The Causes of Populism

In our article last week we looked at the rise of populism in recent years, and explored what populism is, what typically leads to a populist surge and what some of the consequences for and effects on democracy and the wider society are when politics takes on a populist hue.

In this article we narrow the discussion down to the present increase in populism, both where populist politicians are overtly in the ascendant and where, even if mainstream political parties are for the moment still in the majority in national legislatures, the policies of populism are increasingly influencing and even shaping government action.  As we observed last week, populists do not need to be formally in power to influence and direct the tenor of national political debate.

The political economy in most western countries today is characterised by an increased divide between the mass population and the elite.  Whether this is framed in the traditional terms of “haves” and “have nots”, or the divide between the “people from Somewhere” and the “people from Anywhere”, or even the more simplistic “Us” and “Them”, there is a greater sense that society is not a continuum – from rich to poor, or from privileged to ordinary, say – but increasingly two separate communities which have neither much in common with the other, much dialogue with the other or even much appreciation of the lives of the other [1].

Now of course there is nothing new in this.  There have always been rich and poor, the aristocracy and the downtrodden masses, the ruling elite and everyone else, and while the existence of inequality in a society may certainly be a contributory factor to a rise in populism, it is not usually enough by itself.  What characterises many societies today, though, is that the divisions seem to be increasing and (as importantly) the perception amongst the less advantaged half of society is that social mobility is deteriorating and opportunities to cross the divide, to improve one’s lot, to become part of the prosperous elite are reducing.

It is a reflection of the times that in both the UK, traditionally a fairly stratified and static society, and more surprisingly in the US, traditionally a more fluid society with greater opportunities for individual advancement, someone’s income and standard of living is today more closely correlated with their parents’ than at almost any time in the last 70 years.  This is the opposite of a society which offers opportunity to all, and has led to an atmosphere of anxiety and pessimism, the most striking example of which being the collapse of confidence that the next generation will live better than its parents [2].

There is a very large literature on the rising inequality in the globalised economy and what is behind it, and several common themes seem to be emerging to form a consensus view among economists and political commentators alike.  We would highlight three which we think are currently driving events and thereby fuelling populist sentiments.  These are the increasingly winner-take-all nature of the modern economy, the inability of society to counter this (and the growing lack of desire on the part of the elite to even try), and the increasing influence of social media reinforcing the resulting divisions.  We will take these in turn.

It is one of the paradoxes of economics that innovations and developments that improve the overall wealth of society in aggregate quite often in the first instance cause the wellbeing of individuals or even whole sections of that society to deteriorate.  In the very long run, economic developments will improve the life of all – we are all far wealthier and live far better lives than even the elite did 150 years ago – but far from “a rising tide floating all boats”, it is in fact quite common for economic growth and prosperity at the national level to leave large sections of society temporarily worse off.

This was most obvious in the UK in the first 80 years or so of the Industrial Revolution, where although the country became economically wealthier overall (and the new middle classes in relative terms much wealthier), for a significant part of the population it was also the era of increasing child labour, the “dark satanic mills”, extreme poverty and destitution and the backdrop to books like Charles Dickens’ “Oliver Twist”.  Nor is there much mystery here, since capitalism by its nature rewards those who already have capital;  indeed, the leitmotif of early capitalism can be summed up as “to him who hath shall more be given”.

This tendency of capitalism to concentrate wealth on the already wealthy can be countered, and from about 1860 onwards in the UK (and from perhaps 30 years later in the US) there was a determined attempt, with support across the political spectrum, to rein back the excesses of capitalism, to redistribute its benefits more widely and to curb the powers of the industrial magnates and monopolists.  By and large these moves were successful, and they eventually culminated in the period of mass affluence in the 1950s and 1960s when for the first time it really did seem possible for economic growth to make everyone better off with few if any losers.

Since then however, the nature of the global economy has changed again, with the rise of the internet-based gig economy.  We wrote about this just over a year ago in our article “Inequality and the Licence Economy” (11.12.16);  without repeating our earlier thoughts, we will just observe that the tendency for money to become ever more concentrated in ever fewer hands – the “winner-takes-all” economy – seems if anything to have become even more pronounced in the last 12 months.  In sector after sector, whether it is search engines and general internet facilities (Google), social media (Facebook), entertainment (Netflix), online retailing (Amazon), minicabs (Uber), even premiership football (Manchester City), there is one company for whom dominant success generates huge amounts of money and that money generates even more domination.

This leads to the second of our themes, society’s increasing inability to counter this.  The tools of redistribution (taxation, statutory employee rights, social solidarity) are failing in the face of new work practices and global companies which are quite often larger and more powerful than whole countries.  Indeed, at times it seems that only the EU still has the size, power and social will to take multinational giants on and force their view of social responsibility onto the new robber barons.

Even more seriously, in much of the world the response from the financial elite is changing.  The rich have always had a residual fear of “the mob” through the ages, often entirely justified (history is replete with revolutions once the inequality becomes too extreme), and from the Roman policy of pacifying the masses through “bread and circuses” onwards, ruling classes have struggled to find the balance between maximising their part of society’s wealth while sharing just enough.

Latterly, though, we seem to have reached a significant threshold where, with a few notable and noble exceptions such as Bill and Melinda Gates with their Foundation, or the Giving Pledge for US billionaires, the optimal policy for most of the financial elite for interaction with the rest of society seems to be changing from “improving the lot of the masses” to “separation from the masses, by legal and increasingly physical means”.  This is the world of private hospitals, private education, gated communities – but where is the incentive to improve public facilities if the rulers do not themselves use them [3]?

Lastly, there is the influence of social media.  This is a huge subject, and not one we intend to explore fully in this essay.  Nor do we ignore its potential for good, including its ability to connect people (a major factor in the Arab Spring uprisings a few years ago) and hold the powerful to account (such as for example the #metoo campaign to highlight sexual harassment).

But the rise of social media, and the concomitant decline in more traditional media, has without doubt changed the tenor of political debate.  Traditional media has a mass and necessarily diverse audience and did, indeed still does, try to hold politicians of all stripes accountable for their actions.  Social media is much more targeted, and tends to be read mainly by people who already sympathise with the message;  it has much more the role of uncritical support for one political ideology over another.

As a result, people increasingly inhabit a world where they only hear reinforcements of their existing views, and the national discourse is losing the interaction between people of different but mutually respected views which is the hallmark of healthy political debate.

All of these trends – rising inequality in a winner-take-all society, an increased divide between the elite and the rest, often physical as well as financial, and a reduction in dialogue between those of different views, are both reflected in and reinforce populism.

The stage for the current wave of populism is thus well set;  in our remaining articles we will turn to the consequences for our global world, and the likely responses from the political class.

This is the second in a series of articles written together with John Nugée and published jointly on this website and on the Laburnum Consulting website .

[1]                In this sense David Cameron’s claim that “We’re all in this together” in the aftermath of the Financial Crisis was spectacularly unsuccessful:  most people perceived that it was firstly simply not true, and secondly an indication of how out of touch the elite (of whom Cameron was seen as the epitome) were with the lives of ordinary people.

[3]                This is even more true in the developing world, where isolation from and indeed indifference towards the masses is more often the norm for the new ruling classes, a pattern which is likely to lead to societal strife if things do not change.