How to com­bat pop­ulist dem­a­gogues

The Daily Star (Lebanon) - - OPINION - DANI RO­DRIK Dani Ro­drik,

At a re­cent con­fer­ence I at­tended, I was seated next to a prom­i­nent Amer­i­can trade pol­icy ex­pert. We be­gan to talk about the North Amer­i­can Free Trade Agree­ment, which Pres­i­dent Don­ald Trump has blamed for Amer­i­can work­ers’ woes and is try­ing to rene­go­ti­ate. “I never thought NAFTA was a big deal,” the econ­o­mist said.

I was as­ton­ished. The ex­pert had been one of the most prom­i­nent and vo­cal ad­vo­cates of NAFTA when the deal was con­cluded a quar­ter-cen­tury ago. He and other trade econ­o­mists had played a big part in sell­ing the agree­ment to the Amer­i­can pub­lic. “I sup­ported NAFTA be­cause I thought it would pave the way for fur­ther trade agree­ments,” my com­pan­ion ex­plained.

A cou­ple of weeks later, I was at a din­ner in Europe, where the speaker was a for­mer fi­nance min­is­ter of a eu­ro­zone coun­try. The topic was the rise of pop­ulism. The for­mer min­is­ter had left pol­i­tics and had strong words about the mis­takes he thought the Euro­pean pol­icy elite had made. “We ac­cuse pop­ulists of mak­ing prom­ises they can­not keep, but we should turn that crit­i­cism back on our­selves,” he told us.

Ear­lier dur­ing the din­ner, I had dis­cussed what I de­scribe as a trilemma, whereby it is im­pos­si­ble to have na­tional sovereignty, democ­racy and hy­per-glob­al­iza­tion all at once. We must choose two out of three. The for­mer politi­cian spoke pas­sion­ately: “Pop­ulists are at least hon­est. They are clear about the choice they are mak­ing; they want the na­tion state, and not hy­per-glob­al­iza­tion or the Euro­pean sin­gle mar­ket. But we told our peo­ple they could have all three cakes si­mul­ta­ne­ously. We made prom­ises we could not de­liver.”

We will never know whether greater hon­esty on the part of main­stream politi­cians and tech­nocrats would have spared us the rise of na­tivist dem­a­gogues like Trump or Marine Le Pen in France. What is clear is that lack of can­dor in the past has come at a price. It has cost po­lit­i­cal move­ments of the cen­ter their cred­i­bil­ity. And it has made it more dif­fi­cult for elites to bridge the gap sep­a­rat­ing them from or­di­nary peo­ple who feel de­serted by the es­tab­lish­ment.

Many elites are puz­zled about why poor or work­ing-class peo­ple would vote for some­one like Trump. In­deed, the pro­fessed eco­nomic poli­cies of Hil­lary Clin­ton would in all like­li­hood have proved more fa­vor­able to them. To ex­plain the ap­par­ent para­dox, they cite these vot­ers’ ig­no­rance, ir­ra­tional­ity, or racism.

But there is an­other ex­pla­na­tion, one that is fully con­sis­tent with ra­tio­nal­ity and self-in­ter­est. When main­stream politi­cians lose their cred­i­bil­ity, it is nat­u­ral for vot­ers to dis­count the prom­ises they make. Vot­ers are more likely to be at­tracted to can­di­dates who have anti-es­tab­lish­ment cre­den­tials and are ex­pected to de­part from pre­vail­ing poli­cies.

In the lan­guage of econ­o­mists, cen­trist politi­cians face a prob­lem of asym­met­ric in­for­ma­tion. They claim to be re­form­ers, but why should vot­ers be­lieve lead­ers who ap­pear no dif­fer­ent from the pre­vi­ous crop who over­sold them the gains from glob­al­iza­tion and pooh-poohed their griev­ances?

In Clin­ton’s case, her close as­so­ci­a­tion with the glob­al­ist main­stream of the Demo­cratic Party and close ties with the fi­nan­cial sec­tor clearly com­pounded the prob­lem. Her cam­paign promised fair trade deals and dis­avowed sup­port for the Trans Pa­cific Part­ner­ship, but was her heart re­ally in it? Af­ter all, when she was U.S. Sec­re­tary of State, she had strongly backed the TPP.

This is what econ­o­mists call a pool­ing equi­lib­rium. Con­ven­tional and re­formist politi­cians look alike and hence elicit the same re­sponse from much of the elec­torate. They lose votes to the pop­ulists and dem­a­gogues whose prom­ises to shake up the sys­tem are more cred­i­ble.

Framing the chal­lenge as a prob­lem of asym­met­ric in­for­ma­tion also hints at a so­lu­tion. A pool­ing equi­lib­rium can be dis­rupted if re­formist politi­cians can “sig­nal” to vot­ers his or her “true type.”

Sig­nal­ing has a spe­cific mean­ing in this con­text. It means en­gag­ing in costly be­hav­ior that is suf­fi­ciently ex­treme that a con­ven­tional politi­cian would never want to em­u­late it, yet not so ex­treme that it would turn the re­former into a pop­ulist and de­feat the pur­pose. For some­one like Hil­lary Clin­ton, as­sum­ing her con­ver­sion was real, it could have meant an­nounc­ing she would no longer take a dime from Wall Street or would not sign an­other trade agree­ment if elected.

In other words, cen­trist politi­cians who want to steal the dem­a­gogues’ thun­der have to tread a very nar­row path. If fash­ion­ing such a path sounds dif­fi­cult, it is in­dica­tive of the mag­ni­tude of the chal­lenge these politi­cians face. Meet­ing it will likely re­quire new faces and younger politi­cians, not tainted with the glob­al­ist, mar­ket fun­da­men­tal­ist views of their pre­de­ces­sors.

It will also re­quire forthright ac­knowl­edge­ment that pur­su­ing the na­tional in­ter­est is what politi­cians are elected to do. And this im­plies a will­ing­ness to at­tack many of the es­tab­lish­ment’s sa­cred cows – par­tic­u­larly the free rein given to fi­nan­cial in­sti­tu­tions, the bias to­ward aus­ter­ity poli­cies, the jaun­diced view of gov­ern­ment’s role in the econ­omy, the un­hin­dered move­ment of cap­i­tal around the world, and the fetishiza­tion of in­ter­na­tional trade.

To main­stream ears, the rhetoric of such lead­ers will of­ten sound jar­ring and ex­treme. Yet woo­ing vot­ers back from pop­ulist dem­a­gogues may re­quire noth­ing less. These politi­cians must of­fer an in­clu­sive, rather than na­tivist, con­cep­tion of na­tional iden­tity, and their pol­i­tics must re­main squarely within lib­eral demo­cratic norms. Ev­ery­thing else should be on the ta­ble.

Lack of can­dor in the past has cost po­lit­i­cal move­ments in the cen­ter their cred­i­bil­ity

pro­fes­sor of in­ter­na­tional po­lit­i­cal econ­omy at Har­vard Univer­sity’s John F. Kennedy School of Gov­ern­ment, is the au­thor of “Eco­nom­ics Rules: The Rights and Wrongs of the Dis­mal Sci­ence.” THE DAILY STAR pub­lishes this commentary in col­lab­o­ra­tion with Project Syn­di­cate © (­ject­syn­di­

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