The populism backlash: An economically driven backlash

Luigi Guiso, Helios Herrera, Massimo Morelli, Tommaso Sonno 18 May 2018

a

A

The surge of populism in Europe and the US has often put at the centre stage three ideological actors of society: the people, the elite, and the ‘other’ (foreigners, immigrants) to whom, in the populist narrative, the elite has sold the people out. 

Populist policies have often picked convenient scapegoats for economic grievances, while hiding real policy trade-offs. They have mastered the art of ‘follow-ship’ as opposed to leadership, where everything has become more short-term and responsive to instant polls. National short-term concerns have become paramount and states, rather than seeing common good for the long run, have become ‘inward-focused’ both in terms of time and space.

What has caused the rise of populist parties in continental Europe? Are the roots of the success of populist platforms cultural, as some researchers advocate, or are they mainly economic as others – us among them – have pointed out?

Rodrik (2018) distinguishes between left-wing and right-wing variants of populism, which differ with respect to the societal cleavages that populist politicians highlight, and argues that these different reactions are related to the relative salience of different types of globalisation shocks. Colantone and Stanig (2018) analyse the impact Chinese import shock and show that this triggered an increase in support for nationalist and radical right parties in Western Europe.

In a recent paper, we show how different exposure to economic shocks and different ability to react to them in different regions of Europe sheds light on these questions (Guiso et al. 2018). We study how the populist vote share1 across European regions responded to two major economic shocks: the globalisation shock (i.e. the ‘China Effect’) and the European financial crisis of 2008-2013. Both shocks, in principle, caused economic distress and insecurity, but not equally everywhere. The China Effect – the increased economic insecurity following the globalisation shocks – is known to have boosted populist support in Europe as much as in the US, but we provide two novel and perhaps unexpected findings.

First, the populist-boosting effect is only present in regions of Western Europe, whereas in the industrial regions of Eastern Europe most exposed to globalisation, the globalisation shock has instead a negative (dampening) effect on populist support and vote shares. In fact, in Eastern Europe globalisation was good news, since it brought job opportunities thanks to the relocation of firms from Western Europe. This strongly suggests that economic winners and losers of globalisation are behind the ups and downs of populist voting.

Second, the globalisation shock has a substantially larger effect on populist support in euro area countries than in other comparable Western countries. This finding may be puzzling as all Western European countries were similarly exposed to China import competition. However, euro area countries were not equally capable of reacting to this shock. Indeed, euro area countries were constrained in their policies by what we call a ‘policy strait jacket’: constraints imposed by the single currency which prevented adopting the ‘best’ domestic policies to counteract the shock, for instance through a devaluation of the currency. We estimate that the policy strait jacket effect explains three-quarters of the greater consensus to populist parties in the euro area compared to Western non-euro area European countries. The role of the policy strait jacket in fuelling populist consensus emerges most clearly during the financial crisis and the European sovereign debt crisis. The financial crisis created populist consensus across the board, but its effects were most dramatic in the euro area and particularly in those countries, like Italy, where the strait jacket was particularly tight. This policy strait jacket amplified the effects of the shock, or at least created the perception that it was in part to blame for the lack of recovery. This, in turn, sparked frustration among voters and disappointment towards the domestic and European elites opening the ground to populist proposals.

Consistent with this interpretation, confidence in European institutions and in the ECB has dropped dramatically in the euro area countries and only mildly in non-euro area countries (see Figure 1). Interestingly, among the former countries the voter frustration was greater precisely where the policy strait jacket was tighter, as Figure 2 neatly documents.

Figure 1 The populist strait jacket and trust…

a) … in the European Parliament

b) … in the ECB

Figure 2 Trust in…

a) ... the ECB

b) ... the European Commission

The above results underline the fact that the deep cause of populism cannot be culture, it is economics.  This view is confirmed in our complementary study using individual survey data instead based on the European Social Survey (ESS), which maps the attitudes, beliefs, and behaviour patterns of European citizens taking place every two years since September 2002, by means of face-to-face interviews (Guiso et al. 2017). The ESS, besides reporting on voter's attitudes towards immigration and traditional politics, also asks people whether they voted in the last parliamentary election in their country and which party they voted for. Therefore, it is possible to identify whether a populist party was voted for. A pseudo-panel analysis allows to study changes in individual economic insecurity and changes in attitudes such as distrust in political parties and anti-immigration sentiments, which are often taken as measures of cultural traits.

Figure 3 Economic insecurity and…

a) ... trust in political parties

b) ... sentiments towards immigrants

Notes: The figure shows the binned scatterplot (20 equal-sized bins) and linear regressions of the change in economic insecurity (x-axis) and the change in trust in political parties (y-axis, left figure, 3,134 observations) and attitudes against immigrants (y-axis, right figure, 3,666 observations) in the synthetic cohorts panel.

We show that the populist drive comes from the ‘barely coping’, who have developed a disgust with the political establishment prompting them to abstain from voting, and a disgust with immigrants that has prompted them to vote populist. However, behind this deterioration in these attitudes is the worsening of economic insecurity: voters who suffer from economic misfortune lose faith in institutions and develop anti-immigrant sentiments (Figure 3). Hence, economic insecurity drives up the populist vote both directly but also indirectly by affecting two key sentiments: anti-immigration and distrust for traditional politics. The directimpact of economic insecurity on the populist vote share and the indirect impact through distrust trust in politics is just through voter apathy: economic insecurity has driven mistrust in traditional politics which, in turn, drove down turnout for traditional parties, indirectly increasing the vote share of populist parties. The indirectimpact, on the other hand, through anti-immigrant sentiments is explicitly though an increase of the populist vote. Economic insecurity has driven the anti-immigrant sentiment among the barely coping, which in turn successfully drove up turnout for populist parties.

In sum the populist strategy of scapegoating immigrants was very successful – the immigration card has proven to be a powerful grievance that could be awakened by economic downturns.  Moreover, countries where a populist party is present have much more anti-immigrant sentiments, which suggests that the populist rhetoric affects greatly these sentiments.

The cultural backlash against globalisation, traditional politics and institutions, immigration, and automation cannot be an exogenous occurrence, it is driven by economic woes. In fact, as we show, in regions where globalisation was present but have benefited economically there is no such cultural backlash at all and the populist message has retreated. The policy implication and take-home message that stems from our results is clear: if one wants to defeat populism, one must defeat first economic insecurity.

Can consensus towards populist forces persist even after economic insecurity has been reabsorbed? This is the key question today. While the documented culture backlash cannot be the root cause of populist success as it is itself borne out of economic insecurity, it may play a crucial role looking forward. If the new identity politics succeeds in reshaping peoples' beliefs and attitudes, sentiments can acquire an autonomous role and may continue to exert an effect even when their economic cause is gone.

References

Colantone, I and P Stanig (2018), "The Trade Origins of Economic Nationalism: Import Competition and Voting Behavior in Western Europe", American Journal of Political Science (forthcoming).

Guiso, L, H Herrera, M Morelli, M and T Sonno (2018), “Global Crises and Populism: The Role of Eurozone Institutions”, EIEF Working Papers Series 1806; forthcoming in Economic Policy.

Guiso, L, H Herrera, M Morelli, M and T Sonno (2017), “Populism: Demand and Supply”, CEPR Discussion Paper 11871.

Van Kessel, S (2015), Populist parties in Europe. Agents of discontent?, Palgrave Macmillan.

Rodrik, D (2018), “Populism and the economics of globalization”, Journal of International Business Policy.

Endnotes

[1] To identify populist parties in Europe, we rely on the classification proposed in the most recent and comprehensive study on populism in Europe by Van Kessel (2015), who examines all parties that gained some parliamentary representation after national elections between 2000 and 2013. The period and the countries covered by Van Kessel match those covered by the ESS data.

a

A

Topics:  EU institutions Europe's nations and regions Politics and economics

Tags:  populism, globalisation, trust, Europe

Axa Professor of Household Finance, Einaudi Institute for Economics and Finance; CEPR Research Fellow

Associate Professor, Department of Economics, University of Warwick

Professor, Department of Policy Analysis and Public Management, Bocconi University

Ph.D. Candidate in Economics, Université Catholique de Louvain and London School of Economics

Events

CEPR Policy Research