CAMBRIDGE – Perhaps the only surprising thing about the populist backlash that has overwhelmed the politics of many advanced democracies is that it has taken so long. Even two decades ago, it was easy to predict that mainstream politicians’ unwillingness to offer remedies for the insecurities and inequalities of our hyper-globalized age would create political space for demagogues with easy solutions. Back then, it was Ross Perot and Patrick Buchanan; today it is Donald Trump, Marine Le Pen, and sundry others.
History never quite repeats itself, but its lessons are important nonetheless. We should recall that the first era of globalization, which reached its peak in the decades before World War I, eventually produced an even more severe political backlash.
The historical evidence has been well summarized by my Harvard colleague Jeffry Frieden. In the heyday of the gold standard, Frieden argues, mainstream political actors had to downplay social reform and national identity because they gave priority to international economic ties. The response took one of two fatal forms in the interwar period: Socialists and communists chose social reform, while fascists chose national assertion. Both paths led away from globalization to economic closure (and far worse).
Today’s backlash most likely will not go quite so far. As costly as they have been, the dislocations of the great recession and the euro crisis pale in significance compared to those of the Great Depression. Advanced democracies have built – and retain (despite recent setbacks) – extensive social safety nets in the form of unemployment insurance, retirement pensions, and family benefits. The world economy now has functional international institutions – such as the International Monetary Fund and the World Trade Organization (WTO) – that it lacked prior to the Second World War. Last but not least, extremist political movements such as fascism and communism have been largely discredited.
Still, the conflicts between a hyper-globalized economy and social cohesion are real, and mainstream political elites ignore them at their peril. As I argued in my 1997 book Has Globalization Gone Too Far?, the internationalization of markets for goods, services, and capital drives a wedge between the cosmopolitan, professional, skilled groups that are able to take advantage of it and the rest of society.
Two types of political cleavage are exacerbated in the process: an identity cleavage, revolving around nationhood, ethnicity, or religion, and an income cleavage, revolving around social class. Populists derive their appeal from one or the other of these cleavages. Right-wing populists such as Trump engage in identity politics. Left-wing populists such as Bernie Sanders emphasize the gulf between the rich and the poor.
In both cases, there is a clear “other” toward which anger can be directed. You can barely make ends meet? It is the Chinese who have been stealing your jobs. Upset by crime? It is the Mexicans and other immigrants who bring their gang warfare into the country. Terrorism? Why, Muslims, of course. Political corruption? What do you expect when the big banks are bankrolling our political system? Unlike mainstream political elites, populists can easily point to the culprits responsible for the masses’ ills.
Of course, establishment politicians are compromised because they have been at the helm all this time. But they are also immobilized by their central narrative, which smacks of inaction and helplessness.
This narrative puts the blame for stagnant wages and rising inequality on technological forces beyond our control. It treats globalization and the rules that sustain it as inexorable and inevitable. The remedy it offers, investment in education and skills, promises few immediate rewards and would bear fruit years from now, at best.
In reality, today’s world economy is the product of explicit decisions that governments have made in the past. It was a choice not to stop at the General Agreement on Tariffs and Trade (GATT) and to build the much more ambitious – and intrusive – WTO. Similarly, it will be a choice whether to ratify future mega-trade deals such as the Trans-Pacific Partnership and the Transatlantic Trade and Investment Partnership.
It was the choice of governments to loosen regulations on finance and aim for full cross-border capital mobility, just as it was a choice to maintain these policies largely intact, despite a massive global financial crisis. And, as Anthony Atkinson reminds us in his masterful book on inequality, even technological change is not immune from government agency: There is much that policymakers can do to influence the direction of technological change and ensure that it leads to higher employment and greater equity.
The appeal of populists is that they give voice to the anger of the excluded. They offer a grand narrative as well as concrete, if misleading and often dangerous, solutions. Mainstream politicians will not regain lost ground until they, too, offer serious solutions that provide room for hope. They should no longer hide behind technology or unstoppable globalization, and they must be willing to be bold and entertain large-scale reforms in the way the domestic and global economy are run.
If one lesson of history is the danger of globalization running amok, another is the malleability of capitalism. It was the New Deal, the welfare state, and controlled globalization (under the Bretton Woods regime) that eventually gave market-oriented societies a new lease on life and produced the post-war boom. It was not tinkering and minor modification of existing policies that produced these achievements, but radical institutional engineering.
Moderate politicians, take note.