Larry Elliott - Populism is the result of global economic failure
The rise of populism
has rattled the global political establishment. Brexit came as a
shock, as did the victory of Donald Trump. Much
head-scratching has resulted as leaders seek to work out why large chunks of
their electorates are so cross.
The answer seems
pretty simple. Populism is the result of economic failure. The 10 years since
the financial crisis have shown that the system of economic governance which
has held sway for the past four decades is broken. Some call this approach neoliberalism.
Perhaps a better description would be unpopulism. Unpopulism meant
tilting the balance of power in the workplace in favour of management and
treating people like wage slaves. Unpopulism was rigged to ensure that the
fruits of growth went to the few not to the many. Unpopulism decreed that those
responsible for the global financial crisis got away with it while those who
were innocent bore the brunt of austerity.
Anybody seeking to
understand why Trump won the US presidential election should take a look at
what has been happening to the division of the economic spoils. The share of
national income that went to the bottom 90% of the population held steady at
around 66% from 1950 to 1980. It then began a steep decline, falling to just
over 50% when the financial crisis broke in 2007.
Similarly, it is no
longer the case that everybody benefits when the US economy is doing well.
During the business cycle upswing between 1961 and 1969, the bottom 90% of
Americans took 67% of the income gains. During the Reagan expansion two decades
later they took 20%. During the Greenspan housing bubble of 2001 to 2007, they
got just two cents in every extra dollar of national income generated while the
richest 10% took the rest.
The US economist
Thomas Palley says that up until the late 1970s countries operated a virtuous
circle growth model in which wages were the engine of demand growth. “Productivity
growth drove wage growth which fueled demand growth. That promoted full
employment, which provided the incentive to invest, which drove further
productivity growth,” he says.
Unpopulism was touted
as the antidote to the supposedly failed policies of the postwar era. It
promised higher growth rates, higher investment rates, higher productivity
rates and a trickle down of income from rich to poor. It has delivered none of
these things.
James Montier and
Philip Pilkington, of the global investment firm GMO, say that the system which
arose in the 1970s was characterised by four significant economic policies: the
abandonment of full employment and its replacement with inflation targeting; an
increase in the globalisation of the flows of people, capital and trade; a
focus on shareholder maximisation rather than reinvestment and growth; and the pursuit
of flexible labour markets and the disruption of trade unions and workers’
organisations.
To take just the last
of these four pillars, the idea was that trade unions and minimum wages were
impediments to an efficient labour market. Collective bargaining and statutory
pay floors would result in workers being paid more than the market rate, with the
result that unemployment would inevitably rise… read more:
