The Resistible Rise of Populism

Populism has historically been a slippery phenomenon, sometimes focused squarely on economic grievances, but often exploiting such grievances to advance a chauvinist political agenda. That is also true today, when populist movements are gaining ground in Europe and the US, even as they and their leaders are being forced from power in Latin America.

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What’s behind the swelling tide of populism-cum-nationalism seen in almost every corner of the globe? Why do so many yearn for rule by strongmen (or, in the case of France’s Marine Le Pen and Peru’s Keiko Fujimori, strong women)? For Project Syndicate commentators, the question is not only what’s driving the phenomenon, but also what can and should be done to confront it.

What’s Popular About Populism?

Some people, says former Chilean finance minister Andrés Velasco, “blame runaway globalization; others blame income inequality; still others blame out-of-touch elites who simply don’t get it.” But the truth seems to be that all three have played a part.

That underscores a basic point made by Harvard’s Joseph S. Nye: The catalyst for populism lies as much in those being led as in the ideas and characters of the populist leaders. “A Russian public anxious about its status; a Chinese people concerned about rampant corruption; a Turkish population divided over ethnicity and religion: All create enabling environments for leaders who feel a psychological need for power.” Similarly, in the United States, “[Donald] Trump magnifies the discontent of a part of the population through clever manipulation of television news programs and social media.” 

Status anxiety is also clearly at the root of Vladimir Putin’s sky-high popularity in Russia, which remains robust despite the country’s myriad economic travails. Indeed, Andrei Kolesnikov of the Carnegie Moscow Center argues that “Putin’s regime [through its annexation of Crimea] was able to create a sense of restored historical justice and revive expectations of a return to ‘great power’ status.”

This politicization of status anxiety explains why the same agenda has emerged in country after country. Nye’s Harvard colleague Theda Skocpol describes it as “a mix of anti-immigrant toughness, economic patriotism, and social benefits for native-born citizens.” Indeed, for Skocpol, what is unique about Trump’s campaign in the US is that he has so completely absorbed the political trope of Europe’s far right. Before Trump, she says, “no major US party…offered such a program,” which amounts to “a promise to ‘make America great again’ by reasserting white male hegemony.”

The desire to defend ethnic hegemony and/or restore national greatness is a response to the perception that globalization threatens both. As Princeton University historian Harold James argues, “instead of rejecting foreign products, opponents of globalization today are rejecting foreign people.” In particular, populist opponents of multilateral and regional trade deals “focus on concerns that arcane tribunals protecting the interests of foreign corporations can undermine national sovereignty.”

As Marcel Fratzscher, President of the think tank DIW Berlin, points out, this frame of mind can lead even an export powerhouse like Germany to act against its own national interests. The Transatlantic Trade and Investment Partnership between the European Union and the US, most economists agree, would boost Germany’s already-buoyant export sector. And yet many Germans “fear that the TTIP is just another trick, intended to take advantage of Germany’s economic strength and generosity. Overcoming this fear will be no easy feat.”

Bad Policies Breed Bad Politics

What is clear, says Ngaire Woods, Dean of Oxford’s Blavatnik School of Government, is that populist movements “share a sense of disenfranchisement – a sense that the ‘establishment’ is failing to give ordinary citizens a ‘fair shake.’” When name-brand banks pay huge fines for blatant criminality, when major multinational companies avoid paying taxes where they operate, and when the world’s wealthy stash their money offshore, it is easy to understand how “declining public trust fuels the revolt against globalization” and its establishment supporters.

That sense of being conned and betrayed reflects not only dissatisfaction with private-sector behavior, but also a widespread perception that governments have been declaring one thing, and then doing precisely the opposite, often to further interests that have little to do with the issue at hand. Ever since the financial crisis of 2008 hit, governments have loudly proclaimed that only the pain of austerity can restore economic health. But, as Bill Emmott argues, “there can be pain without gain – a lesson that Western populations have been learning the hard way since at least 2012.”

Indeed, according to Emmott, “the years of fiscal austerity in the US, Europe, and Japan [have] achieved nothing,” owing to slow economic growth – for which austerity is chiefly responsible. “The more governments cut their deficits,” he argues, “the more growth slows – and the further out of reach debt-reduction targets become.”

And it’s not just government policies that sometimes miss the mark and arouse suspicion. Exhibit A is the International Monetary Fund’s behavior in the never-ending Greek debt saga. According to Daniel Gros, “the IMF’s assessments of debt sustainability in Greece are undermined by a deep conflict of interest.” After all, given the Fund’s status as senior creditor, “if Greece’s creditors accept a haircut, the IMF’s credits would become more secure.” Worse, if Greece’s debt really does become unsustainable, “it will be primarily because of the IMF itself – or, more precisely, the high cost of its loans.”

The European Central Bank’s motivations are similarly hypocritical, claims former Greek finance minister Yanis Varoufakis. The ECB’s “ongoing acquiescence in the extend-and-pretend charade demanded by Greece’s creditors has demolished its claim to be independent.” That acquiescence is obvious: “To keep Greece’s banks open, and accept their government-guaranteed collateral, the ECB is obliged to grant Greek debt an exemption from its no-insolvency rule. And, to keep the noose firmly around Greece’s neck, Germany insists that this exemption is conditional on its approval.” In other words, “it is politicians that tell the ECB when to cut off liquidity to an entire banking system.”

A Warning from the South

Recent experience in Latin America has shown how grim the consequences of populism in power can be. Venezuela, writes Harvard’s Ricardo Hausmann, “should be rich,” but “is suffering the world’s deepest recession, highest inflation, and worst deterioration of social indicators.” First Hugo Chávez, and now his successor, President Nicolás Maduro, have made the country “the poster child of the perils of rejecting economic fundamentals.” As a result, Venezuelans, “who live on top of the world’s largest oil reserves, are literally starving and dying for lack of food and medicine.”

Argentina, which voted out its populist president Cristina Fernández earlier this year, must now grapple with the legacy, including 15 years of exclusion from international capital markets. This financial isolation, says Harvard’s Carmen Reinhart, meant that for “years, Argentina’s government has been financing deficits with the printing press, resulting in high inflation, now above 30%.” President Mauricio Macri’s new government must also “address the pent-up need – owing to the country’s long external-financing hiatus – to upgrade basic infrastructure.”

Macri’s victory, and the Venezuelan opposition’s victory in the National Assembly election last December, signals a strengthening anti-populist reaction in the region. As Allianz’s chief economic adviser, Mohamed A. El-Erian, views it, “rather than “being ‘pulled’ by the attractiveness of what [Latin America’s] political right is advocating, this complex phenomenon is predominantly a reflection of the ‘push’ implied by anemic growth and disappointing provision of public goods, especially social services.”

What the region can’t afford is more disappointment. Its “governments must be seen to deliver to their citizens,” El-Erian warns. “Otherwise, the shift will prove to be only a stop on an uncertain path – politically more complicated and economically harder to navigate – toward an even less stable destination.”

But the risks are high for all emerging economies, says Nobel laureate Michael Spence. “As these economies add items – protecting themselves from volatility, countering unfavorable external conditions, and adapting to powerful technological trends – to their core structural growth agendas, they will invariably make mistakes, and even stumble.” Without bold policy initiatives, particularly higher investment in human capital, populist prescriptions are likely to regain support in Latin America – and perhaps, as elsewhere, in an even more lethal form.

Confront, Don’t Appease

In the advanced economies, populists may not always frame their electoral appeals in terms of economic distress or unfairness, but economic underperformance certainly serves their aims. According to Nouriel Roubini, “if weak productivity growth persists – and with it subpar growth in wages and living standards – the recent populist backlash against free trade, globalization, migration, and market-oriented policies is likely to strengthen.” But “addressing the causes of the productivity slowdown before it jeopardizes social and political stability,” as Roubini advocates, is easier said than done.

That point is driven home by Dani Rodrik. “Ultimately,” he argues, “it is the economy-wide productivity consequences of technological innovation, not innovation per se, that lifts living standards.” And here, techno-optimists must make a stronger case about “how the effects of technology play out in the economy as a whole.” For example, in the US, “the most rapid productivity growth since 2005” has occurred in two sectors (ICT and media industries) that account for “less than 10%” of GDP. “By contrast, government services and health care, which together produce more than a quarter of GDP, have had virtually no productivity growth.”

But more than growth will be needed to stem the populist tide. The demagogues and, more important, their programs need to be tackled head on. For Woods, this means addressing populists’ fundamental claim that only they are willing and able to “protect ordinary people from the harsh realities of globalization.” Globalization will need “to be managed not just to permit the winners to win, but also to ensure that they do not cheat or neglect their responsibilities to their societies.” At the same time, “governments will need to overhaul their own operations, to prove their impartiality. Robust regulation will require significant investment in government capacity and the legal services that support it.”

It is no less important to avoid overselling policy initiatives. Financial transaction taxes are a case in point. “While by no means a crazy idea,” says Harvard’s Kenneth Rogoff, “an FTT is hardly the panacea that its hard-left advocates hold it out to be.” On the contrary, such taxes are “particularly troublesome because they distort intermediate activity, which amplifies their effects.” Instead, reforms should focus on “better regulation of financial markets.” In particular, the authorities should “force financial firms to issue much more equity.” The rationale is straightforward: “The more banks are forced to evaluate risks based on shareholder losses rather than government bailouts, the safer the system will be.”

But, paradoxical though it may sound, adherence to such pragmatic policies must be accompanied by fervent idealism. “Of course economic and political reforms that reduce inequality of income and power are indispensable, both for their own sake and to make appeals to shared sacrifice credible,” says Velasco. “Yet just as indispensable is the moral conviction, passionately expressed, that the ‘immigrant’s daughter who studies in our schools’ is a genuine member, with full rights, of that common us.”

Last but not least, we must accurately describe today’s populists and the threat they pose. “Donald Trump has been compared to a fascist,” says Ian Buruma, “as has Vladimir Putin and a variety of demagogues and right-wing loudmouths in Europe.” This is a mistake, born of careless overuse of a term whose meaning “few still know firsthand.” Although these figures “may be repulsive… they are not organizing uniformed storm troopers, building concentration camps, or calling for the corporate state. Putin comes closest, but even he is not Hitler.”

And yet Buruma hedges:

The true mark of the illiberal demagogue is talk of ‘betrayal.’ The cosmopolitan elites have stabbed ‘us’ in the back; we are facing an abyss; our culture is being undermined by aliens; our nation can become great again once we eliminate the traitors, shut down their voices in the media, and unite the ‘silent majority’ to revive the healthy national organism. Politicians and their boosters who express themselves in this manner may not be fascists; but they certainly talk like them.

Indeed they do. And now, as then, those that do must be stopped, which means addressing the genuine problems that fuel populism and exposing populists’ lies about the causes of these problems. Even Hitler wasn’t Hitler – until he was.