Six Theses about Contemporary Populism Peter A. Hall Harvard University GEM Conference, April 19 2017
1. Where populist causes or candidates win, it is always on the back of a broad electoral coalition A core constituency: older, white, working-class men BUT Trump Clinton Among 18-24 yr-old whites: 48% 43% Those earning over $50,000/yr 49% 47% Male college graduates 54% 46% Protestants 59% 38%
2. The roots of populism lie, not in economics or culture, but in the interaction between them Change in subjective social status of working class men and women
3. Populism highlights the spatial dimensions of politics Vote for Brexit by Region (red = leave) Vote in US election by residence
Contemporary patterns of politics parallel patterns of economic development in the knowledge economy More than half of US GDP is produced in 30 metropolitan areas
4. Populism is a revolt against globalization only in the broadest and vaguest sense of the term Economic insecurity and job losses follow from a general economic transformation linked to technological change Thus it is difficult to provide the losers from globalization with compensation They want decent jobs rather than further social assistance And it is difficult to generate decent jobs, especially for the low-skilled Occupational growth rates in the US, 2001-2012
5. Populism has political roots in the convergence of party platforms no one is listening to us Movement of OECD party platforms on an economic liberalism scale
Populist issues drive a wedge through the electoral coalitions of the mainstream left and right Middle class voters committed to universalist values but hesitant about state intervention Working class voters more supportive of state intervention but hesitant about universalist values
6. Populism poses genuine threats to democracy The divisive nationalism of populist movements undermines the tolerance and solidarity essential for well-functioning democracy Scorn for experts and a penchant for fake news drains all political discourse of its credibility, feeding distrust in politics Victor Orban In more recent democracies, populist leaders dismantle the checks and balances on which liberal democracy depends Jaroslaw Kaczynski
Globalization and the backlash of populism Will a changing sense of identity pull the world apart or bring it closer together? Mark Blyth Eastman Professor of Political Economy The Watson Institute for International and Public Affairs, Brown University, USA The Harvard Global Empowerment Meeting, April 19 th 2017
What is neo-nationalism? A global phenomenon, and contagious Populism is Bustin out All Over
In fact, there s so many its hard to fit them all on the map
A Short version of How we got Here
Two Economic Regimes The Cold War Era - 1945-1980 Full Employment National Economies Restricted Financial Markets COLA Contracts High Taxes and Transfers No One Knows who Runs the Central Bank The Neo-Liberal Era 1980-2008 Price Stability Globalization Open Financial Markets Flexible Labor Markets Low Taxes and Lower Transfers Everyone knows who runs the Central Bank
Two Distinct Regimes? Really?
What Ended the First Regime - Inflation
And when it Failed there was a System Reset The Rise of ICBs and Globalized Labor Markets The Rise of Neoliberal Politics
What Ended the Second Regime Debt and Leverage
But this time around we Bailed, rather then Failed, the System
Is this what s Behind Populism? Some Clues
The Great Leveraging: Bank Assets (Credit) Since 1970 Alan M. Taylor, The great leveraging. 16
Where Did all the Leverage Go?
Into the Gap Between Wages and Profits Euro Area Consumer Credit 1996-2017 US Consumer Credit 1960-2017 Source: International Monetary Fund, International Financial Statistics and data files, and World Bank and OECD GDP estimates
Euro Area Wage Growth 2008-2017 and Wage Share of GDP over the Long Run
And If Wages are Tied to Productivity, They are Going Nowhere Productivity Slow Down Across Regime 2 (OECD Data) EZ US UK Spain Netherlands Japan Italy 2008-2016 1990-2007 Germany France Canada -0.5 0 0.5 1 1.5 2 2.5
So what happens when you bail out that massively levered system in 2008? Consequences
Euro Area Government Debt to GDP (Gross) 1997-2017
Euro Area Inflation 1990-2017
Problem: The 1970s was Noise not Signal
Misunderstanding the 1970s: Interest rates over the Very Long Run Source: Kazuo Mizuno (the former Japan Cabinet Office Economic Advisor) and Capital World Investors via Tomonori Tani.
The End of the Series: US Fed Funds Rate 1970-2017
We are going to Stay Long and Low for a Long Time
Add all this together and you get Populism Debts too High, Wages too Low, Inflation too Low Left Response: Blame Capital/Globalization Right Response: Blame Immigrants/Globalization
The Results are Creditor Vs Debtor Stand-Offs Played Out in Party Politics Losers Winners Creditors: Real value of debt goes up but ability to collect goes down Result: Death of Traditional Center Left Parties: Vote share collapsing New left parties seen as mortal threat to existing left parties Debtors: Can t pay - Won t pay will vote Welcome to Populism Result: Rise of Populist and Right-Nationalist Parties: Renationalizing Markets, antiglobalization, anti-trade/euro, anti- Immigrant
As Seen in the Decline of Social Democracy Europe heads Right Source: Matthew Goodwin, University of Kent Index based on the simple and population-weighed average vote share for social democratic parties in the old EU15 from 1946 until the end of 2014. The base year for the index is 1970
Social democracy in the polls in 2017 Source: Matthew Goodwin, University of Kent Latest Polls Change on last election Norway 38% +3 Denmark 25.9 +1 Austria 27% -2 Spain 17% -5 Germany 20% -5 Britain 24% -6 Sweden 24% -7 France 12% -17 Netherlands 10% -28
And the Electoral Entrenchment of Populist Right Source: Matthew Goodwin, University of Kent
A tale of two crises Populism in former Soviet Space Erik Berglof Institute of Global Affairs
A Tale of Two Crises Transitional recession Global financial crisis
Crisis 1: Transitional Recession
Transition happiness gap - very low levels of life satisfaction Life in Transition Survey (2006, 2010, 2014) People in central and eastern Europe much unhappier compared to countries with same GDP Precursor of what was to come Some early hope: People thought their children would be better off
What explains low levels of life satisfaction? (Guriev and Zhuravskaya, 2008) Two levels: Level of GDP Level of public services Two shocks Shock to GDP (volatility) Shock to human capital Explains most of the variation (only Hungary not fully explained)
Crisis 2: Global Financial Crisis
A Tale of Two Crises Transitional recession Global financial crisis
Consumption hit harder in the East Share of households reporting consumption response to crisis 50 40 30 20 10 0 Reduced staple food consumption Reduced consumption of luxury goods Reduced consumption of alcohol and smoking Postponed or skipped visits to doctor after becoming ill Western Europe Transition region Delayed payments of utilities
Why did households hurt so much? 4 drivers of crisis-induced consumption fall 1. Large actual crisis shocks (job losses, bankruptcies, wage reductions ) 2. Official safety nets not very effective 3. Larger use of less effective informal borrowing 4. FX borrowing exacerbated the impact in crisis-hit countries
Democracy support fell, but not everywhere -10% -8% +6%
Why did attitudes change? 3 key drivers 1. 1 Those hit harder by the crisis turned away from democracy, markets New EU countries hit harder 2. 2 Those who experienced more severe past crises turned away less from democracy, markets CIS countries saw harder hits after 1990 3. 3 People turned against the system they had New EU countries turned against markets, democracy, CIS countries vice versa
What does LITS 2014 tell us? Not only about perceptions: people born around transition shock 1 cm shorter same as living in a conflict zone Now relative life satisfaction caught up, but not for everyone: more than half of population not seen incomes catch up No longer convinced their children will be better off
Support fell in new EU, but increased in CIS -10% -4% +5%
Not everyone has fared the same Cumulative income growth in post-communist countries since 1989 by income decile Source: EBRD Transition Report 2016
Not everyone has fared the same: Russia Cumulative growth in Russia since 1989 by income decile Source: EBRD Transition Report 2016
Not everyone has fared the same Cumulative income growth in post-communist countries since 1989
The demand for and supply of populism (Guiso et al., 2017) Populism short-term protection without regard to long-term costs Demand for populism: (1) direct effect through decline in economic security and trust in political parties but this also lower turnout; (2) indirect effect by reducing trust in political parties Supply of protectionism: (1) when demand accumulates; and (2) when checks and balances are weak and political fragmentation high Non-populist parties accommodate platforms magnifying effect
Conclusions Two serious shocks one massive and one large Affected life satisfaction and attitudes (trust, democracy, markets) But also height transition cohort 1cm shorter Fed populism with a lag as elsewhere Demand for populism from decline in economic security and trust in parties (which in turn deteriorates from loss in security) Supply for populism in countries with weak checks and balances and political fragmentation
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