The Populism RPN, established in March 2019 for an initial three year term, is led by Sergei Guriev, Chief Economist of the European Bank for Reconstruction and Development and Professor of Economics at Sciences Po in Paris.
Modern populism: why it matters and why it is likely to stay
In recent years, populism has re-emerged as a key political-economic phenomenon. Unlike its previous reincarnation – the left-wing “Latin American populism”, offering macroeconomically unsustainable solutions to social problems (see Dornbusch and Edwards 1991) – populism today is hard to define in terms of the left vs. right political continuum. Rather, it is an anti-globalisation and anti-elite movement bringing together anti-establishment political players from both the extreme right and the extreme left. As argued in Mueller (2016) and in Mudde and Rovira Kalwasser (2017), modern populism is essentially a view of the world where the uniform “pure people” stand against the “corrupt elites”; it is also important that there cannot be any differences and divisions within the “people”, hence no need for checks and balances.
Despite many studies carried out by social scientists on both sides of the Atlantic (including many CEPR researchers), there is still no consensus on the origins and causes of the recent rise of populism. It is clear that the economic fallout from the global financial crisis has played a major role – resulting in substantial increases in unemployment in certain countries and especially in some subnational regions. Both before and after the crisis, technological progress and globalisation brought about job polarisation and increased inequality. The rise of identity politics – related to globalisation and increases in immigration – may have also been an important contributor to the popularity of nativist populists. The refugee crisis may have also raised concerns related to security or terrorism. In different countries, the reasons for the rise of populism may have been different; they may also have interacted with each other – and with cultural and social contexts – in a different way. This is why the recent rise of populism has already generated – and continues to generate – so much interest among researchers.
Why should we worry about populism? On the one hand, there should be nothing wrong if populists are democratically elected and pursue the mandate of correcting deficiencies of prior policies (such as corruption, unchecked market power, tax avoidance by big corporations, corruption within the elites). There are two reasons to be concerned about the populists’ popularity. One is that their promises are not macroeconomically sustainable (as in Latin America in the past or in Italy today). Most populists, however, have learned this lesson and once in power, they recognise the macroeconomic constraints (e.g. Syriza in Greece and PiS in Poland). The second reason is much more important. Modern populists – being anti-elitist and anti-globalisation movement – promise and, once in power, implement policies that (i) destroy checks and balances and (ii) create barriers for competition. Economic checks and balances are crucial for investment. Investors should have confidence that the rules of the game are not fully discretionary. Populists also destroy political checks and balances – taking over control over the courts, media, and campaign financing. This entrenches their hold on power and allows their opponents to remove them from office even when populists’ economic performance fails. In line with their “anti-neoliberal” rhetoric, modern populists also limit economic competition. Instead of “protecting the little guy” this leads to the creation of crony capitalism and helpfully generates rents to fund the incumbents’ political machines.
It is important to emphasise that the phenomenon of modern populism is here to stay. After the French presidential elections in 2017 many commentators were happy to announce that the populist tide was over. This was of course premature. First, in the French election Emmanuel Macron made it to the second round with only a small margin; a runoff with two populist politicians was not impossible. Second, since winning the election Macron’s own popularity has declined drastically. Third, in the last two years, we have observed the extreme left and extreme right gaining substantial ground even in Germany and Sweden and winning the election and forming a government in Italy and Brazil. Victor Orban’s party obtained constitutional majority in Hungary. Finally, and most importantly, the underlying challenges remain. The challenge of immigration will stay for decades to come, and so will the challenge of inequality within advanced economies.
The need for policy solutions
While there is a lively debate on the origins and causes of the recent rise of populism, the evidence-based policy advice on how to counter it is still quite scarce. The main objective of this RPN is to bridge the gap between research and specific practical solutions.
The demand for such solutions is very high. National governments, developed and developing, are struggling to provide a response to social pressures due to globalisation, technological change and immigration. The European Union is about to produce a new seven-year budget (Multiannual Financial Framework). Eurozone governments are discussing the reform of the euro area that will have major distributional consequences. The OECD is leading the multi-lateral effort against tax evasion by multinational firms. The G20 is discussing the response to challenges driven by automation and is reviewing the structure of global financial architecture.
In addition to redesigning institutions and choosing the right policies to counter populists, mainstream political players should also rethink their communication strategies. Recent years have shown that populists are ahead in using modern media (in some cases leveraging misleading or outright false messages).