What is Populism and is it Salvation or Damnation for the Economy?

First, while many people hang the label fascist on some recent governments and in some instances it certainly seems to fit, the major new political leaning in many countries is actually populism.

Populism is always, ALWAYS some charismatic billionaire or multi millionaire in some poor countries who rises to political power by rousing the fears and resentment of poor and lower middle class voters and promising to make things so much better, always by protecting them against the power elite.

The joke, of course, is that the populist leader is also always part of the power elite and will mostly strive to keep his class of the rich and privileged stay that way, i.e. rich and privileged.

Recently The Foreign Affairs Magazine conducted a century long evaluation of the economics of populism, something which has seldom if ever been done.

The results were mixed but almost always damaged the economy of their country either in the short term or the long term.

Some recent examples which aren’t complicated by rapidly changing political control such as seen in Italy, include Great Britain and Venezuela.

Former President Trump is, of course a populist and in the early part of his administration there was normal or above normal economic growth. It didn’t create the promised miracle for his working class followers, after all, manufacturing jobs left the country because it is so much cheaper in Asia.

I say only the first part because almost before he got started COVID hit and all bets were off.

So lets look at GB and Venezuela where the contrast with earlier political systems is so stark.

Hugo Chávez and now Nicolás Maduro have led the past two Venezuelan governments. Brazil and Argentina also have populist governments but so recently that it is difficult to draw conclusions. Although COVID response was haphazard in Brazil, as it was in the U.S. under our populist President.

Whether the political leaning is socialist as in Venezuela or right wing conservative doesn’t make much if any difference, populism can be found in either extreme, although not in the middle of the road politicians.

Populism in Great Britain

Most recently in Great Britain populist Boris Johnson declared that economic growth hadn’t been fast enough (4-5% less) and that was because his country was handcuffed to Europe.

This solution was known as Brexit which meant decoupling their economy from the single market of the EU 23 miles away via a tunnel.

PM Johnson told voters that by going independent Great Britain would be able to establish better international trade agreements and enough believed him that Brexit followed.

He didn’t explain just how higher trade barriers between Europe and Britain would benefit the relatively small island country.

Nor did he explain why being part of the European trade group prevented GB from also trading with other countries such as the U.S. or China.

Many people would have pointed out that fighting with your largest trading partner only separated by a narrow, if critical strip of water, was not a good way to build your economy but far too many people were hurting financially which is why they elected a populist in the first place, so the EU and Britain broke off their engagement, one which British leaders had tried to forge off and on since the 60s.

Unfortunately for the working poor in Britain the economy faltered badly even before COVID reared its ugly head.

Britain had close historical ties with Canada and Australia but one was next door to the world’s hottest economy and its largest trading partner while the other one had a relatively small economy which was literally on the opposite end of the world.

To meet the claims of Johnson Great Britain had to quickly establish entirely new business connections in a world where every country with any money or goods to trade already had established trading partners.

In short, Britain never forged those promised favorable trade agreements with other parts of the world. The U.S. would have been the obvious choice but we were already tied to Canada for natural resources and the Far East for consumer goods. Britain had none of the former and couldn’t compete with third world economies for the latter.

Brexit, Populism at Work

Brexit has, in short, been a colossal disaster for Britain and barely a blip on the economic radar for Europe.

Great Britain has had a weak economy since the 40s, gliding along, but unable to support the massive public spending on things like free healthcare. Rich countries can do that, even communist countries, but a weak western economy with little in the way of natural resources simply can’t provide extensive free healthcare for everyone.

Today it can take six months or more to get critical medical care such as cancer treatment and getting an appointment with non critical specialists can take a year or years.

Punxsutawney Hospital, U.S.A.
Punxsutawney Hospital, U.S.A.

So much for the “success” of populism in Great Britain.

Venezuela a Populist Basket Case

The situation in parts of South America can be much worse because many countries start with weak economies.

However, Venezuela is a classic case.

Too many people in North America can barely find South America on a globe and couldn’t if it weren’t attached. Even fewer can point to Venezuela on a map let alone have any idea what the country’s economy or government has been.

map world old. Image by scartmyart from Pixabay
Old World Map. Image by scartmyart from Pixabay

Briefly, in the 20th century Venezuela was one of the richest countries in the world for the same reason every other really rich country is, they had lots of natural resources, mainly oil, and they were pumping it out of the ground mainly with U.S. technology.

In the name of protecting the working poor who were failing to benefit from multinational oil sales populists Chávez and Maduro instituted new economic policies.

They nationalized (stole) the oil, mining, agriculture, and even banking companies and we all know how well governments run businesses. The U.S.S.R. spent a century proving that.

It is even worse in virtual dictatorships where those seized companies always seem to end up in the hands of relatives or big supporters of the government whether or not they have any real business sense and they usually don’t or they would already have their own companies.

In a mere two decades successive populist governments reduced a rich country into one of the poorest in South America.

If you think that doesn’t matter to people in the United States, after all, if their oil industry fails it makes our industry stronger, think again.

Guess where a lot of those immigrants at the southern border come from.

Yep, a lot of starving people are fleeing Venezuela and other poor countries. That, in fact was the extent of VP Harris’ involvement in the immigrant catastrophe, she worked on ways to improve the local economies and reduce the oppression of their governments.

While there are mixed results, especially in the short term, Foreign Affairs studied 60 populist run countries over 120 years and the results were striking.

“Overall, we found that populists in power cause considerable economic damage, especially in the medium and long run. After 15 years, GDP is on average 10 percent lower in populist-run countries than in non-populist ones..”

https://www.foreignaffairs.com/world/populisms-broken-economic-promisesutm_medium=newsletters&utm_source=fatoday&utm_campaign=Big%20Tech%E2%80%99s%20Coup&utm_content=20240926&utm_term=EDZZZ003ZX

Why do populists make for poor economies?

The first thing you need to realize is that those politicians really aren’t out to improve the lives of the poor. They are focused on making reassuring claims while working hard to benefit the rich and always blaming their failure to aid their populist constituents on others.

So things never get better for the really poor even in the countries with short term economic benefits.

Why are populist leaders bad for economies.

First, as candidate Trump always states in his campaign speeches, he wants protectionism.

Trump populism signage in Punxsutawney PA
Trump populism signage in Punxsutawney PA

He calls it tariffs or taxing other countries, but that is just a way to keep other goods out and force citizens to either buy locally or pay more for imports. (When there is a tariff on some import the importer simply raises the price.)

If you have little understanding of industry or economics it might seem that blocking imports of cheap consumer goods would cause local businesses to produce replacements.

It simply doesn’t work for two basic reasons.

First, it takes incredibly high tariffs to actually make industrial workers in rich countries competitive with people working for a couple of dollars a day.

Second, you can’t just turn on production. It takes investment in new facilities and that takes time. Also business people and investors see little chance that it would work if only because a new government pressured by the same working poor to get inexpensive consumer goods again and quickly.

Make America Great.
Stay out of NATO.
Don’t support the Ukraine.
Rebuild American industry.

And, above all, don’t trust reporters.

Sound familiar?

That always happens with populist governments and always reduces international trade and exports, not just imports. If you impose a tariff on another country they always retaliate with tariffs on yours. If they don’t then, in a democracy, they get voted out of office.

Economies grow when money moves around, gets spent. When people stop buying things then we get recessions or even depressions.

But there is another and much more dangerous reason why populist governments destroy even thriving economies.

All populists have at least a touch of fascism in their souls and when their results don’t match their grandiose claims they get voted out of office unless they take certain steps.

Those steps always include doing things which skirt the fringe of lawlessness and the worse their position the more laws they break.

Along the way they fight to weaken democratic norms, appoint sycophant judges, and launch investigations into their opponents.

Also, they always attack the free press because how can you continue to lie to voters if someone else keeps pointing out your lies?

Breaking laws and ignoring traditional norms of democracies don’t directly destroy most business, but people and countries with money to invest are generally reluctant to invest in countries where they can’t rely on legal protections.

When a government demonstrates that it is willing or even eager to run roughshod over legal norms then investors worry about arbitrary interference with their ownership.

What applies to investors from other countries also applies to anyone in the populist ruled country who still has money but isn’t popular in government circles, perhaps because they complain about illegal actions. Even before investors in other countries see the dangers of investment the people who live in the country see that investing locally is a bad investment.