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Post-Davos note: the paradox of the populist threat

Part diagnosis, part insult, the term populism is hurled across political divides and television screens with the fervour and rage once reserved for history’s great villains.  As a result, what was once a niche subject is getting top-billing in the press and forums such as Davos.  But what are the implications of the rise of populism for investors, business and institutions.   We have been arguing for a while that beyond any visible mobilisation at party-level, populism is set to dominate the social, political and economic landscape for the coming decades.  This phenomenon will have profound market implications and investors should see it as a significant source of instability.

The rise of populism has been fuelled by two socio-economic mega-trends which have forcefully emerged. First, the broken promise of steady growth (and jobs to go with it) as the basis for ever-growing ease and increased middle-class comforts in many developed economies; This painful process of falling living standards for the middle classes and stagnant progress for those aspiring to middle-class status has thrown vast swathes of our societies in a state of deep anxiety over a radically uncertain future and bitter resentment toward the political and financial elites.  This combination of anxiety and mistrust and the cynicism to which it gives rise spells a level of disengagement that, our research suggests, is unsustainable: people may be disengaged but they are not passive, they are, instead, hyper-critical.  Thereby leading to the systematic undermining of any political or economic initiative. The deligitimisation of the elites and of experts was compounded by the second mega-trend, triggered by the spread of information technology and a digital revolution that has made knowledge and information widely available at little or no cost. This development has proved highly disruptive: societies are no longer willing to pay elites a premium for an expertise that – rightly or wrongly – appears to be freely accessible (if seldom well-used).  This attack on political, financial and economic elites is at the core of the populist agenda: the financial elites are seen as responsible for a crisis that, while it may be seen as abating in some markets, is held up as collective irresponsibility and continuing hardship for many.  While political elites are seen as, at best incompetent, and, at worst, complicit.

This means that although the agendas of populist parties and movements differ, they share two basic tenets: a fundamental distaste for political and financial elites and a relentless calling into question of key liberal institutions such as free market capitalism, international trade, and free movement of labour and capital. In other words, the status quo that market globalisation has established in the past 30 years is what populists are determined to undermine. More broadly , populism as a set of attitudes and behaviours is spreading well beyond  the confines of populist parties and simply becoming the narrative through which a growing proportion of people engage – or justify their disengagement – with various institutions (both formal – such as the European Parliament or Congress; And informal—such as corruption).  So this spreading populist ideology translates into calls for policies of retrenchment; Policies that would significantly affect investors: restriction of migratory rights, the support of national champions, economic protectionism and resource nationalism.

The key paradox here is that whereas populism is often equated with mobilisation and with protest–with ‘things kicking off’, what markets and investors need to be worried about is the very opposite: things grinding to a halt. Because as a result of the permanent  threat of mobilisation across all sorts of hyper-complex issues (and, sometimes, in important but fragile states), there is little or no room left for decision-making.  Hung parliaments, blocked budgets, EU stalemates, U-turns, the immediate disillusionment of voters with those who access power, and the all but complete disappearance of any window of opportunity through which policy can be enacted.  Elites, economic and political, are caught in populism’s Medusa glare.  Frozen and unable to act.

This means that the threat of populism over time creates something that goes well beyond risk—in their incapacity to act, political elites create permanent uncertainty.  And uncertainty is far more difficult to price than risk.  This is what investors and business leaders should fear.

To counter this immobilism, to wrench off populism’s deadening hand from our institutions and societies we need to understand, in much more sophisticated ways than we have so far, the nature of the anxieties that grip populations across the world—these are often created by generic, transnational factors, but they are expressed and experienced in subtle and specific ways and thus need to be addressed and understood as such.  Global discussions at elite level are necessary, but they are perceived as part of the problem for many who succumb to populism’s reassuringly parochial song.  So unless we understand the hidden wiring of collective grievances and anxieties in context, then there is little hope of reassuring people and giving the better elites the confidence to act.

 

On February 4th Counterpoint is chairing a BBA breakfast on the potential impact of populist forces in the next European parliament. 

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