Populist economic policies can boost growth and financial markets in the short term, but they also purport uncertainty and volatility. Populists’ disdain for checks and balances threatens to weaken pluralist democracies, while their predilection for facile solutions rarely results in sound policies. This would be bad for long-term growth.
Munich, Dec 15, 2017
After the Brexit vote and the victory of Donald Trump in the US, it appeared that a wave of populism was sweeping Western democracies. Many commentators heaved a sigh of relief when populist candidates did not prevail in various European elections in 2017. To ascertain whether populism has peaked, we need to understand what drove political discontent in the first place.
Looking at underlying trends, such as rising economic inequality, deepening values divisions, diminishing trust and the declining appeal of mainstream parties, we conclude that politics in Western democracies will remain in a state of flux. The impact of digitalization, the internet and social media could further destabilize Western politics in years to come.
Structural political volatility does not mean that all risks are on the downside. It can be an opportunity for reformist newcomers, for example. But there will be no going back to ‘normal’, in terms of a predictable transfer of power from one mainstream party to another.