On Populism

“They’ve got a set of Republican waiters on one side and a set of Democratic waiters on the other side, but no matter which set of waiters bring you the dish, the legislative grub is all prepared in the same Wall Street Kitchen.”

Huey Long (1932)

Its hard to miss the rise in populism – examples on the right include Trump in America, Party for Freedom (PVV) in Netherlands, Freedom Party (FPÖ) in Austria, on the left Podemos in Spain, Five Star Movement in Italy. But populism isn’t something we’re familiar with or understand well, because it was last common in the 1930s. What is populism exactly, and what does history teach us? In an excellent paper, Ray Dalio from Bridgewater Associates and Economic Principles explains what populism is, and gives case studies in a dozen odd populist movements from the last century.

Populism Described

‘Populism is a political and social phenomenon that arises from the common man being fed up with:
  • Wealth and opportunity gaps,
  • Perceived cultural threats from those with different values in the country and from outsiders,
  • The “establishment elites” in positions of power, and
  • Government not working effectively for them.

These sentiments lead that constituency to put strong leaders in power.  Populist leaders are typically confrontational rather than collaborative and exclusive rather than inclusive. As a result, conflicts typically occur between opposing factions (usually the economic and socially left versus the right), both within the country and between countries.  These conflicts typically become progressively more forceful in self-reinforcing ways.

Within countries, conflicts often lead to disorder (e.g., strikes and protests) that prompt stronger reactions and the growing pressure to more forcefully regain order by suppressing the other side.  Influencing and, in some cases, controlling the media typically becomes an important aspect of engaging in the conflicts.  In some cases, these conflicts have led to civil wars.   Such conflicts have led a number of democracies to become dictatorships to bring order to the disorder that results from these conflicts.  Between countries, conflicts typically occur because populist leaders’ natures are more confrontational than cooperative and because conflicts with other countries help to unify support for the leadership within their countries.

In other words, populism is a rebellion of the common man against the elites and, to some extent, against the system. The rebellion and the conflict that comes with it occur in varying degrees. Sometimes the system bends with it and sometimes the system breaks. Whether it bends or breaks in response to this rebellion and conflict depends on how flexible and well established the system is.  It also seems to depend on how reasonable and respectful of the system the populists who gain power are.

In monitoring the early-stage development of populist regimes, the most important thing to watch is how conflict is handled—whether the opposing forces can coexist to make progress or whether they increasingly “go to war” to block and hurt each other and cause gridlock.

Classic populist economic policies include protectionism, nationalism, increased infrastructure building, increased military spending, greater budget deficits, and, quite often, capital controls.’

If this doesn’t describe the conditions in America that gave rise to Trump I don’t know what does.

Historical context

‘In the period between the two great wars (i.e., the 1920s-30s), most major countries were swept away by populism, and it drove world history more than any other force.  The previously mentioned sentiments by the common man put into power populist leaders in all major countries except the United States and the UK (though we’d consider Franklin D. Roosevelt to be a quasi-populist, for reasons described below).  Disorder and conflict between the left and the right (e.g., strikes that shut down operations, policies meant to undermine the opposition and the press, etc.) prompted democracies in Italy, Germany, Spain, and Japan to choose dictatorships because collective/inclusive decision making was perceived as tolerance for behaviors that  undermined order, so autocratic leaders were given dictatorial powers to gain control.  In some cases (like Spain), strife between those of conflicting ideologies led to civil war.  In the US and UK, prominent populist leaders emerged as national figures (Oswald Mosley, Father Charles Coughlin, Huey Long), though they didn’t take control from mainstream parties.

For the most part, the populist patterns were clear (e.g., the conflicts within the countries intensified) though they played out in somewhat different ways and to varying degrees in the different cases.’

Dalio offers the following short case studies including economic impact, and they make for fascinating reading.

1930s Cases

  • Franklin Roosevelt (US)
  • Huey Long (US)
  • Father Charles Coughlin (US)
  • Benito Mussolini (Italy)
  • Adolf Hitler (Germany)
  • Francisco Franco (Spain)
  • Oswald Mosley (UK)
  • 1930s Japan

Other Cases

  • Andrew Jackson (US 1830s)
  • William Jennings Bryan (US 1890s)
  • Vladimir Lenin (Russia 1910-20s)
  • Juan Perón (Argentina 1940-50s)
  • Pierre Poujade (France 1950s)
  • Robert Muldoon (New Zealand 1970-80s)
  • Hugo Chávez (Venezuela 1990-2000s)

In Summary

Dalio points out the similarities between economic condition in the mid-1930’s and those today, including our position at the end of both the short-term and long-term debt cycles:

  • By and large, these populists took advantage of the confluence of several characteristics of the times:
    • Weak economic conditions, which made people disillusioned with the current ruling parties.
    • An uneven recovery in which the elite was seen as prospering while the common man was struggling. o Political squabbling/ineffectual policy making, preventing the bold action people saw as necessary.
    • A feeling among a country’s majority that foreigners, or those who didn’t share the same background/ethnicity/religion, were threatening their values and way of life.
  • Where populists achieved some measure of success, they would refuse to join governing coalitions or support government policies, making the gridlock that they campaigned against even worse and preventing policies that would boost the weak economy. This, in turn, tended to increase support for populists. In that way, a rise in populism can be self-reinforcing.
  • And while their political ideologies vary, the 1930s populists shared most of these core beliefs and policy goals:
    • They aligned themselves with “the people” or “the common man.”
    • They were anti-establishment and attacked the current ruling interests (government, corporations, wealthy individuals, etc.), calling them elites who were out of touch and had failed the people.
    • They sought to undermine those elites in favor of others by, for example, advocating wealth redistribution or the nationalization of industry.
    • They were strongly nationalist and held national unity as a key aim.
    • They detested the debate and disagreement inherent in democracy, and sought to empower the executive branch, using strong-arm tactics to prevent others from getting in their way and, in more extreme cases, undermining democracy.
    • They tended to be anti-international, anti-global trade, and anti-immigrant. They often railed against foreign influence in their countries. This often translated to hostility toward other countries, which pushed those countries to embrace political extremes as well.
  • Conflicts between factions became increasingly intense, leading to great obstructionism, crackdowns on opposition and free media, etc. This led to more autocratic leadership. Those that had the weakest norms/shortest history of democratic institutions were quickest to move away from democracy to dictatorship.

Finally Dalio’s advice for where we are in the US: ‘In monitoring the early-stage development of populist regimes, the most important thing to watch is how conflict is handled—whether the opposing forces can coexist to make progress or whether they increasingly “go to war” to block and hurt each other and cause gridlock.’



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