2018 Annual Review
by Gillian Tett

Have we reached peak populism?

Why are populists gaining ground in a time of rising fortunes?

That begs three key questions: Why has populism surged, even amid this boom? Will this trend continue? And if it does, how virulent might it be?

During most of his career, Ray Dalio, founder of Bridgewater, the world's largest hedge fund, has tracked financial flows to predict markets and economies—an approach that famously enabled him to spot the last decade's looming financial crisis.

A couple of years ago, however, Dalio changed tack: He asked his team to study the history of populism in Western elections, since he believed that politics—not just finance—was becoming a key economic driver.

The results of this number-crunching are thought-provoking, particularly as 2019 gets underway. For Dalio's data suggests that the proportion of the electoral vote that has gone to populist candidates in the Western world surged from around 10 percent in 2010 to 35 percent at the end of 2016, when his series ends.

That is striking given recent post-war patterns: Between the 1950s and 2000, the percentage was well under 10 percent. Indeed, the only time that a similar swing has been seen before in Dalio's data series was back in the 1930s: Then the populist vote in national elections also surged from about 10 percent to about 40 percent—with the upward trajectory only halting with the outbreak of World War II, or when elections came to an end.

But what is doubly startling about Dalio's recent calculations is that this decade's surge in populism has not occurred during a deep economic recession—but during a relatively strong bout of growth. Yes, a decade ago the Western world was left reeling from the aftermath of the 2008 financial crisis, just as 1930s voters were reeling from the crash of 1929.

And, yes, many voters have experienced profound economic pain during the last decade, because the growth that has occurred has been unevenly distributed (again, echoing the 1930s). Those long-suffering pensioners in Greece, say, have certainly been living through a recession (if not depression) during the last decade; so have American workers in the Rust Belt, or British workers in the North.

So perhaps the most important thing that investors, business executives or political leaders need to ponder now is what form this populist wave will assume.

But if you look at the macroeconomic picture overall, what is also notable is that the American economy has expanded for almost nine straight years, at a healthy clip—and even Europe has displayed reasonable growth. Indeed, the International Monetary Fund reports that the global economy has notched up more than 3 percent growth each year during most of the past decade. This is quite a contrast to the pattern seen in the 1930s, when a full-blown depression was underway in America, and Europe was experiencing an economic contraction.

That begs three key questions: Why has populism surged, even amid this boom? Will this trend continue? And if it does, how virulent might it be? On the first point, there is no clear consensus. Some observers blame income inequality for the trend. Others argue that the real culprit is automation, and the erosion of traditional jobs. However, as somebody who trained as an anthropologist, I suspect that something else is also at play: Digital technology has not just eroded jobs, but changed how voters (or consumers) interact with institutions and one another.

More specifically, in a world where consumers constantly use their smartphones to express their views, congregate in tribal groups, seek instant gratification for their demands and expect customized services, they have less and less patience for old-style political parties; instead, what is popular today in political terms is a celebrity brand and/or simple message about empowerment. Hence the appeal of populists—and slogans such as "Make America Great Again!" "Take Back Control!" "En Marche!"

Will this change anytime soon? Don't bet on it. Some observers think (or hope) that the recent surge of voter enthusiasm for populists will fade as it becomes clear that they cannot possibly deliver on their political promises. The drubbing that the Republicans received in America's 2018 mid-term elections, for example, might hint at a backlash against Donald Trump's populism, or so the argument goes.

But even if the voters are losing faith in some populists, it is hard to find much evidence that they are embracing centrist—or technocratic—candidates; instead, the backlash against Trump has sparked a surge of enthusiasm for far-left populists. So too in much of Continental Europe (and vice versa). Indeed, if Dalio were to update his data series to the present day, this would almost certainly show that populism has risen since 2017—just think of the recent results of elections in Brazil and Italy, or the rising anger in Germany and France.

So perhaps the most important thing that investors, business executives or political leaders need to ponder now is what form this populist wave will assume. Will it spawn ugly forms of nationalism, incoherent economic policies, unpleasant authoritarian rule and a proclivity for war—repeating the patterns so tragically seen in the buildup to World War II? Or will it instead force governments to listen to dispossessed voters, perhaps under the flag of a more benign sense of "patriotism" and national unity? Might it force political leaders and business executives alike to recognize a fact that has often been ignored in recent years, namely that our current political economic structures do not serve most voters—and act? Or will it simply spawn more frustration on all sides? It is crucially unclear. But brace yourself for more political unpredictability—and disruption.

Gillian Tett was a panelist at the White & Case event "Tensions in Balance," held October 11, 2018 at the Royal Institute of British Architects, London

Gillian Tett is US managing editor for the Financial Times, where she covers a range of economic, financial, political and social issues. Tett is also a social anthropologist with expertise in Tajik wedding rituals. She credits her foresight about the 2008 financial crisis to her anthropological approach to journalism.


Back to the Annual Review landing page


This publication is provided for your convenience and does not constitute legal advice. This publication is protected by copyright.
© 2019 White & Case LLP