MONTEVIDEO – Out-of-control globalization has destroyed jobs, caused middle-class incomes to stagnate, and deepened income inequality. In response, angry voters are turning to populist politicians. Without a radical shift away from liberal economic policies, populism will be unstoppable.
This narrative is simple and increasingly popular. It is also dead wrong.
Precisely because populism – whether leftist (Hugo Chávez in Venezuela, Podemos in Spain) or rightist (Donald Trump in the United States, the National Front in France) – is ugly, menacing, and destructive, its growing strength calls for nuanced explanation. A weak grasp of causes will lead to ill-conceived solutions – at which point populism truly may become unstoppable.
One problem with the emerging conventional wisdom is that it mixes three sets of factors that should be kept separate for analytical and policy purposes. Product-market deregulation and falling trade barriers belong to what academics call microeconomics. Destabilizing international capital flows and self-defeating fiscal austerity (Exhibit A: the eurozone) are part of macroeconomics. Lower transport costs and new labor-saving technologies fall under the rubric of exogenous structural change. Lumping all three together as globalization only causes confusion.