Populist regimes of any stripe are not judged kindly by history
Fiscal rehabilitation comes at great cost after skyrocketing inflation and currency collapse
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.