Populism and Its Economic Discontents

How would a rational choice thinker, an institutionalist, and a constructivist explain the recent surge of economic populism in the West, especially in the light of the 2016 Brexit vote in the UK and the victory of Donald Trump in the 2016 US presidential elections?

Peter Hall once opined that the field of comparative politics was defined by a famous troika of concepts: interests, institutions, and ideas. These terms can, in turn, reasonably be translated as the three primary frameworks for thinking about comparative politics: rational choice theory, institutionalism, and constructivism, respectively. This essay will seek to place the populist upsurge in 2016 into a comparative framework that explicates how, in the strong form of each of these three main schools of thought, the populist upsurge might be explained and understood. Yet, just as no man is an island, surely too no theory of comparative politics is an island. The essay will conclude with a synthetic explanation.

Let us begin with an identification of the subject of our analysis: contemporary populism. As astute scholars such as Diamond, Matthijs11https://www.washingtonpost.com/news/monkey-cage/wp/2017/04/11/worried-about-the-decline-in-democracy-look-at-politicians-not-public-opinion/, Jones, and Mounk22https://www.theguardian.com/commentisfree/2018/mar/04/shock-system-liberal-democracy-populism have recently documented, liberal democracy is facing a growing crisis. Although Francis Fukuyama declared the end of history (i.e. the ideational victory of liberal democracy) to be in sight in 1989, he was well aware that challenges would arise (whether internally due to boredom or externally). But even he might be surprised by the current, extensive global onslaught against liberal democratic norms occasioned by rising populism. These populists, ranging from countries as diverse as Britain, the US, Germany, France, Poland, Hungary, Sweden, the Netherlands and more, seem to be unified in viewing their grievances, revolving around issues related to globalization and their lack of benefit from it, as stemming from the status quo establishment and the elites who benefit off it. So, how might the three main schools of comparative political economic theory interpret this rising populism?

Let us take rational choice theory as our starting point. Rational choice theory, a paradigm of analysis adopted from economics, can be understood as a materialist conceptualization and interpretation of interests; an attempt to formalize our understanding of what actors want and to apply methodological rigor to the study of these interests. In so doing, ‘rationality’ becomes a key constituent, insofar as rationality is defined to be those sets of actions that maximize payoff to one’s interests, typically defined economically/materially and typically viewed in-light of neoclassical economic models that emphasize preferences and utility maximization. In its broadest form, then, rational choice theory is likely to interpret populism through a framework that focuses on changing economic preferences, or changes in underlying conditions that impact those preferences (such as slowing economic growth or uneven economic benefits).

A key tool of rational choice theorists, particularly germane to a discussion of populism, is game theoretic modeling. This modeling often involves two actors (for mathematical convenience normally) described as the masses and the elites. In the most basic version, some scholars such as Carl Boix and Daron Acemoglu model the elite and mass preferences as being in distinct conflict, with the elite attempting to suppress the masses and the masses attempting to accrue resources. Other classic rational choice theorists, such as Olson and Rogowski, add on to this conceptualization by introducing complications, such as free-riding, which tends to undermine mass mobilization, as well as coalitional/group interests deriving from factors of production. Beyond the simplistic form of the analysis, Carl Boix builds upon Rogowski’s theorem of production factors to argue that coalitions predicated upon factors of production, characterized by their varying degrees of capital mobility, have a tendency to produce differential political systems. Specifically, countries with an ascendant interest group of highly mobile capital tend toward democratic norms, while an ascendant interest group of immobile/fixed capital tends to favor authoritarianism (a finding Pepinsky expands upon in his analysis of Indonesia and Malaysia during the Asian Financial Crisis).

A rational choice theorist would thus analyze the underlying economic interests of the coalitions and individuals involved in our populist moment to get a grasp on the situation. Building off the relatively general view that populism is largely a counter-response to globalization, rational choice theorists would argue that the populist coalitions are those whose economic interests are least served, or even actively hurt, by globalization. Such a theorist may then cite the rise of Donald Trump and his success in the US rust belt as evidence of this, given that there is indisputable evidence demonstrating that globalization has undercut the manufacturing sector and resulted in substantial job losses (though, empirically, there is an ongoing debate between how much job loss is due to countries such as China and how much is due to trends in automation). As Sandra Halperin characterized it in her critique of Polanyi, what we have is a ‘transnational capitalist class’ whose interests globalization serves, while a domestic constituency who has little direct upside exposure to globalization sees its interests running directly counter to it. Perhaps worryingly, then, as fixed-factor interests, identified by both Boix and Pepinsky as favoring authoritarianism, rise in prominence and form a coalitional alignment with workers displaced by globalization, emerging populism may be creating pro-authoritarian pressures (evidence could be marshalled in support of this by citing the rise of Orban in Hungary, Erdogan in Turkey, Trump in the US, and other right-wing parties in Germany, France, Poland and beyond).

Institutionalist analysis builds upon but departs from rational choice theory’s interest-based analysis in viewing interests as essentially refracted through the incentive structures of long-standing institutions. North offers a broad definition of institutions as “humanly devised constraints that shape human interaction.”33https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1496212 In this sense then, institutions can include political parties, bureaucracies, local and federal governments, and all such things that have an impact on forming the norms, rules, regulations, and habits that constrain and shape human behavior in societies all the way up to the high-level characteristics that differentiate Coordinated and Liberal Market Economies (CMEs vs LMEs). A core contention of institutionalist analysis is the idea of path dependency, or the idea that the past conditions determine, to a large degree, the evolutionary path of institutions and society more broadly. In this way, then, it is plausible that institutional inertia can run up against rapidly changing external environments, creating substantial friction. While institutions serve as a funnel through which interest groups choices are structured, there can be a decisive constraining of possible policy choices. This can lead to obvious problems if large interest groups view the entire array of possible choices as insufficient to meet challenges they face in contemporary environments.

The third of the troika, constructivism, posits that over and above material or structural considerations, ideas and beliefs themselves play a decisive and causal role in historical developments. Constructivists hold that ideas are not simply abstract concepts floating in the ether, but are in fact deeply impactful forces that can directly shape, and even change, the way in which individuals and groups perceive and understand their interests. In this way, narration and ideational creation and promotion can actively shape historical developments. Berman, for example, in her book the ‘Social Democratic Moment,’ juxtaposes responses to the post WW1 economic crises by the German and Swedish social democratic parties. She finds that the SPD’s (German Social Democratic Party) rigid adherence to traditional historical materialist views of Marxism led them “not to not put forward a convincing new economic program in response to the Depression, nor did it formulate a successful appeal to groups outside the working class. This contributed to the conditions in which Hitler and the Nazi party rose to political prominence and ultimately to national leadership.” populists desire a radical reformulation of institutions, even if it entails breaking and dismantling them. In this way populists may in fact desire the ushering in new of new institutions they view as more attuned to contemporary realities (whether fundamentally democratic, or not).

The third of the troika, constructivism, posits that over and above material or structural considerations, ideas and beliefs themselves play a decisive and causal role in historical developments. Constructivists hold that ideas are not simply abstract concepts floating in the ether, but are in fact deeply impactful forces that can directly shape, and even change, the way in which individuals and groups perceive and understand their interests. In this way, narration and ideational creation and promotion can actively shape historical developments. Berman, for example, in her book the ‘Social Democratic Moment,’ juxtaposes responses to the post WW1 economic crises by the German and Swedish social democratic parties. She finds that the SPD’s (German Social Democractic Party) rigid adherence to traditional historical materialist views of Marxism led them “not to put forward a convincing new economic program in response to the Depression, nor did it formulate a successful appeal to groups outside the working class. This contributed to the conditions in which Hitler and the Nazi party rose to political prominence and ultimately to national leadership.”55Berman, The Social Democratic Moment, page 11 The crux of the matter for constructivists is that ideas fundamentally matter, they shape the way in which elites and the masses behave, just as they shape the way in which people understand their interests. Matthijs extends this thinking in finding that ideational narration, the process by which ideas are propagated (typically by members of the elite) and used to explain and contextualize crises (or even create them), is crucial in understanding how critical junctures in economic history play out.

A constructivist may thus look at the populist uprisings as largely ideational, in that policy entrepreneurs have arisen who are effectively selling the masses on a populist message. People like Donald Trump and Steve Bannon have provided an ideational narrative to many disgruntled people that effectively says “the other elites are collaborating to screw you, the common man, via globalization and mass migration to benefit from cheap labor. But if you follow our economic populism we protect you and make you feel okay again.” The actual tenets of economic populism (i.e. how institutions, policies, and norms are to be changed) are relatively inchoate, but the message that is being promoted is fairly clear and consistent.

A constructivist, such as Berman or Mattijs, might look at the political narratives of the last several decades as failing to provide sufficient explanation for the rapid, destabilizing economic transition (and pain) many are going through. The standard, elite narrative of freer trade, more immigration, more technology, and more globalization leading to great progress for all, at least in the aggregate, has not proven manifestly true to a large number of people. Thus, exploiting a crisis, or even creating one, populists like Trump have risen to power on the back of a new narrative, and have found traction.

Ultimately, explaining the rise of contemporary populism ought to draw from the many valid points raised in all three types of frameworks. A rational choice framework allows us to focus on the underlying material interests that are at play, and how the relative change in the power of certain interest groups may be giving rise to populist tendencies, as a backlash against the ‘mobile capital group’ coalesces (i.e. against the ‘transnational corporate elite’). An institutional framework may indicate that the rules and bodies that regulate societal behavior and interaction may be creating friction insofar as they are somewhat outdated and not capable of keeping up with a 21st century economy. And an ideational perspective lets us see how new ideas and narratives that contextualize people’s pain and suffering are contributing to an emergent populism. As Yascha Mounk said, “there can no longer be any doubt that we are going through a populist moment. The question is whether this populist moment will turn into a populist age – and cast the very survival of liberal democracy in doubt.”66https://www.theguardian.com/commentisfree/2018/mar/04/shock-system-liberal-democracy-populism Having diagnosed the problem, one wonders what can be done.