Lessons learnt from populist nationalism
Why the populist backlash against globalization? Over the past three decades, globalization – the Internet- driven flow of information, commerce, people, capital, and digital products – has lifted millions from poverty in emerging economies, and enabled global supply chains to spark trade and global economic growth.
But gradually, over time, the problems of globalization started to grow and expand, including the loss of jobs, as factories relocated for cheaper labor, growing inequality, and free capital flows disrupting underdeveloped financial systems. Also, cultural alienation and loss of national identity are some of the psychological side effects. All the while, political elites are focused on the glitz and profits, ignoring the growing anger from the middle and working class.
The negative impact of globalization was largely overlooked. Recently, it has exploded in a delayed overreaction of anti- elites, populist nationalism.
In the US, the 2008 Great Recession was an inflection point, with more than 2 million jobs lost and several million lost homes in the mortgage crisis that sparked the US financial crisis. Two unneces- sary wars ( Iraq and Afghanistan) costing more than $ 2 trillion and hundreds of lives drove up budget deficit and shattered the confidence of the American people, thus sparked resentment of the political elite and US institutions. Demographic change – the diminishing white majority and the increase of non- English speaking immigrants across the US – coinciding with the election of the first black US president elected, the stagnation of middle class wages since the 1980s, and increasing inequality, all led to the populist revolt, and the discrediting of elites, politicians, and institutions.
The themes that drew many white middle class and out- of- work blue collar types to Trump were: trade as a villain for job losses; and immigration (“build a wall”) as a metaphor for discomforting demographic change, along with a promise of returning to a mythical past. Yet, recent studies indicate that nine of 10 US jobs lost since 2000 were due to technology and automation, not trade. Since 2014, there has been a net outflow of Mexicans from the US, and NAFTA, for building a more dynamic north American economy, has actually been a positive force to building the North American economy.
But it is driven by emotion, not reason. Trade and immigration became punching bags for the anger and frustration that Trump skillfully manipulated.
In Europe, especially southern Europe, a number of factors combined to spark populist nationalism both left and right, most dramatically, Brexit. These forces were increasingly unsustainable welfare states amid flat economic growth, mounting unemployment ( 20 percent average youth unemployment in the EU; more than 40 percent in some southern European nations) and a feeling that the EU was overriding national identity and that unaccountable, faceless bureaucrats in Brussels were deciding their fate.
The free flow of labor within the EU led to complaints of “Polish plumbers” in the UK. Growing numbers of Muslim immigrants from North Africa and the Middle East unable to integrate into European society also sparked cultural fear and anger. This exploded as the Syrian conflict and the flood of refugees reached a tipping point.
This has resulted in a growing number of authoritarian regimes, as in Hungary, and the rise of right- wing antiimmigrant politics personified by Brexit, Marine Le Pen in France, as well as similar parties in the Netherlands and even in Germany. A new generation in Europe that grew up post WWII lacks the memory of the centuries of war and destruction that led to the integration of Europe and the Bretton Woods system, which sought to avoid the perils of nationalism and protectionism that led up to WWII.
Yet, it was precisely the bout of aggrieved nationalism and protectionism that undid an earlier era of globalization prior to WWI. The alternative leads to economic malaise and conflict. If Trump pursues protectionist policies, a trade war is likely to ensue as occurred in the 1930s.
But if the open, rules- based institutions that enabled peace and unprecedented economic prosperity exemplified by the EU and Bretton Woods institutions like the WTO are fraying, where does this populist rage lead?
There is no easy or satisfying answer. Some think it may be cyclical, with the pendulum swinging back toward multilateral cooperation. If so, any solution will have to address the grievances of those hurt by globalization – a social safety net with skills retraining, unemployment insurance, healthcare, etc.
Generational change may drive such a reversal. The ascending millennials – those born from 1990- 2000 – have a more tolerant, internationalist perspective. Most Trump voters were white and 45 or older. They will soon be displaced by the next generation. But for now, turmoil persists.