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Updated: Apr 25, 2020

A visit to Hong Kong (HK) this week provided for an interesting experience. The media suggested that the city was ablaze – as it would – yet the situation appeared to be of relative calm, not significantly different than on previous trips, as if nothing was happening or had ever happened.

As a matter of fact, HK did experience some extraordinary violence. My reading of the daily South China Morning Post suggested that it suffered a true shock. The events were deeply unusual to the population, politicians, protesters, police and local media. Due to the lack of precedent, all these constituencies have been struggling to manage the situation. The future of HK’s privileged position in trade and finance in Asia and beyond is now subject to a great deal of uncertainty: There is no consensus scenario about what happens next – far from it.

In a letter discussing revolutionary trends in China in 1930, Mao Zedong, former Chairman of the People's Republic of China, famously refers to an old Chinese adage: ‘A single spark can start a prairie fire’. The theme is picked up in a brilliant paper entitled ‘A theory of unanticipated political revolution (1989). In it, the author analyzes the French Revolution of 1789, the Russian Revolution of 1917 and the Iranian Revolution of 1979 and outlines the mechanism through which a single, often innocent event can spark a revolutionary movement. The central argument bears the stamp of common sense: ‘A privately hated regime may enjoy widespread public support because of people’s reluctance in taking the lead in publicizing their opposition. The regime may […] seem unshakeable even if its support would crumble at the most minor shock. A suitable shock may put in motion a bandwagon process that exposes a panoply of social conflicts.’

Most interestingly, the author demonstrates through detailed research that each of the three revolutions featured in his report were totally unexpected until they occurred, at which point pundits declared them as widely anticipated, referring to the accumulation of frustration amongst a broad population. This would apply to HK too: the main culprit seems to be the growing dissent of the lower class population faced with increasing inequality and, most tangibly, an inability to find a roof as artificially high property prices defy gravity.

There is an analogy with superheating. In physics, it represents the phenomenon according to which a liquid is heated to a temperature superior to its boiling point, without boiling. This is due to the existence of an additional force, the surface tension, which, under certain conditions, suppresses the growth of bubbles and makes a liquid look much less warm than it really is. If the surface of that liquid is accidently disturbed, it literally explodes, as demonstrated with microwaved water here. The calm I enjoyed this week in Hong Kong may be deceiving.                                                                                         

The dynamics underpinning the theory of unanticipated political revolution is relevant to the financial markets. Countless shareholders’ rebellions started with a faux-pas triggering a revolt. How to check whether the water is boiling below the surface? A good dose of self-awareness – instilled amongst other things by experienced, trusted and caring financial advisors encouraged to speak their mind – can go a long way.

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