MacroSocial Feedback Effects – Firm Structure and Political Economy Consequences

by Steven Bosworth

It is a strange time to be writing this. Joe Biden’s supporters are eagerly awaiting his imminent declaration as president of the United States. His victory would be a seeming rout for Donald Trump and his particular style of politics. This is why the world is paying such close attention. Trump is the poster child for a movement that has swept many Western countries. Nationalistic populism – broadly an ideology which rejects pluralism, multilateralism, social liberalism, multiculturalism, immigration and “elites” – has gained power from Britain, Poland, Hungary, Brazil and more, and constitutes significant opposition movements in Germany, France, Spain and Italy.

The rise of nationalistic populism has major consequences for the global economy. Countries asserting their national sovereignty have erected trade barriers, and most (save perhaps Britain) have diverged markedly from the international consensus around actions needed to combat climate change. So whether or not the populist wave has crested tells us much about where we’re all headed as a species.

It looks like nationalistic populism will be with us for a while. Donald Trump’s campaign defied most pollsters’ expectations again, and made a nailbiter of what many expected to be a landslide. There must be an enduring appeal to what he and many others of the right-wing populist stripe are selling. Liberal parties need to understand that appeal if they are to combat it.

Myself and colleagues have been applying identity economics models to understand why populists win. Threats to existing status hierarchies have been proposed as a powerful motivator for the grievances associated with right-wing populism. If people find themselves falling behind economically, they may place less emphasis on materialism and look for other sources of esteem, perhaps in nationalism. In the presence of increasing inequality our models predict increasing support for nationalist policies amongst the less well off (those relatively deprived), but decreasing support for these policies amongst the winners from globalization. This results in an increasing polarization of society along educational lines. Crucially however, policies which seek to address income grievances alone will find less support than those which pair economic and social goals. A policy such as e.g. restrictions on immigration will find more supporters than broad-based income redistribution in this context.

We have also looked at how relative deprivation has correlated with political party shifts in the United Kingdom. We constructing individual as well as regional indices of relative deprivation, which all predict lower life satisfaction amongst respondents in the Understanding Society panel. Switching to support for the Conservative party away from other parties however attenuates this drop in life satisfaction among the relatively deprived. The Conservatives seem therefore to have hit upon a compelling package of substitutes for the declining material fortunes of Britain’s “left behind”, most prominently in Brexit.

Winning back support for open policies requires not just addressing the sources of economic grievance amongst the working classes of Western democracies, but also offering them a source of pride – an identity – which is compatible with those open policies. Left parties need to offer voters greater opportunity as well as pride in their communities, and tie that local pride to the global commonwealth of humanity.