The three middle classes and populism

In November this year American voters will choose between populism and plutocracy. The choice was clearly highlighted in my Global Inequality (Chapter 4) written more than a year ago although at that time I could not anticipate the extraordinary rise of Donald Trump.

That rise, combined with the populist reaction against globalization, immigration and foreigners, has become the staple of newspaper and magazine articles to the extent that some, like in the recent New York Review of Books, claim (of course with the hindsight) that populism was both inevitable and predictable. It is, not only in the United States, but also in the UK, France, Denmark, Sweden and elsewhere fueled (as is commonly argued), by the very slow or nil real income growth of the middle-income groups in rich countries. The graph below (based on Luxembourg Income Study data) shows this clearly: the shares of the middle four deciles have declined over the past 30 years by between 1 and 4 GDP points in key developed countries. The phenomenon therefore is not only American: it is common to all rich countries. 

But while the origins of populism in the West seem well understood and “reasonable” in the sense that populism is driven by the economic slowdown,  a similar process of rising populism in China seems difficult to explain because it is accompanied not by a declining but by a rising middle class.  The modernization theory leads us to believe that the rising share of the middle class should propel democratization. In effect, this is what we have observed over the past 40 years, from the Carnation Revolution to Portugal  to the fall of Communism or the spread of democracy in South Korea and Taiwan and in all of Latin America.

Could China be an exception to this “regularity”? It is the same question probably that the Communist party leaders ask themselves. If they answer it in the affirmative, they would be throwing in the towel in a fight to maintain their rule. Since they seem unwilling to do so, and are becoming  aware that the ideology of “GDPism”, founded on an infinite growth of real incomes by close to double-digit numbers, cannot be maintained,  they have tried to move the public opinion in the direction of populism, whether of mild Maoist or of soft nationalist kind. Neither of these two tendencies is yet strong enough or sufficiently poisonous, but the potential to crank it up if needed is there. Thus, in the Chinese case, the rising tide of populism is not caused by an economic failure but on the contrary by economic success which is making the maintenance of the old political system more difficult, or is incompatible with it. This is a contradiction between the development of the forces of production and inadequacy of the superstructure that every Marxist would easily recognize.

The third populist reaction is taking place in Russia. It is fueled by yet a different force. Certainly not  by too much economic success, nor so much by economic failure, but by unjust privatizations and by resentment and revanchism, the two feelings that go back to the end of the Cold War that was (mistakenly) interpreted in the West as the victory over Russia. It is this narrative that Putin and the Russian middle classes find abhorrent and which is at the root of their malign populism and nationalism. It is wrong to see it as manufactured by the top; it is more that the top has given it the right to express itself, in a way that the rise of Trump in the United States did not by itself produce populism, but made its expression more acceptable. While in the past people felt some inhibition to air strong xenophobic or racist views, that inhibition is gone when the political leaders freely express such views and moreover get political support for doing so.

Those who therefore personalize the problem and look at Trump, Xi or Putin as somehow guilty of “creating” populism and inflating xenophobia are only partially right. Trump, Xi and Putin allowed populist feelings to express themselves  but did not invent them.  Populism existed before and was based on real and understandable reasons. The diagnosis that sees the cause of our problems primarily in several politicians leads us then to prescribe a wrong remedy. A very imperfect remedy consists in trying to stop such politicians from coming to power or overthrowing them. Such a remedy does not contribute at all to the solution of the underlying problem which either brought them to power, or close to taking power.

A real remedy has to start with the correct diagnosis. And the correct diagnosis is that in the US, populism is rooted in the failure of globalization to deliver palpable benefits to its working class, in Russia, it is rooted in its crony capitalism and inability (or unwillingness) of the West to include Russia as an equal partner, and in China, it is rooted in an inadequate political system. Once we see the correct cause of the problem, we can begin to try to solve it. Otherwise, the sickness of populism, which for all problems blames globalization and foreigners, in the three major powers that control 98% of all nuclear weapons in the world, is indeed a cause for major concern.