Why populism thrives in EU

Economic factors are to be blamed, but it is a cultural backlash as well

Photo: Photo: EPA Populist leaders such as Geert Wilders and Marine le Pen (C) have tried to use popular discontent for their own purposes.

Can the wave of right-wing, nationalist populism sweeping the developed world be explained by legitimate economic grievances or does it have its roots in a cultural backlash against liberalism and immigration? There is no doubt that poor economic performance provides part of the explanation, but it does not alone explain what is happening. After all, some developed countries that suffered most during the downturn, and which still face serious economic pressures have not fallen under the populist spell.

Can the wave of right-wing, nationalist populism sweeping the developed world be explained by legitimate economic grievances or does it have its roots in a cultural backlash against liberalism and immigration? There is no doubt that poor economic performance provides part of the explanation, but it does not alone explain what is happening. After all, some developed countries that suffered most during the downturn, and which still face serious economic pressures have not fallen under the populist spell. Conversely, some of the countries that have suffered least economically over the last ten years have experienced strong populist pressures.

Economic developments in the West over the last 20 years have been unprecedented. Growth in real median incomes has slowed sharply, and barely grown at all over the last ten years. There is no comparable real median income data for most European countries, but data for mean real wages confirm the slowdown in overall income growth. The data for Italy, Spain and Germany are  striking. Since 1997, mean incomes rose by less than 10% in all three and by just 2% in Italy. We know that income inequality rose in all three countries over this period, so median wages will have grown even less than mean incomes.

The reason for the worsening trend is two-fold. First, economic growth has been very disappointing; a big slowdown relative to the previous 20-year period. Second, in many countries income inequality has grown, with higher income groups benefiting disproportionately from what economic growth there has been. Why has all this happened? Poor macroeconomic policies have impeded growth, especially since the financial crisis. Austerity is the wrong response to a slump brought on by a financial crisis, after which monetary policy struggles to stimulate the economy. Governments ignored the lesson of the 1930s, pursuing policies that had little basis in economic theory or historical experience.

However, while poor economic performance is clearly a cause of the rise in support for parties on the extremes, it is a necessary but not sufficient condition for the ascent of nationalist populism. The academic debate about the causes of populism has become polarised, with some insisting that economic performance is to blame and others claiming that cultural factors are responsible. But political phenomena always have multiple causes, and the evidence shows that the economy has blown wind into the sails of pre-existing nationalist and anti-immigrant political movements.

Support for hard right parties tends to be higher after financial crises, as opposed to 'normal' recessions that are not preceded by a financial crash. And Europeans who live in economically struggling regions are less likely to trust national parliaments and the European Parliament. But support for right-wing populist parties – or Brexit – is most prevalent among people who are older, less educated and more socially conservative. Income is not so strong an indicator of support for radical parties: rich, elderly, poorly educated and socially conservative people are almost as likely to support the radical right as poor ones.

The link between trust and economic performance might partly explain why the US and the UK, where trust in politicians and the political process is low, succumbed to populism in 2016, while some other countries have weathered the storm. But it does not explain why populists in Spain, France and Italy, where popular frustration with political elites and corruption is high, have not won elections or referendums. One reason is electoral systems: France's two-round presidential vote meant that the centre-right, centre-left and hard left voters rallied around Emmanuel Macron rather than handing power to Marine Le Pen. Italy is in the process of reforming its electoral system so that it favours coalitions and larger parties, which will make it harder for the Five Star Movement to form a government.  

Countries' histories and political cultures are also important. Spain has struggled with much higher unemployment than Britain since the financial crisis, and had a much higher rate of immigration until 2008. But populism in Spain is either a left-wing phenomenon (Podemos) or a regionalist one (Catalan and Basque separatist parties), because memories of Francisco Franco's fascist regime are still fresh. Germany's Alternative f?r Deutschland did better than expected in the 2017 federal elections, but the huge spike in the country’s net migration rate after it accepted hundreds of thousands of refugees in 2015 and 2016 did not result in a political earthquake as it would have done in many other countries.

What does all this tell us about what moderate politicians should do to confront populism? First, they should stop pandering to anti-immigrant sentiment. In almost no continental European countries have centrist parties become hostile to free movement in the manner of Britain’s Conservatives and Labour. Instead, most centrist European politicians outside the UK have been cautious not to allow the EU's founding principles to become part of legitimate political debate. France’s moderate politicians, despite the country’s relative scepticism about free trade, have not conducted a raucous debate about limits on the free movement of goods and services within the EU, for example. For their part, continental politicians should not seek political advantage by echoing popular hostility to migrants from outside the EU.

Second, Europe's centre-right politicians need to understand that weak growth since 2008 has been a driver of political instability, and that hawkish fiscal and monetary policy has been one reason why the recovery took so long to arrive. Monetary policy needs to remain expansionary, in order to boost inflation and provide central banks with room to loosen monetary policy come the next downturn. Governments should also reverse the falls in public investment that have taken place since the financial crisis.

Third, new thinking is needed on how to raise wages in the bottom half of the income distribution; and how to provide people with more opportunity. Reducing the tax burden on poor people should be the first priority; the UK's tax credit system, which has successfully targeted redistribution at poorer families is a model to follow. Slowly raising minimum wages faster than inflation – and pausing rises if there is evidence that they are raising unemployment would also help to raise incomes. And governments could use their balance sheets more ingeniously to provide funding for education and training.

Economics alone do not explain the rise of populism and growing rejection of liberalism in developed economies. The stagnation of median real incomes in the UK and US no doubt partly explain the election of a populist President and Britain's vote to quit the EU. But other countries, such as France, Italy and Spain, have experienced very little growth in median incomes without populist thinking gaining ascendency. Culture also matters: in particular the levels of social conservatism, attitudes to immigration, and history. And crucially, mainstream politicians have been too willing to confer legitimacy on populists by adopting their language and policies. (abridged)

John Springford is director of research and Simon Tilford is deputy director of the Centre for European Reform. The article was originally published by the CER.

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