Taming the Populists

MADRID – In many Western democracies, right-wing populists, energized by self-proclaimed victories over “establishment elites,” are doubling down on the claim that globalization lies at the root of many citizens’ problems. For those whose living standards have stagnated or declined in recent decades, even as political leaders have touted free trade and capital flows as the recipe for increased prosperity, the argument holds considerable appeal. So it must be addressed head on.

Of course, economic grievances alone do not fuel anti-globalization sentiment; populism has emerged even in countries with low unemployment and rising incomes. But such grievances provide the kernel of truth that populist leaders need to attract support, which they then attempt to secure with distortions and exaggerations. If the economic issues are not addressed, support for such leaders will continue to grow, potentially taking their societies backward, to a less tolerant – and less prosperous – time.

The likes of Donald Trump and Marine Le Pen did not gain a foothold in their countries’ politics – not to mention the chance of leading them – on their own. They exploited the feeling of many citizens that the political classes – which touted the benefits of globalization, while allowing inequality to rise to unprecedented levels – had abandoned them.

To be sure, globalization has reduced inequality among countries substantially. But within countries,inequality has risen sharply. The largest gains from globalization have not only accrued to the middle and upper classes in Asia, but also to the top 1% of earners worldwide. In the United States, for example, the Gini coefficient (the most common measure of inequality) increased by five points from 1990 to 2013. Inequality has also risen, albeit more slowly, in China, India, and most European countries.

Despite rising inequality, the benefits of globalization have been more tangible in developing countries. Indeed, economic openness has helped to lift millions of developing-country citizens out of poverty, which is why the economist Branko Milanovic argues that globalization has driven “the greatest reshuffle of individual incomes since the Industrial Revolution.”

But, for many advanced-country citizens, that is precisely the problem. They are not opposed to poverty reduction in faraway countries. But if they believe that, say, the Chinese are becoming wealthier, while their own real (inflation-adjusted) wages remain largely stagnant, they will not accept globalization. If their own societies’ wealthiest members are also becoming richer, conditions become ripe for anti-establishment rebellion. The image of “untrustworthy elites” is ideal fodder for populists, who claim that globalization has given the wealthy and powerful more money and power than ever.

But the world that the populists and their constituents hope to recreate – a world of self-sufficient, egalitarian states insulated from developments around them – never existed. Any effort to close economies – much less borders – would fail disastrously.

The only way to stem the rising tide of destructive populism and prevent the drift toward damaging protectionist measures is to reconnect with frustrated constituencies, and find ways to respond to people’s real economic grievances. A national government’s main job is to protect the social equilibrium that forms the backbone of democratic systems. For that reason, leaders must not reject globalization, but work to guide it, so that it advances their citizens’ interests and wellbeing.

Bold initiatives to tackle inequality are crucial. In addition to stopgap measures, aimed at immediately improving people’s economic circumstances, leaders must develop systems to ensure that citizens are equipped to thrive in a globalized world in the long term. Creativity, problem-solving skills, and heightened interpersonal competence will be essential.

Moreover, national authorities must engage with one another to improve global governance. In recent years, the inadequacies of existing global governance structures, particularly with regard to issues like taxation and employment, have become starkly apparent. The agenda for next month’s G20 summit in China includes discussion of concrete measures to reduce inequality. But talk is not enough; leaders must ensure that discussion is translated into real action.

The sooner, the better: the labor-market transformation now occurring as a result of progress in robotics and artificial intelligence will only make inequality more difficult to address in the future. As the OECD has warned, the automatization of manual and repetitive tasks will chiefly affect those without college degrees – the same group that is already frustrated with their economic circumstances.

Over the next year, important national elections will take place in Europe and in the US. If populists triumph, many important social achievements will be put at risk. That is why it is so important that national leaders prove, right now, that they can and will tackle inequality and the plight of those who feel left behind by globalization.

A victory for populism would indicate that the political classes really have failed their citizens. The victory of the campaign in the United Kingdom to leave the European Union should have jolted all of us from the illusion that we are somehow protected from the risks we see around us. The unthinkable can happen. Populists can win. It is time for national leaders to show that they are paying attention.

From Project Syndicate