March 28, 2018 / 3:16 PM / 2 years ago

Breakingviews - Hadas: Populist economics can be sensible

LONDON (Reuters Breakingviews) - Anti-establishment politicians should have iconoclastic economic policies. For now, though, many Western populist movements are floundering.

5-Star Movement founder Beppe Grillo gestures as he talks during a political rally with Luigi Di Maio in Torre del Greco, near Naples, Italy February 12, 2018. REUTERS/Ciro De Luca - RC18F5220510

U.S. President Donald Trump seems determined to unravel helpful regulation at home while sowing needless enmity abroad. It is hard to match the foolishness of his mix of cuts to domestic services, counterproductive tariffs and confused rhetorical belligerence.

The Europeans are trying. Cheerleaders of Brexit dream of taking Britain back to an imaginary past once it leaves the European Union, but they have few concrete policies. In Italy, the League and the 5-Star Movement change economic policies regularly and almost randomly. France’s National Front is no better.

That economic vacuum is irresponsible, especially as these groups appeal most to people frustrated by their own lack of economic opportunities and by the dysfunctions of the whole market-based system. These “left behind” people deserve concrete ideas, not just angry speeches and empty slogans.

The emptiest slogan is “economic nationalism”. Modern economies are extensively and deeply international. Cutting developed countries off from efficient foreign production and world-class technology would lead to more losses than gains.

However, the domestic benefits of participating in the global economy should be shared fairly. Making sure that happens is a job for the state, even though the concept of helpful government is anathema to many U.S. conservative populists. Their creed of ever smaller governments and ever freer markets is dangerously counterproductive for distressed populist voters.

After all, only governments can enforce the sort of regulations and afford the sort of investments in training and industrial development that might help people with relatively few skills and opportunities. And only governments have the necessary resources and power to provide extensive social safety nets that will protect the “left behind”.

The U.S. military, which offers decent healthcare, pays for tertiary education, and guarantees generous pensions, is a good model. Populist leaders could follow its lead and replace outdated labour and benefits laws with similarly extensive, if less expensive, programmes.

The first priority would be to guarantee good jobs. Even in countries where recorded unemployment rates are relatively low, the number of not-quite and not-well employed people can be distressingly high. There are precedents for a more active labour policy. In the 1930s, government-guided job creation was an economic success in both Germany and the United States. The needs are different now, but the principles are the same – more and better jobs.  

Hiring more people, either on the government payroll or indirectly through government-backed plans, to perform socially valuable tasks could pay for itself quite quickly. Not only would the tax base grow but the demand for welfare benefits would go down.

Creating better jobs are a greater challenge than creating more of them. But politicians can help. Mariana Mazzucato, director of University College London’s Institute for Innovation and Public Purpose, points out that strong governments enrich the economic environment, among other ways by supporting better training and coherent development projects.

Economic security would be the second priority. Many poor and middle-class people in the West risk slipping down the socio-economic scale. The danger is particularly high in the United States, but European welfare systems are also all too fallible. Scandinavian-style workfare or guaranteed minimum incomes may be better alternatives. Populist economics could turn such ideas into a national crusade to prevent sustained unemployment, ill health and family breakdowns from leading to persistent poverty.

In sum, truly helpful populist economics would want more government with higher spending and therefore higher taxes. Such an expansion could help most if government workers were generally competent and rarely corrupt.  Again, there is a precedent. Reforming populists in the early 20th century campaigned for a well-remunerated, merit-based civil service. Today’s populists and nationalists could revive and modernise that fervour.

Populist economics could also encompass measures to curb financial excess, which typically involves a transfer of money from relatively poor borrowers to relatively rich lenders. That’s a bad bargain for most populist voters. The ultra-high incomes of some financial professionals are another obvious target.

Better government, more jobs and social protection, and less finance are the cornerstones of a sensible populist economic agenda, one that avoids any hint of the sort of crony capitalism that blights government in Russia and Turkey. When political favour is the only key to business success, populist voters tend to lose out.

Even the most beneficial economics will not change the authoritarian and extreme nationalist strands of contemporary populist movements. Those traits will never appeal to defenders of the current order. If the establishment really wants to keep them at bay, they could start by proposing some good populist economic policies of their own.


Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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