The Political Economy of Populism

An Introduction

Petar Stankov

• Publisher: Routledge
• Year: 2020
• ISBN:
  9781000200898
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

The Political Economy of Populism explores the interplay between identity, the economy and inequality to explain the dynamics of populist votes since the beginning of the 20th century.

The book discusses the political and economic implications of populist governance using data on populist incumbencies and linking it to historical data on the macro economy and democracy. Chapters draw from the most recent political science, economics and other social science literature, as well as historical data, to explain the long-term causes and consequences of populism. Populism emerges and gains traction when political entrepreneurs exploit underlying identity conflicts for political gains. As the distributional consequences of both economic distress and economic growth typically favor the elite over the poor and the lower middle class, economic shocks usually sharpen the underlying identity conflicts between the groups. The book provides evidence of significant differences in the ways fiscal and monetary policies are conducted by incumbent populists in Latin America, Europe and the OECD. The work concludes by suggesting avenues through which a 21st century social consensus can be built, so that our society can avoid repeating the mistakes that led to wars and failed economic experiments in the 20th century.

The Political Economy of Populism marks a significant contribution to the study of populism and is suited to students and scholars across the social sciences, including economics, political science and sociology.

1 What do we know about populism?

Politics has polarized people with economic, social, and identity issues at least since the mid-19th century. Wars and deep economic crises have typically been associated with rising polarization. For example, after the relatively consensual pre-crisis decades, the Global Financial Crisis has reinvigorated politics and has unveiled broadening voter polarization in a growing number of countries. Over time, radical political preferences emerge, gain traction, receive representation, occasionally rise to the mainstream, and gradually die out in what appear to be recurring cycles (Edwards, 2019). This book explores the reasons these radical, populist cycles occur, and the interplay of their underlying factors.

The ascent of populism since the 1980s, and especially its post-crisis take-off, motivated this book. The surge of political extremes has received widespread attention from academics, media, and the general public. Published research has caught up with the public interest. Theoretical and empirical work on prominent aspects of populism – its drivers, modes of operation, and consequences – have earned well-deserved recognition. Recent work in various fields has advanced the explanations for populism on both ends of the political spectrum. Those fields include political science and sociology, and more recently, economics and economic history. However, we still lack a more general theory of cycles of populism, an empirical explanation of those cycles, and an overview of the more recent evidence of the political and economic consequences of populist governance. This book offers all three.

Recent political science literature has made significant progress in uncovering the defining characteristics of populism. Müller (2016) states the necessary and sufficient conditions for a politician to be considered a populist: the necessary condition is an anti-elitist election platform, and the sufficient condition is anti-pluralism. According to the same author, a defining feature of populism is its polarizing effect on the electorate, as it thrives on conflict between two groups with antagonistic identities: the people and the elite. Throughout this book, identity is understood as one’s perception of self along multiple dimensions.

The identity conflict behind populism is well described by Mudde and Rovira Kaltwasser (2017, pp. 5–6). Based on a number of case studies of right-wing European parties, left-wing presidents in Latin America, and the Tea Party movement in the United States, they believe that populism is an ideology that divides societies into antagonistic camps. Drawing upon earlier research (Stanley, 2008), they accept that populism is a “thin” ideology, which borrows features of other classic ideologies to appease the people and denounce the elite.

The “thinness” of the populist quasi-ideology is now a dominant feature of the way political scientists define it (Bonikowski et al., 2019). However, because populism draws from a variety of ideologies, its precise definition has always been, and perhaps will always be, elusive. In turn, the lack of a common ideological origin of populists has resulted in a multitude of ways to approach the phenomenon (Gidron and Bonikowski, 2013). Political scientists approach it as confrontational communication evolving around local ideological or identity issues, irrespective of whether the leader, the party, or the ideology is currently dominant or not. In contrast, economists typically see populism as a narrower set of policies of the incumbent politicians, who ignore the economic risks associated with those policies, predominantly for political gain (Acemoglu, 2013; Dornbusch and Edwards, 1990).

Both approaches capture important aspects of populism. Until very recently, however, a unified framework had not been developed. This may be about to change with the work by Besley and Persson (2019). They effectively blend the two fields in a model of dynamic individual identity formation, and evolving voter and incumbent party preferences, which allows for endogenous emergence of competition to incumbent parties from the political fringe. The equilibrium policies in their model become a function of “political conflicts between traditional political elites, who control established parties formed around economic interests, and an evolving share of citizens who unite on a non-economic dimension of politics” (Besley and Persson, 2019, p. 3). Thus, widening divisions between the elite and the people exhibit cyclical behavior, which has thus far evaded explanation. In equilibrium, this cyclical behavior depends on two parameters: the importance voters place on identity issues, and income polarization.

Currently, authoritarian populism, typically based on identity politics, is more relevant in Europe, the USA, and some parts of Asia and Africa, while redistributional populism prevails in Latin America. The distinction between the two brands of populism, however, has not always been sharply drawn, and, indeed, has displayed cyclical behavior. Mudde and Rovira Kaltwasser (2011) argue that European and Latin American brands of populism are not different per se. Rather, their differences stem from the ideologies they adopt to generate broad appeal of their divisive platforms to the people – who collectively constitute a key player in the political platforms of populists. The ideologies adopted may be socialism, liberalism, or nationalism, differing in each national context. At the same time, populism lacks key common elements: a common history, electoral base, international coordination, key texts laying out its intellectual foundations, iconic leaders of international acclaim, or a calendar of its significant moments in history, all of which are typical in other traditional ideologies (Canovan, 2004; Mudde and Rovira Kaltwasser, 2013).

The lack of common key elements is the main reason we cannot think of populism as a stand-alone ideology. We can define it as a quasi-ideology, or better still, a political strategy, which creates and nurtures radically conflicting identities for political gain. Exploiting these gains, however, is not always possible, as Chapter 2 will illustrate. It will become clear that political payoffs depend on the interplay between the state of the economy and the state of the identity of the target voters. In turn, the joint impact of those economic and identity factors will be determined by the current social and demographic characteristics, including inequality of opportunity and income, and the education, skills, and age of the target voters.

The next chapter offers insights into how these interact to produce long-term populist cycles. This necessarily implies that before they begin to explore the potential political gains, political entrepreneurs need to create a conflict of identities in the first place. This is a process described by Laclau (2005) in the context of constructing the notion of the people. The conflict between identities is a feature of political creative destruction, in which potential entrants into the political mainstream innovate with various electoral tools to broaden their appeal and to oust incumbent politicians.

There is more than a broad appeal involved in the rise of populism. Motivated by recent electoral trends towards populist parties and emerging scholarship, Abromeit (2017) reviews advances in political science literature. In this literature, there are currently four dominant approaches to studying populism:

1. 1. The discourse-historical approach, represented by Wodak (2015). On the one hand, a pivotal element of right-wing populism is its rhetorical strategies. These are centered around nationalism, anti-otherness (-Semitism, -Islam, -immigrants), political performance, and gender roles. On the other hand, according to the approach, populism has no single explanation. Therefore, one needs to zoom in on the local historical context around turning points of voter mobilization to explain it.
2. 2. The political performance approach, which defines populism as a political communication style, is a trademark of both left- and right-wing populism. Both left- and right-wing populists employ certain performance strategies (Moffitt, 2016; Rode and Revuelta, 2015). This communication style is independent of the ideology – the focus is on how the message is delivered rather than on its underlying content.
3. 3. The “ideational” approach to populism. In essence, populism is a set of ideas (Mudde and Rovira Kaltwasser, 2017, p. 62). They consist of a certain view of the world being attached to a well-established ideology, e.g. socialism or liberalism, and a few key recurring concepts: the people, the elite, and the general will of the people (Mudde and Rovira Kaltwasser, 2013). Abromeit (2017, p. 181) argues that Mudde and Rovira Kaltwasser (2017) provide a “good overview of the transformation of populism in the U.S. over the course of the twentieth century from a predominantly progressive, to a predominantly reactionary movement.” To understand this shift, however, Abromeit et al. (2015) call for a more comprehensive and interdisciplinary method than that offered by the ideational approach, a method which would be able to explain the inherent defects of democracy.
4. 4. The defective democracy approach, discussed by Müller (2016), centers around the legitimacy of elected politicians. The legitimacy of the current elite is undermined using purely political methods to reduce democracy to a spectacle via showmanship. This argument is fully developed by Müller (2016). The legitimacy of a democracy can be undermined for economic reasons as well. Just as democracy was consolidated in Western Europe when the social welfare state gained traction in the 1950s and 1960s, the Global Financial Crisis (GFC) undermined the legitimacy of mainstream parties. Due to their relative consensus on how economic policies should be conducted prior to the GFC, the establishment parties differed from each other only narrowly. At the same time, their representatives were considered to belong to the elite. The GFC served as a trigger for deeply rooted societal discontent, which demanded new political representation. This essentially economic explanation for the loss of the political legitimacy of mainstream parties is explored in a narrative by Judis (2016) and in an empirical work by Stankov (2018), among others.

Abromeit et al. (2015) and Abromeit (2017) argue that the best approach to explaining populism is rooted in a general social theory developed between the 1920s and the 1970s at the Institute for Social Research at the University of Frankfurt, Germany (the Frankfurt School). The part of this theory which is relevant to populism tackles the mechanisms of emergence and consolidation of inherently anti-democratic ideologies within a democratic system. This is possible, the Frankfurt School argues – notably in Adorno et al. (1950) – if the democratic system, while formally guaranteeing certain rights for everyone, is functionally unable to deliver on its promise of economic progress for the masses.

Indeed, as Chapter 3 illustrates, extreme political preferences were essentially marginalized as the social welfare state was gradually rolled out across Europe after World War II. However, today, they are resurgent. Why is populism re-emerging now in the same democracies which have achieved the most generous “cradle-to-grave” social welfare systems humanity has ever seen? Why is populism also surging now in the new democracies in Central and Eastern Europe (CEE), where the people have never lived better than now? Why did it not emerge and ...