Social scientists regard globalization and technological progress as major contributors to the ongoing increase in job and income polarization in the United States and Europe. This increased inequality is thought to have reduced standards of living for the median voter in both regions. Against this backdrop, the 2007-2008 financial crisis seems to have created a political and economic climate of populism on both the right and the left of the political spectrum. Although populist politicians have emerged in the United States and Europe before, it is in developing countries and especially in Latin America that their influence on politics and economic policy has been the greatest throughout the 20th and 21st centuries. It may now be that our understanding of the rising populist tide in developed countries can be informed by what we have learned about so-called traditional populism and neopopulism in the developing world.
Traditional populist leaders, whose greatest influence was in Latin America, claimed to hold a political position that supported ordinary citizens and tended to be against the private sector, foreign companies and multilateral international institutions. They had strong and charismatic personalities and tended to operate outside the realm of traditional political parties and democratic institutions. Perhaps the best known of these was Juan Domingo Perón of Argentina. Key features of a traditional populist economic program were protectionism and the promotion of economic growth and a reduction in inequality through expansionary fiscal and monetary policies, complemented by market controls and regulations. Once a program was implemented, even though there was a short period of economic growth, bottlenecks developed causing unsustainable macroeconomic pressures: a rise in prices and a loss of competitiveness leading to balance of payments difficulties. The typical outcome was a major macroeconomic crisis that hurt the poorer segments of society, which were the very groups that populist politicians had said they wanted to help.
The literature on populism attempts to explain the apparent paradox whereby voters choose a politician whose policies ultimately hurt their economic interests. One line of research emphasizes the role of natural resources in providing revenues for politicians to buy popular support. In another line of research, signalling plays an important role. For example, one model shows that a politician has an incentive to signal that he is left wing in spite of his political bliss point being to the right of the median voter’s. Voters choose him based of his signal but he adopts right wing economic policies after he takes office. A different model shows that a political candidate selects strategically a narrow set of issues to display to voters during his campaign in order to establish his credibility, e.g. focusing on domestic economic crisis instead of foreign policy. There is empirical research that supports this last finding and moreover shows that candidates tend to spend more time on divisive issues during campaigning.
Although neopopulists in Latin America hold similar political positions to those of traditional populists (i.e. they tend to be against the private sector, foreign companies and multilateral institutions), the focus of their rhetorical attacks is on globalization. A key innovation is that neopopulists appear to appreciate the importance of macroeconomic stability. Instead of fiscal and monetary expansion they adopt targeted interventions aimed directly at redistribution, rather than macroeconomic expansion. Examples of modern populist policy tools are: price controls on utilities, expropriation of foreign companies, import tariffs, export taxes, and exchange rate manipulation.
There are striking similarities between anti-globalization and nationalistic discourses of neopopulists from developing countries and the populists who are ascending in developed countries. However, the populists of developed countries go beyond their developing country counterparts with their emphasis on the association between international trade and job losses at home, and on their support of anti-immigration policies. The current debate is over whether populists in developed countries misrepresent the facts and their corresponding policy proposals in a way that gains political support and, if so, whether or not voters are able to see through this. A key question is whether this works in the same way as in traditional populism or whether it represents a new approach.
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