Tuesday 05 / November / 2024
Berlin: Populism is on the rise around the world. According to the economist Christoph Trebesch, more than a quarter of the world’s nations are currently ruled by populists. Recep Tayyip Erdogan has been in power for years in Turkey, as has Viktor Orban in Hungary; Javier Milei recently won the election in Argentina, and Donald Trump might to return as president of the United States.
In Germany, too, the right-wing populist party AfD is gaining more and more support.
Populists usually present themselves as defenders of the people in the battle against the so-called elites. They promise the people greater prosperity, and the disempowerment of those elites. This is the recipe for their success.
But what is the reality? Do populists actually keep their promises? And how does the economic situation influence whether or not they get into power?
It’s harder for populists to flourish in a healthy economy. This was the conclusion of a study conducted by Trebesch and his economist colleagues Moritz Schularick and Manuel Funke. It examines the connections between economies and populism from 1990 to 2020.
Financial crises are often a sort of catalyst for populists’ electoral success, says Trebesch, who is based at the Kiel Institute for the World Economy. In such times, populists can more credibly convey their narrative of “the people versus the elite” and the “failure of the elite.” The logic behind it is the idea that something fundamental must have gone wrong with the current political system that triggered the crisis.
Trebesch says the same logic means corruption scandals also provide populists with a fertile breeding ground. Silvio Berlusconi was able to capitalise on this in Italy.
Globalisation helps them, too. It has, for instance, been demonstrated that populists are more successful in countries particularly affected by competition from China: where industries have collapsed as a result of imported Chinese goods, leading to job losses, for example.
Thiess Petersen from the Bertelsmann Foundation adds that it can empirically be shown that, in developed economies, populists do better when people experience a loss of earnings or jobs as a consequence of the injection of capital and introduction of new technologies. Petersen stresses that fear of such losses can be enough on its own to boost support for populists.
However, Petersen goes on to explain that populism has many roots causes, and cannot be explained solely in terms of economic developments. Economic aspects may not even be the most important reasons.
Once they get into power, populists often fail to keep their promises of greater prosperity for the people. The economy doesn’t usually collapse as soon as populists take over, but it tends to do worse in the long term, says Trebesch.
The study by Trebesch and his colleagues shows that 15 years after populists come to power, GDP has decreased by an average of 10 percentage points, compared with similar national economies that are not governed by populists.
“This also means that people’s purchasing power decreases,” says Trebesch, “and, furthermore, we do not see any improvement with regard to inequality, either.”
Donald Trump also promised a great deal. And yet, according to Germany’s Federal Agency for Civic Education (bpb), until the start of the COVID-19 pandemic the American economy was scarcely doing better than it had under his predecessor, Barack Obama. Under Obama, between 2014 and 2017 the American economy grew by an average of 2.4%, compared to 2.5% in the first three years under Trump.
Obama managed to reduce the budget deficit from almost 10% in 2009 to 3.1% in 2016. Under Trump, in spite of good growth rates, the deficit rose again, to 4.6% in 2019. In particular, his 2017 tax cuts were expensive for the state, costing between 1.5 and two trillion dollars. These were a huge gift for high earners and big corporations — but not for the people.
“With Trump, we didn’t see an economic collapse. However, there are certainly studies that show things would have been even better without him,” Trebesch comments.
And Trump was only in power for four years.
“We have observed that the effects are greater the longer populists are in power,” says Trebesch. “If Trump were to return to power, we can certainly expect far more drastic political and economic measures.”
If that happens, the economist anticipates more drastic welfare losses, too.
Similar structures can often be identified in populist economic policies. It is usually a little while before populists damage the economy. This is partly because, to begin with, they don’t interfere much with the workings of economic institutions, such as the central bank, or restrict the independence of the judiciary. However, this kind of interference, targeting institutions perceived to be part of the ‘elite,’ tends to increase over time, says Trebesch.
According to their campaign promises, populists tend to close borders for the movement of people, and also of trade and capital. They like to spend a lot of money, pursue a generally loose fiscal policy, and accumulate public debt. This is particularly evident in Argentina, says Trebesch.
The perverse aspect of this is that, while it is easier for populists to gain power when the economic situation is bad, if the economy then fails to improve, or even worsens, they still stay remain in power. The data shows this very clearly.
“Once they get into power, it’s pretty likely that populists will shape a country for years, even decades, to come,” says Trebesch.
