Economics

En defensa del populismo económico

Jan 9, 2018 Dani Rodrik

CAMBRIDGE – Los populistas aborrecen las restricciones al poder ejecutivo. Puesto que dicen representar al “pueblo” en su totalidad, consideran que todo límite a su ejercicio del poder atenta contra la voluntad popular, y sólo puede estar al servicio de los “enemigos del pueblo”: las minorías y los extranjeros (para los populistas de derecha) o las élites financieras (en el caso de los populistas de izquierda).

Es una forma peligrosa de entender la política, porque permite a una mayoría pisotear los derechos de las minorías. Sin separación de poderes, sistema judicial independiente y libertad de prensa (algo que todos los autócratas populistas, desde Vladimir Putin y Recep Tayyip Erdoğan hasta Viktor Orbán y Donald Trump detestan) la democracia degenera en tiranía de quien acierte a estar en el poder.

En el populismo, las elecciones periódicas se vuelven una cortina de humo. En ausencia del Estado de Derecho y de las libertades civiles básicas, los regímenes populistas pueden prolongar su reinado manipulando medios y tribunales a su antojo.

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0 Comments on this paragraph, 37 Comments on this article

Henry Rech Feb 8, 2018

What is the difference between political populism (expressed via the ballot box) and democracy?
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Tibor Nagy Feb 4, 2018

You're talking about restraints which will extend to the overall economy. In some aspects you're right. Viktor Orbán cut down the ill or handicapped people's retirements, the budgets of schools or the budgets of hospitals, without EU moneys makes no public investments. But don't forget the Hungarian prime minister has raised the old people's retirements nowadays, and the corruption has extended drastically. You're right that the inflation will increase (mainly it derives from the raising wages), but the younger Hungarians move to, migrate to the western member-states for the much higher wages. They will not live here, Hungary.
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Henk Crop Jan 17, 2018

Phil. Good article. Also good comments.
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Andrés Galia Jan 15, 2018

I suggest the author to take a look at the situation of the economy in Argentina. They have applied the "orthodox rules" he suggests and after two years of those rules here are the results: inflation 25% per year; trade deficit 9 billion US dollars; unemployment in the rise. The application of the same orthodoxy in the 90' led the country to the 2002 debt default and more than 20% of people living below the poverty line.
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Andrew (Andy) Crow Jan 15, 2018

"This is a dangerous approach to politics, because it allows a majority to ride roughshod over the rights of minorities."

I can see how that is our current problem. Not.

Where we are now the boot is very definitely on the other foot.
- Steve Hurst Jan 15, 2018
  
  Democracy means simply the bludgeoning of the people by the people for the people. - Oscar Wilde
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jonathan Story Jan 15, 2018

Dani Rodrick's comments are particularly pertinent to Euroland. A one size fit all Regime, without an adequate fiscal arm, has been clamped a a diverse collection of interdependent states. But Germany and The Netherlands businesses benefit enormously from an undervalued currency, and France will never abandon its efforts to make Euroland in a French image. For that reason, "Populismus"-understood as opposition to prevailing policy-has plenty of future ahead.
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Phil Cartier Jan 15, 2018

Overall Dani Rodrik makes good points. The major mistake is putting "Vladimir Putin and Recep Tayyip Erdoğan to Viktor Orbán and Donald Trump" in the same comparison. You don't see an autocrat sitting down with representatives of the opposing view to hash out a compromise. You did see one using "my phone and my pen" to get around opposition by executive orders or decrees from autocrats.

We, meaning the world, have a problem with excessive and unaccountable government. The major countries, and many smaller countries, have gotten themselves into a bind where the executive/regulatory arm of government has become uncontrollable. People(the elemental populist) in the street sees in something as simple as tremendous over regulation of licensing of innumerable specialties. License surgeons, doctors, nurses, certainly. License street sweepers, hair braiding, lawn mowing, and a multitude of rather mundane trades tells people they are being had. When the people see the US Environmental Protection Agency polluting the soul source of water in half the southwest US by mishandling a mine reclamation project, and no one at the Agency so much as gets their hands slapped, much less fired, we know we are being had.

The EU has the biggest problem because the bureaucracy is not overseen by any elected officials. It has essentially become self sustaining because it suggests its own appointments that are virtually never voted down by the European Parliament, which is a parliament almost solely in name only.

I do have to call out Steve Hurst claiming "wealth redistribution" as a viable system, particularly on a large basis. There is a significant problem defining the wealth to be distributed when it is denominated in fiat currencies or held in multiple countries.
The ongoing problem would be who redistributes the wealth. The Roman Empire collapsed in good part when the populace found they could demand bread and circuses for "free". Other people's money only goes so far. When some government starts taking "other peoples money" to distribute the other people have a nasty habit of looking elsewhere to live and earn.
The other problems is putting people on the dole destroys their self-esteem and essentially ruins them for any responsible job or even the ability to learn a productive job.
- Steve Hurst Jan 15, 2018
  
  Phil, Since you have named me I will comment.
  
  ZIRP and NIRP are wealth distribution (from savers), as is the taxation and benefits system, as is government supplying varying amounts of public cash to different regions, there is no flat rate therefore there is differentiated support. I dont see how you can argue about that. Total tax take in European economies is in the region of 40%. If wealth distribution was not part of the activity 40% would not be needed. The objective of wealth distribution is social cohesion. As generally the wealth have influence in the writing of the rulebook some interesting outcomes and quirks can sometimes be observed
  
  Furthermore - somewhere or other I saw an assessment that in a developed economy only 21% of activity was actually needed for survival. I imagine that survival would be pretty joyless, something along the lines of the ration book existence the UK saw in WW2. Inspection of the numbers of people needed to grow and distribute food is quite interesting. Anyway the point here in that hypothesis is that 79% of people have to be engaged in something not essential, eg consumerism and enhanced services (including healthcare) as a main contender. Under these conditions I am not surprised there are economic wobbles because there will always be fads.
  
  The regulations you refer to, which I also think inhibit activity, are in response to public pressure
  
  Finally - as is noted by someone else in the comments below -The euro inhibits sovereign response eg currency devaluation - this happens whilst the EU is seen by sections of the public as attempting to inhibit democratic action. The key attribute of democracy is flexibility to evolve policy in the face of a changing environment. Impeding democratic influence is unlikely to be beneficial and has sparked the 'claim back my rights' or nationalist trend aka a lack of trust. Furthermore economic policy outputs have a longer gestation than the ballot box which is heavily influenced by the consumer confidence index which has a higher volatility. The ballot box will always win out. Trust is a fickle thing and once deserted is hard to win back
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- Andrew (Andy) Crow Jan 15, 2018
  
  "....and many smaller countries, have gotten themselves into a bind where the executive/regulatory arm of government has become uncontrollable. "
  
  It's not the governments that are uncontrollable. The problem is that enormous wealth is held by private interests which control the governments. You are seeing the problem upside down I think. There is no accountability. Did governments choose to bail out the banks or did the banks force governments to do so? The latter I think.
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- M M Jan 15, 2018
  
  Phil, your comments are spot on. Today, unless one has a university degree with several years of experience, fully licensed, etc. he or she cannot even be considered for a street sweeping job. Public representatives and the establishment (s) are still unable to get one thing strait in their own minds which is unless they create good quality jobs, meaning truly productive jobs (without strings attached), and get unemployment sincerely and truly down, there can only be big troubles ahead.
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Janos Nagy Jan 15, 2018

Since when economics has anything to do with political ideologies?
The real problem is that politicians are managing economic policies guided by their political ideology that is easy to sell to the crowd because it's always promise something you like.
It breaks down to the left promise that money will be given to you by taking it from the wealthier or the right that money will be given to you by allowing you to make it and keep it.
But of course there is only two kind of economic that actually exist.
One is the planned economic system just like the communist and the other is the market economic system oftentimes called capitalist economic system.
Now there's the third one what is the mix of the two so mixmarket economic that most developed countries has today.
There is no such thing as a populist economic system or as a globalist economic system.
Globalization is not an economic system but some economic policies by politicians that disregards the basics of the mechanisms of the classical capitalist economic.
Globalist will never tell you that globalization is not compatible with the capitalist economic system based on profits and debt and ultimately the profits will be in the hand of a few and the debt will be nationalized.
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Jacqueline Coolidge Jan 15, 2018

Good points - certainly a great starting point for some serious debate. I used to work for the World Bank and used to advise governments on attracting FDI. Apparently many (most?) multinational corporations decided if we offered them an inch they should grab a mile. Twenty or so years ago they still managed to sound reasonable but as reforms started to move in their direction, they started exploiting and gaming the system. One might have expected Philip Morris to try to exploit their access to "international arbitration" to try to fight against restrictions on tobacco advertising, but when the U.S. Chamber of Commerce weighed in on the side of Big Tobacco against the governments of Australia and Uruguay it should have been clear that their agenda was to "invest" in a potential precedent to sue any government that might tighten any regulation for any reason, including those in response to new scientific findings regarding health or the environment. Similarly they are fighting tooth and nail against any coordination between tax authorities to combat aggressive tax avoidance (a.k.a. tax base erosion and profit shifting) or money laundering.
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Enrique Woll Battistini Jan 14, 2018

The world is like a large wounded bird that fell from the sky, a century ago, shot down, twice, and denuded, during WWI and WWII, which briefly poised itself on the largest branches of a dying tree, the UN, WB, IMF, and the OECD, in a forest fallen victim to unsustainably increased consumption, and anthropogenic climate disruption, at the crossroads between the old and the new, in an absolute vacuum of leadership, and facing thirst, hunger, and fear:

https://www.academia.edu/23094646/OFA_-_At_the_Brink_of_Recovery_or_Conflagration_The_World_at_a_Tipping_Point_2011111506

https://www.academia.edu/23946856/Facebook_-_Staving_off_the_impending_effects_of_unemployment_through_increased_consumption_2013031903

https://www.academia.edu/34448122/PROJECT_SYNDICATE_-_Saving_the_International_Economic_Order_-_My_Comment_-_Crossroads_Between_Old_and_New_-_2017090201

https://www.academia.edu/35598052/Rudderless_Leadership_and_the_Potentially_Explosive_Problem_of_Inequality_-_2017121701
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Stephane Genilloud Jan 14, 2018

A very relevant article on a pressing issue... It could valuably be extended into a whole book.
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Per Kurowski Jan 14, 2018

Regulators’ “With the risk-weighted capital requirements we will make banks safer”… is cheap and dangerous populism hidden away in technocratic sophistications.

https://teawithft.blogspot.com/2017/06/martin-wolf-beware-we-all-including-you.html
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Stephane Genilloud Jan 14, 2018

The common currency (the euro) is especially efficient in this regard, as its prevents exchange adjustments and removes fiscal tools from the hands of respective governments.
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Wim Roffel Jan 14, 2018

It is not just economic policy that sometimes need "populism" that breaks the rules written by some establishment. Breaking the power of the military-industrial complex or the mass -incarceration industry in the US may require some out of the box thinking too.
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Henk Crop Jan 14, 2018

The author places the populists opposite the Institutions. In case that is political it can be often dangerous.
The discussion would be more accurate if you would say, the dissatisfied citizen vs. the policies of the elites controlling the Institutions.
That would make it also more of a classic phenomena.
Just some examples;
- In the US. Political power and money has moved, over the past 40 years, from the average citizen to a small elite of wealthy citizen/ institutes thereby undermining the democracy. ( Robert Reich (populist ?), Saving Capitalism.
- In the EU. We had the German Chancelor (institute), mrs. Merkel, without any consultations with her government or EU collegeaus, disregarding EU laws, opened the borders for a massive influx of immigrants. Fortunatily there were the leaders of Hungary (mr. Orban) and some other countries (populists ?), who placed fences to stop the exodus. They thereby had to oppose Brussels.
Otherwise the EU would have had very many millions occupying their houses and living on their social security.
- In the EU. The EU organisation in Brussels has gained much to much power for a democracy and has isolated themselves from the EU population.
a. The Brexit did not see it coming. It was their job to keep the members together.
b. The chaotic introduction of the Euro, causing problems all over the EU.
c. The destructive immigration policy, resisted by their people.
etc. etc.
The elite approach is, we know what is best for you. They have a disdain for anyone not agreeing with them. They get back to you if you oppose them.

The populist are not a danger to the, usually powerful, Institutions.
The dangers are the policies of Institutions who shield themselves from reality and change and do not serve their people adequately anymore. People they are supposed to serve and who pay their salaries.
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TUGRUL BELLI Jan 13, 2018

Although the name of the article is “In Defense of Economic Populism”, I fail to see any mention of policies that can be considered “populist” and economically defensible. The policy proposals he mentions can not (or should not) in any way labeled populist. (My definition of “economic populism” is policies that bring a temporary relief to economic troubles, but cause more trouble and possibly an economic recession or worse in future – money printing being the prime example.) Rodrik is either making a tongue-in-cheek statement that neoliberalism is so pervasive that even decent Keynesian policies are now stigmatized as “populist”, or he himself is a captive of the neoliberal paradigm, so much so that he really sees those policies as “populist”.
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Peter Mott Jan 12, 2018

Stephen King ("When the Money Runs Out") notes that the policies of central banks create winners and losers. This fact alone renders them political, which in turn argues for them no longer being "independent" of the democratic process.
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Steve Hurst Jan 11, 2018

Populism is a bit of a catchall and I'm not sure it is a good catchall.

Brexit and Trump appear to be driven by economically damaged groups seeking change at no matter what cost because as the pre-existing damaged groups they will not pay that cost. They are not bothered if other groups suffer economically, in fact there seems to be an element of payback mentality.

Whereas the V4 group in the EU and Catalonia for example appear to have different drivers - They are strongly self-identified groups who have been effectively subjugated militarily and have survived culturally by strongly clinging to their concept of national identity - and their reflex is to oppose external control being imposed. It is part of the culture. There are also more than just traces of it in the Scots indie movement who look to have never forgotten the Battle of Culloden.

There is a third mix which is economically strong areas objecting to what they see as their paying a never ending subsidy of their neighbours - that is present in Catalonia, and in the North of Italy for example. It also is present in Brexit and Trump. It clearly is not part of the V4 who are beneficiaries in the EU. Germany also appears to fall into this camp as they feel they are being asked to subsidise some of their neighbours and object to it. In that sense Germany is also populist to its core.

If populism is a catchall and populism has different forms then populist economics doesnt exist. To put Poland and Trump in the same group just doesnt work for me. Poland for example appears to see EU benefits through negative EU contributions as a form of due compensation for being abandoned to the communist bloc at the end of WW2, whereas the US gained economically from WW2.

'Exceptional times require the freedom to experiment in economic policy' - Needs far better assessment than there is in this article simply because most experiments dont work. Broadly I would suggest it is known what is needed to be done, the problem is politician will not do it, and the reason for that is simple, wealth redistribution means losers and the losers wont wear it at the ballot box.

So the game continues until the ballot box overwhelms the losers. In this respect France is good country to watch as they have to deal with serious reform of taxation and public spending which will be painful. The UK went through that process when it became an oil currency at the end of the 70s and it was not pleasant, and was forced on the UK because of external pressures - currency FX. Being in the situation where there is no option is completely different to voting for pain. Italy has similar problems. So if you want an experiment it is already in place and it is France. I expect the experiment to be a monumental mess and Macron to plument in popularity somewhat like Hollande
- jagjeet sinha Jan 11, 2018
  
  Steve, beautifully written comment that summarizes the heart of the matter.
  
  Democracy empowers people to vote to ensure Inequalities are reduced.
  Europe has a peculiar predicament - Democracy expresses decisions nationally.
  There is no European Union Democracy - like United States Democracy.
  The monumental mess that Macron inherited needs Transfer Union.
  Germany's Democracy will prevent endless transfers to EU Budgets.
  Like Britain's Democracy voted to end endless EU Migration.
  Brussels at best can become a mini Unied Nations Headquarters.
  Brussels cannot become unaccountable Federal Capital - without responsibility.
  Brussels cannot deliver solutions that National Democracies demand.
  The E.E.C. Perhaps the best hope for Brussels.
  Unless Macron proves the Magician - before Marine takes over.
  - Steve Hurst Jan 11, 2018
    
    The euro is a sadistic invention used daily by masochists and both Shakespeare and the Marquis de Sade would look at it in awe and wonder. Sadly neither are here to entertain us with it. We only have Junckers and Macron and they are not in the same league
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Paul Daley Jan 10, 2018

Rodrik's right about institutional capture, but making government institutions "independent" is the most radical solution, without being the most effective. The absence of oversight and control often produces the most absurd and wasteful outcomes. Think of Roger Taney's court before the Civil War.

No one measure -- including institutional independence -- will ever be sufficient to protect the public interest. Ethics rules, conditions of service, public oversight and all the rest are always necessary, if public institutions are to function properly.
- Steve Hurst Jan 11, 2018
  
  Paul, your faith in public institutions is touching
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Michael Public Jan 10, 2018

I don't see why Bernie Sanders is labelled as a populist by the author. What he proposes is much in line with what the New Deal brought America - which if anyone recalls was overwhelmingly positive.

I suspect the author is just an out an out neo-liberalist and anything that looks a little different is rejected out of hand. It is this sort of behavior by 'elite interests' that is going to cause so called populism to grow further.

For example - the author says the minority (I presume he means the rich) must be protected from the majority (he means the poor) but this concept is laughable when the Gini co-efficient delta is completely out of control.
- M M Jan 10, 2018
  
  Mike, you're quite right on this and on your previous comment. None of the names that the author mentioned is a populist. The one that was elected on a truly populist platform was Barrack Obama, .....the "yes we can", etc.....
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jagjeet sinha Jan 10, 2018

THE PATH TO PEACE N PROSPERITY - THAT POPULISM CAN PRODUCE
The Author's preference for Economic populism over Political populism is spot on.
Democracy provides for The Marginalized Majority to usurp political power.
Realigning the Economics with Democracy is however laced with hurdles.
The biggest hurdles are the Institutional Architecture packed with Nobel minds.
The Economic Geography that Nobel minds nurtured - produced populism.
The Political populism was The Marginalized Majority resorting to Democracy.
Trump and Modi epitomize anti Establishment surges - Brexit and Macron too.

The diagnosis of the predicaments require real remedies - not obfuscation.
Globalization always is the solution - The First Brexit created The Anglosphere.
However current conventional wisdom seems to blame Globalization.
Enclaves of Global Capital are solutions: Singapore n Shanghai, Bombay n Beijing.
The Developing World needs hundreds of Enclaves of Global Capital.
The Developed World needs more Globalization to banish Inequality within.
The incumbent Economic Geography benefits Belgravia bypassing Birmingham.

So, the author's advocacy of Economic populism that produces panacea is timely.
Prevention of Political populism - the Two World Wars - with Economic populism.
The way forward in 1945 - produced 70 years of peace n prosperity.
Economic populism indeed The path then and now.
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E Aghdasi Jan 9, 2018

I agree with the conclusion, for the most part. Even a theoretically "first best" economic policy can lead to sub-optimal political outcomes, a lesson that the IMF (and plenty of other organizations) have learned the hard way over the past few decades. So you might have to choose a second-best economic policy -- a populist one -- to keep politics stable in the long-run. But here are a couple points which I hope will help sharpen the discussion:

1) I'm not sure if the political populism that you mention actually qualifies as populism, in that it doesn't benefit the majority over the minority. Does the recently passed tax bill in the US benefit fit this description, for instance? Most impartial organizations have concluded that the bill will benefit a wealthier, capital-owning minority over lower-income wage earners, especially in the long-run. I think the so-called populist regimes we cite these days disguise the fact that their economic policies do not actually benefit the majority by offering nationalism, parochialism, xenophobia, etc. Does this still classify as populism? I guess this is a semantic argument but I thought it was relevant.

2) Is monetary policy (to take one example) really in need of more populism? That's somewhat easy to say given the past several years of (mostly) below-target inflation in developed countries, but the context may be totally different five years from now, when it may be hard to put the populist toothpaste back into the tube (for instance, by trying to strengthen central bank independence at that point). Also, overly-austere monetary policy may be reflective of political failures, that is it may reflect the disproportionate influence of well-connected, debt-owning elites (rather than debt-owing poor and middle class) who want to see rates kept at higher-than-optimal levels. In other words, it may be safer to invest in cleaning up a country's political machinery, rather than choosing populist economic policies.
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Keith Roberts Jan 9, 2018

My problem with your commentary is the title. "Economic populism" as you use it amounts to either short-sighted pandering (bad) or the prudent use of monetary stimulus under Keynesian principles (good). We don't need to add a new and prejudicial term to the discussion.
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