Merkel, Macron and the Monster

The World Economic Forum’s annual flagship event in Davos came to an end last Friday. Davos is well known for being the mecca for movers and shakers of governments and big business around the world where they get to address some of the major issues facing the world today.

This year, the minds of Macron and Merkel were again centred around globalism, but this time not on the major benefits that globalisation brings with it. Instead, they raised concerns about a monster lurking just under the surface in countries all across the world – the spectre of populism.

Macron pointed to his rival Le Pen in the French General Election who, in order to appeal to voters in France, proposed to have less globalisation and more protectionism. Merkel warned about the poison of populism and the problems that may arise from generalising about different nations and cultures, especially in combination with high unemployment and increased immigration as a factor for growing and sustaining populism.

One of the major arguments made for the rise in populism is the ‘neoliberal’ argument. Rising inequality and more competitive labour markets, as a result of globalisation, are often claimed to be one of the main driving forces for people turning their backs on classic ideologies and looking for alternatives that populist politicians like Trump and Corbyn provide.

After the fall of the USSR and the triumph of capitalism in the Cold War there was a surge in levels of free trade and economic freedom around the world. At the same time, right wing populism began rising. In 1980 populism started off at a vote share of only 1%, according to data from Timbro’s Authoritarian Populism Index, and peaked in 2016 with 12.3%. Looking at these stats, you might suggest that privatisation, tax reforms and globalisation are pushing voters into the arms of populists.

A briefing paper by Epicentre tests this thesis and reaches the opposite conclusion. In fact, they find that through a 30-year period economic freedom correlates negatively with authoritarian populism. Therefore, increasing taxes or trying to “protect” jobs, as some propose as a solution to meeting concerns within the public, will at best be ineffective and at worst lead to policies that restrict our freedoms or destroy markets. We’ve seen what this looks like in the previous century - it’s not pretty and we don’t want a repeat of it.

Similar results are reached in the Fraser Institute’s Economic Freedom Index 2017. Immigration has attained a significant amount of attention as another reason for rising populism. Trump partly won the presidency on his tough rhetoric towards immigrants. Similar rhetoric was used during the EU referendum campaign in the UK.

The Fraser Institute contrast the neoliberal approach of liberalized migration and free markets with the anti-globalisation movement. Parts of the anti-globalisation movement suggest that neoliberalisation creates an anti-immigration backlash due to increased competition between natives and immigrants and a race to the bottom because the capitalists see it as an opportune moment to drive down wages for profits.

Another argument against the neoliberal approach is a problem not directly related to the free market. Rather, it’s a problem with immigrants who supposedly place a burden on the welfare state which leads to the natives blaming them for threatening their welfare, also known as “welfare chauvinism”.  

Using data from 27 OECD countries, their results do not show a direct effect between immigrant population share and support for populism. However, models show that in countries with higher social spending as a share of GDP and lower economic freedom, an increase in immigration may result in rising support for populist parties. This led them to the overall conclusion that there’s no justification for either the socialist argument or the mercantilist arguments – as set out above. There’s no direct effect between the size of immigrant population and vote-share of populist parties, nor are there signs of more economically free countries with high support of populism.

With all this in mind, it would be counterproductive when populists suggest that we need to restrict immigration and put an end to globalisation to protect the welfare of natives and it would result in increasing polarisation. Luckily, Merkel and Macron understand this. However, in the wake of Trump’s election and Brexit, the world looked to Germany as a potential new global leader, but Merkel hasn’t managed to live up to such expectations due to a lack of inventiveness.

Macron, however, has a good grip of what it takes to meet the concerns that produce rising populism. He understands that traditional welfare states have failed. They are no longer able to provide actual welfare and care for their citizens, instead they’ve crippled innovation and created polarisation which in the end has led to flourishing populism. Protecting jobs in the disruptive economy is pointless and it won’t do any good for the individual. Neither does a tax system that tries to reduce inequality but disincentivizes people from working instead.

Not only would these neoliberal reforms rebuke the populist movement that cries for more protection and less globalisation. They would remove the centre of the problem, effectively mitigating the polarisation that the welfare state has created.