The Rise and Reason of the Belligerent Populist
An explanation of why globalisation Drives populism
A major theme of the last 12 months has been the impact of globalisation on domestic industry in developed nations and the consequences for people who are financially and socially dependent on those businesses and the communities they support. Many commentators and politicians have highlighted globalisation when trying to explain the rise of right-wing populism in the developed world, especially given the recent effects of austerity in many of those countries. A large cohort of often vulnerable voters have become discouraged with our systems and institutions and seem to be lashing out against them. Ambiguous concerns about financial security and national identity in a world where borders have become increasingly ethereal has resulted in widespread resistance to global trade, migration, neo-liberalism and a perceived society of wealthy multi-national global elite.
But is there any truth in the idea that globalisation is to blame for the travails of the disgruntled populist?
Yes. There is. And our systems of government have allowed this surprisingly diverse and distinct cohort of agitators to become disproportionately powerful.
The Economics of Globalisation[JE1]
Globalisation is simple term referring to complex interdependent factors across multiple co-dependent drivers including technology, economics, movement of labour and capital, reciprocal trade and standardisation, the environment, citizen rights and geopolitics. It is primarily driven by economic policy and facilitated through multilateral trade agreements like NAFTA, GATT, TPP and EFTA in order to apply the law of comparative advantage across multiple state actors.
Trade agreements like these allow countries to produce what they’re best at and trade with others, to everyone’s advantage. It also means that countries no longer produce something that’s not the thing they’re best at so they can supply more resources to the thing they are. A practical consequence being the reduction of jobs in some industries and creation of new, higher paid jobs in others.
This creates tremendous growth and productivity in open economies. The problem being that the people who lose their job in one industry are very unlikely to be the same people who get the new jobs in another industry. Oftentimes, immigrant labour is required to quickly fill these skills gaps and that can obviously breed resentment despite the fact that most people are now better off.
Underemployed and Unsatisfied
Globalisation, through this process of comparative advantage, will lead to cohorts of workers in comparatively disadvantageous industries losing their jobs to regions that have a comparative advantage in that particular field. Traditionally, these people would have been described as “technologically” and potentially “structurally unemployed, meaning they will struggle to find new unemployment.” However, when new, higher paid jobs replace some of those that are lost, more service jobs are created by the income effect generated by those new higher earning jobs (e.g. more Starbucks, McDonalds and Walmart type work).
These low level, unsatisfying service roles are the jobs that become available to the displaced workers. The dissatisfaction of those who have spent 20 years working to hone their craft in manufacturing, extraction, machinery, nursing and equivilent class mobility sectors, only to find themselves cleaning bathroom stalls at an iHop, will be disguised by the bullish growth and employment figures generated by the new higher salaries and new service industry jobs. Everything appears great through the lens traditional economic and media markers when in reality, many people are suffering and social mobility has been significantly reduced for millions of traditionally secure people and their children.
A Minority Wakes to its Power
To an economist, it may seem like this is a mitigable level of societal dissatisfaction for the sake of better standards of living in the aggregate globally. But it turns out that this group is larger than people realised and wields considerable power.
Conceptually divide the world into four quadrants: rich people in rich countries, poor people in rich countries, rich people in poor countries and poor people in poor countries By using negative/positive deviation from the mean national income figures as a back-of-the-envelope proxy for rich and poor globally, we can see that the split is approximately 535m rich in rich countries, 681m poor in rich countries, 2.611bn rich in poor countries and 3.606bn poor in poor countries.
So who wins with globalization?
· Rich people in rich countries benefit greatly through increased revenues and growth opportunities.
· Rich people in poor countries benefit for similar reasons.
· Poor people in poor countries benefit because globalisation leads to new jobs, wage inflation, better conditions and new skills.
But for the 681 million poor people in rich countries, globalisation is a losing game. It can absolutely decimate this group’s careers, lifestyle, aspirations and potential for social mobility.
While poor people in rich countries comprise less than 10% of the global population, they are the group driving the anti-globalisation agenda across the world. The irony, of course, being that the reason they have become so disadvantaged is the same reason they are citizens of a rich, rather than a poor country. Globalisation has helped the nation’s bottom line, but at the expense of their personal financial well-being.
A demonstrable example is the election of Donald Trump. The United States has close to full employment. Stock exchanges are reaching long-time highs, the economy is in the best condition it’s been for some time, and only a minority of people are actually affected by redundancies inflicted through trade deals. The poor of the United States are often significantly wealthier than even the rich of poor countries. So why would they undermine the apparently strong position of their country by voting for a candidate who promised to tear down the foundations of that success?
Due to the U.S.’ global disposition on trade, many people’s jobs are at risk — jobs that U.S. economists would happily trade away to create new, higher-skilled jobs and generate greater domestic productivity. It’s not an overstatement to suggest that almost every job below the national average income is at risk due to automation and displacement. This possibility increasingly resonates with voters who are worried about becoming a permanent underclass of socially immobile, structurally underemployed: the poor in rich countries, many of whom once had careers, who now take shifts at big box stores to pay the bills rather than to build a future.
This becomes increasingly meaningful when considered within the parameters and peculiarities of the electoral college system of the United States. A system that allows a candidate to win an election through the carrying of sufficient districts rather than a requirement to achieve a majority of the popular vote, becomes vulnerable to sweeping but incremental reconfiguration of the lifestyles of the vulnerable. In this instance, it is clear that Americans who earn less than the average wage, i.e. those most likely to be disadvantaged from globalisation, are in the majority in both population figures and Electoral College. And just like that, the jobs argument on the campaign trail starts to make sense, and Trump becomes a real possibility.
A Different Path — for the U.S. and Beyond
Trump’s promise to make America “great again” is a curious one. He ostensibly promises to give hope to a generation of Americans most likely to fall victim to the rising tide of globalisation at the expense of the generation who comes after them. It is the political equivalent of quantitative easing.
An alternative and pragmatic approach would be to address the inevitable societal change and develop the capacity for retraining, relocation and replacement as appropriate (e.g. basically all of Scandinavia). Because what America is experiencing is not particular to the United States. It is an issue all developed world economies will face, repeatedly, in coming decades. Low-skilled workers can no longer expect a job for life and immediate access to the middle class with the potential social mobility that comes with it. Retraining and relocation will be a way of life for the under-qualified in wealthy countries.
This is not, as many believe, a crisis of democracy. It’s just democracy straining to contextualise the externalities of rapid but inevitable technological change and recent austerity. Globalisation is a demonstrable force for good but that doesn’t abdicate us from our duty of care to the minority it displaces, nor does it mean that it’s acceptable to pander to them about the potential to slow it,reverse it, alter it or stave it off. Our world is changing. It will continue to do so regardless of whether or not we are willing to change with it.
John Egan leads the strategy practice at Anthemis, designing financial institutions for a digital age. He is visiting faculty at the International Academy of Retail banking, sits on the UCD Innovation Board of Studies and his work has been published by Harriman House, Gill & McMillan and Lafferty. You can find our more at iamjohnegan.me or @iamjohnegan