Will the internet-enabled surge in populism bring war?

Since Donald Trump swept to power in the US in 2016, we have seen plenty of startling statistics about western politics. For me, the single most thoughtprovoking chart came courtesy of Bridgewater, the world’s largest hedge fund.

Founder Ray Dalio told me the proportion of the western world voting for populist candidates had risen to 35%. The figure, from a report by his firm, was starkly higher than at the start of the decade (when it was 7%), after running at about 10% in previous decades.

Such a surge was previously seen only in the 1920s after the Great Depression, when the populist vote jumped from 4% to a peak of 40% in 1939, before elections halted as the world tumbled into war.

This is unnerving on several levels. Today, the world looks very different from the 1930s: the internet, capital markets and international supply chains have tied the global system closely together, and social media has created once unimaginable levels of public transparency and ways for the electorate to express their views outside the ballot box.

It is possible to question whether today’s “populism” is quite as scary as it was in the 1930s. Bridgewater broadly defined the concept as being anti-establishment.

The Bridgewater data raises other questions. The cocktail of events that has caused populism to jump does have echoes of the 1930s: a heady period of globalisation and growing levels of inequality followed by a financial crash, an economic downturn and rising levels of nationalism. But this time populism has gone hand in hand with strong economic growth. The US, for example, has just enjoyed nine years of strong economic expansion. Europe has grown too: in 2017 GDP had its strongest performance in a decade.

This picture is very different from the 1930s, when rising populism in countries such as Germany went hand in hand with a deep economic recession. And it consequently raises a crucial — little discussed — question: if the western world has seen populism jump when economic times are good, what on earth will happen when the next recession hits? Is it possible that those levels of support for populism could spiral even higher? Or is it a mistake to presume that populism is “just” about economics; something that can be “fixed” by mere growth?

It is certainly a mistake to look only at overall GDP growth. After all, the US economy today has two distinct parts: a booming economy which is benefiting the wealthy, and a stagnant or shrinking economy where many poor people have been trapped. I suspect that economics alone does not explain the current pattern.

Another factor is technology: the political party structures that dominated in the 20th century seem increasingly ill-suited for the 21st-century world. The internet has created a new generation of consumers — voters — who are used to congregating rapidly within their own tribes online and to being targeted by customised ads and messages. The internet is disrupting politics, as it has disrupted everything from retail to finance. And voters are responding with a squeal of anti-establishment anger, as they shop around for alternative models, clustering around any shiny, new brands.

Either way, the phenomenon is unlikely to vanish — and has probably not peaked. Indeed, if Bridgewater were to rerun its calculations now, the populist vote would probably be higher than 35%. Perhaps the crucial question we should ask ourselves is: where this will end?

In 1939 the answer was war. Today, we face “only” trade wars — for now. But could these trade wars turn into currency and capital wars, or something worse? Or will today’s leaders — and voters — learn enough from history to avoid repeating it? /© Financial Times 2018

IF THE WESTERN WORLD HAS SEEN POPULISM JUMP WHEN ECONOMIC TIMES ARE GOOD, WHAT WILL HAPPEN WHEN THE NEXT RECESSION HITS?