom in that country. One can still
argue that this is not enough, but progress has been made.

Economic crisis may also lead to political populism and extremism. Thus, the Greek politician
George Papandreou won the 2009. elections with a simple slogan – “There is money!”. His election
rivals, the Conservatives, have previously reduced the salaries of civil servants and other public
expenditure (Karsten & Beckmann 2013, p. 71). The problem is that populism leads to a vicious
circle that extends the duration of the crisis. What is problematic when it comes to extremism is that
dictators are not ready to give up social control in favor of economic prosperity. Most of the world
society did not allow this, in the past and present. That's why they're still in the poverty trap
(Rosenberg & Birdzell 1986, p. 34).
Some authors have linked a high level of economic growth and prosperity with certain cultural
values like hard work, patience, discipline, fulfillment of obligations and the like, which is a feature
of the economic development of Western countries (Friedman 2005, p. 17). These values were in
the service of increasing economic productivity of society, which maintained economic growth. The
power of culture in determining economic growth is perhaps best seen by Max Weber, and him
describing the “protestant ethic“ that has influenced on the development of market economy and
capitalism in general. Authors like Pyrkosz state that the last economic crisis is crisis of ethical
values (Pyrkosz 2012, p. 146), and that as such they have to be reinvented.

Economic crisis may lead to change of cultural values where the result is a crisis of morality and the
development of negative cultural patterns. Some countries are because of crisis surfacing negative
cultural values and phenomena such as xenophobia, racism and the like. The recent crisis shows
that the philosophy of hatred feeds itself on the social effects of the economic crisis. In addition, the
economic crisis can determinesome cultural characteristics and behaviors. So the Czechs for
example, because of the recent economic crisis, decided to reduce the consumption of alcoholic
beverages, including beer (Klix 2013) which is one of the important segments of the culture of this
nation.

4.3. Conflicts, wars and the rise of extremist movements

In rare cases, the economic crisis may lead to increased risk of the conflict in a certain areas or even
in some cases open war. It mostlyleads to the appearance of conflict situations, that are states of
latent danger of the conflict (Kurtić 2005, p. 527). The economic crisis can cause the reduction of
trust and cooperation among the different countries of the world, which creates political tension as
can be seen in the example of Germany and Greece in the midst of the Greek government-debt
crisis.

Economic growth reduces the possibility of a conflict between countries. This is beautifully
expressed in the maxim “when goods do not cross borders, soldiers will2, which is attributed to the
French lawyer Frédéric Bastiat. Economic growth means growth in living standards for the majority
of citizens and mainly involves more opportunity, tolerance of diversity, social mobility,
commitment to fairness and democracy (Friedman 2005, p. 4). Peace is thereby the first
precondition for economic development (Palmer 2014, p. 37). The war on the other side may be due
to economic reasons, primarily the economic crisis which tends to increase conflict situations
between countries. Thus, at the height of the global economic crisis in 2011., some authors saw the
possibility of the outbreak of World War III, because of the previous experience of the Great
Depression and then World War II (Kreitner 2011). Conflicts or in some cases wars could also
escalate due to simplicity of government solutions regarding the economic crisis. This is the result
of political populism. Simple, but at the same time popular answers to the twelvecentury economic
depressions made by national socialism, fascism or communism, have resulted in the spread of the
crisis from the economic to the political field, and finally resulted in a political conflicts in the form
of various wars (from world to cold war) and the mass persecution of the civilian population (from
Holocaust to the “Gulag Archipelago”) (Cvetićanin 2010, p. 32).

Important feature of the economic crisis is the rise of extremist movements which later may become
factor of conflict and wars. Even in democracies, citizens in times of crisis and general uncertainty
have shown preferences for extremist movements on both sides of the political spectrum (extreme
left and extreme right). Those are mainly movements that are associated with communismon one
side and fascism on the other.It is necessary to state that there is no fundamental difference in the
economic policies of these movements, which was argued extensively by Friedrich von Hayek, who
concluded that “fascism is the stage reached after communism has been proved as an illusion“
(Hayek 2006, p. 29). While communism is a relic of the past, romantic socialism, combining Marx
and Rousseau, still attracts a large number of people. Fundamentalist movements like this, celebrate
the purity of pre-industrial society (Friedman 2005, p. 13). What marks these movements is a kind
of moral height from which they view economic growth which has improved the living standards of
billions of people worldwide.

Similar to historical examples when crisis in the 1930s favored the ascent of Nazism and Fascism,
the recent crisis has strengthened the national radical parties on the left and the right, which is best
seen in Greece (nearly 7% votes in electionsreceived by the neo-Nazi Golden Dawn). Far right is
getting stronger in France and the Netherlands too, which hinders the formation of a stable
government that could carry out serious reforms, and also strengthens xenophobia. However, giving
the fact that in some countries extremist political parties gained parliamentary representation and
partial social reputation, it will be difficult for them to have a decisive impact on international
relations and developments. Still they should not be ignored (Benić 2012, p. 852). There are four
important reasons for the rise of extremist movements in relation to the economic crisis. These are
(Giddens 2005, p. 336):
 Changes in the labor market, taxation and policy of minimum wages,
 Increasing social exclusion in local communities,
 Economic poverty and fragmentation of communities,
 Termination of financing of certain government programs.

The economic crisis is radically changing labor market causing an increase in unemployment and
creating a potential candidates for the extremist movements. In addition there is an increasing social
exclusion on local level, followed by poverty and fragmentation of communities. In times of crisis
there is a crisis of the government budget due to the weakening of revenue side. Therefore, the
approach to reform budget expenditures includes the elimination of certain government programs,
which might trigger deviant behaviors. Finally, it is important to note that the economic crisis has
had an impact on the increase in the crime rates. Thus, data from Thailand on crime between 1998.
and 1999. indicate that there has been a large number of criminal activities during the financial
crisis (Knowles, Pernia & Racelis 1999, p. 37).

5. Conclusion

Economic crises have a significant impact on contemporary society and its citizens. This impact is
primarily expressed by economic slowdown in economic activity, a decline in living standards and
material wealth of society, increase in unemployment rate or the emergence of inflation, as well as
other structural problems. However, in addition to the economic consequences of the economic
crisis, there another much more serious effects that include broader social consequences like the
emergence of poverty and inequality, then the political crisis and changes in the cultural patterns of
a society, and at the end of conflicts, wars and the rise of extremist movements.

The emergence of the crisis has become frequent due to the impact of globalization and
development of information technology, which means that the crisis can spread quickly and in real
time. The economic crisis can be seen as part of the business cycle, market adjustments or the fall in
aggregate demand. The absence of economic crisis implies greater opportunities for achieving
economic growth. As we could see in the paper, the economic growth is characteristic of
moderneconomiesand because of that the world becomes richer and humanity develops. That is why
todayrelatively less people are living in poverty. For a country it is better to use smart growth with a
long-term perspective and better protection against sudden crises. Growth based on the factors of
productions is extremely vulnerable to the impacts of the world economic crisis. To achieve the
required level of economic growth, the country needs to create market conditions which will enable
unhindered process of creative destruction, with a greater level of freedom for entrepreneurs who
are creating the growth.

When it comes to the social consequences of the economic crisis, the biggest problem is
unemployment. Namely, due to rising unemployment, there is a spread of other consequences of the
economic crisis. That is why unemployment should be the focus of economic policy. This can be
achieved through an increase in public works, public investment, as well as support programs for
finding a job. In doing so, it is necessary to focus on those directly affected by the crisis. Economic
crisis leads to inequality, which means that the various population groups are differently affected by
the crisis. The government should first try to solve the problem of the poor, as well as the class of
“new poor”, which implies a part of the population that canbe quickly returned to the labor market.

The consequences of the economic crisis are most pronounced in emerging democracies, countries
in transition, as well as closed or partially closed societies. This happens because there are no clear
institutional support that will reduce the effects of the economic crisis. Therefore, for these
countries it is important to development institutions to support the wider population. This support
may include more investment in programs to help the poor, minority groups, the unemployed and
the like.

The economic crisis is also affecting the degree of conflicts in the world, and economic growth is a
guarantee for the preservation of peace in some parts of the world. Therefore, the global policy
should go towards ensuring balanced economic development, as well as material support to certain
countries. This can be done by promoting market economy, as well as increasing global linkamong
different countries, especially when it comes to global trade.

It should be noted that the economic crisis may affect social values, which is why it is necessary
that the government and other social institutions work to promote positive social values. This is
especially true for those values that increase the productivity of labor, which can lead to long-term
reduction in the duration of the crisis.

The social consequences of the economic crisis can open a vicious circle that will create conditions
for the emergence of a new crisis. Before modern societies lies the challenge of Ensuring economic
growth. This will contribute to the spread of positive social values aimed at long-term peace,
political and economic stability. At this point, the only guarantee of economic growth is the market
economy based on the protection of private property and the rule of law, with minimum state
intervention. Countries with this model had the least social problems caused by the global economic
crisis. Therefore, it is essential for countries in transition such as Bosnia and Herzegovina and other
Western Balkan countries to focus on the establishment of sustainable market relations and fair
competition, which should be a precondition for economic growth which will Ensure peace and
prosperity in the region.

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