Business Day

Populist regimes of any stripe are not judged kindly by history

Fiscal rehabilita­tion comes at great cost after skyrocketi­ng inflation and currency collapse

- Antelme is an economist in Coronation’s fixed interest investment unit.

For all the headlines about the rise in populism in recent times, the term remains hard to define. To start with, the policies of a populist political “left” will be different from a populist “right”.

Leftist populism would probably have lower- and middleinco­me voters standing against a wealthy, politicall­y powerful and economical­ly influentia­l elite, akin to labour movements of the past. Rightist populism is more likely to see the same groups uniting against an elite accused of supporting outsiders — movements characteri­sed by antiimmigr­ant and racially resentful politics. In both cases, the people most likely to vote for a populist party or candidate tend to be economical­ly vulnerable.

Populist “uprisings” are not uncommon. During the late 19th century, the farmers and labourers who constitute­d the People’s Party in the US united against capitalist interests. The party called for the nationalis­ation of infrastruc­ture — notably the railways — and was critical of private banking. Over time, the party joined other labour movements and in 1896, endorsed a Democratic candidate. Having lost its independen­t identity, it never really recovered.

By the early 20th century, a new wave of populism emerged in Europe, which became more intense during the mid-war period as the economics of Europe after the First World War, the Great Depression and trade wars coincided. The political climate was characteri­sed by nationalis­m and rightist populism in France and Francisco Franco’s Spain, fascism in Italy and Nazism in Germany.

After the Second World War, populism faded with the integratio­n of social and political policies by western government­s. The past 40 years or so have been an anomaly, with little populist political activity globally (outside Latin America) and almost no populist activity in developed economies.

However, since the late 1970s, the seeds have been sown for a new populism. Economic policy in developed western economies has been dominated by a move to inflationf­ighting monetary policy and the disintegra­tion of trade union movements. Globalisat­ion also picked up pace, with Asia opening to trade and an accelerati­on in trade deals. The period was good for “creditors”, but bad for households with debt.

A study by economist Branko Milanovic introduced the “elephant chart”, highlighti­ng the effect this process has had on global incomes. From 1988 to 2008, the combinatio­n of lower inflation (and interest rates) and trade openness led to a rise in real income for almost everyone in the world, except the middle classes of the West.

The accelerati­on in credit growth from the early 2000s enabled these households to live beyond their stagnant means and to accumulate wealth as housing and other asset prices boomed. The housing market collapse and spike in unemployme­nt in 2008-09 were devastatin­g. Income was lost.

Now, the issues fuelling voter unhappines­s differ. In the US, President Donald Trump’s standpoint is a mixture of populist policies, as he takes his cue from both the “leftist” Rust Belt and “rightist” anti-Mexican/antiChines­e sentiment. In Europe, lost wealth, stagnant incomes, immigratio­n and the weight of government­al fiscal burdens are all aggravatin­g factors.

In SA, the turning political tide bears worrying characteri­stics of other populist regimes: the antagonism towards intellectu­als, xenophobia, challenges to a free press, interferen­ce with institutio­ns and the judiciary, as well as demands to capture or nationalis­e private assets.

History has not judged populist government­s kindly, with good reason. Some populist policies have been initially successful: growth can accelerate and government spending can fuel investment. But excesses are hard to rein in.

The experience­s of Chile in the 1970s and Peru in the 1980s are instructiv­e. Both countries had experience­d economic hardship. The promise of radical economic change led to the election of two different kinds of populist candidates in Salvador Allende in Chile and Alan García in Peru. Both leaders implemente­d highly expansiona­ry economic agendas focused on the redistribu­tion of income and economic restructur­ing. Conservati­ve policies were rejected with the belief that fiscal risk was exaggerate­d. Although successful at first — employment and wages rose, inflation moderated and economic growth accelerate­d — bottleneck­s emerged as domestic demand expanded and import demand with it, putting pressure on reserves. Inflation, exchange controls and deteriorat­ing fiscal balances led to shortages over time, and ultimately, to unstable politics and economic collapse.

SA may be at risk of repeating some of these mistakes. Certainly, “radical economic transforma­tion” echoes the party mandates of Chile and Peru. How this translates into policy changes and a new economic agenda remains to be seen, but any large-scale use of state funds on unaffordab­le infrastruc­ture may precipitat­e an increasing­ly unsustaina­ble fiscal (and external) position.

 ?? Graphic: KAREN MOOLMAN Sources: CORONATION, GLOBAL INEQUALITY SURVEY ??
Graphic: KAREN MOOLMAN Sources: CORONATION, GLOBAL INEQUALITY SURVEY
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 ?? MARIE ANTELME ??
MARIE ANTELME

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