Take note, centre-left parties – economic populism may determine the winner of this election

The school of thought need not be the sole preserve of the right. In fact, focusing on high inequality and rising economic insecurity could give Labour and the Lib Dems a considerable advantage over the Tories

Political forecasting is a thankless task, especially so in today’s Britain. Even still, it’s worth looking at what may improve a particular party’s chances in the 12 December election.

One factor to consider is rising economic insecurity. A recent paper published by the Centre for Economic Performance at the London School of Economics and Political Science defines it as anxiety about future income. The authors find that economic insecurity is associated with both greater political participation – for example, the intention to vote – and “notably” more support for right-leaning parties, while enthusiasm for left-leaning parties falls.

These results hold irrespective of which party or parties are in power, perversely implying that right-wing governments should keep up the anxiety among voters if they want to stay in power. The researchers show that economic insecurity was “significantly” correlated with more support for Donald Trump in the 2016 election and for Brexit in the referendum.

Seen through the prism of voters’ finances, the Conservatives’ chances of electoral success in less than six weeks’ time look greater than those of parties in the middle or on the left of the political spectrum. Brits’ confidence about their personal financial situation over the next 12 months took quite a knock last month and is markedly lower than a year ago, according to the GfK survey. The European Commission’s equivalent measure for the UK also dropped sharply in October to stand at less than half its long-run average.

A longer-term increase in economic insecurity in the developed world has already benefited right-wing politicians – contributing in particular to the rise of populists, as a number of studies have shown. Research published in 2017 revealed a strong correlation between the loss of jobs in parts of the US due to an influx of Chinese imports and votes for Trump. Chinese imports have also been linked to support for Brexit, while reduced job security in Sweden has played a part in the 2014 ascent of far-right populists, the Sweden Democrats.

But populism need not be the sole preserve of the right. The centre-left can win votes – and ultimately save fragile liberal democracy in Britain and beyond – by adopting so-called economic populism, responding to voters’ financial worries and beating right-wing parties at what has become their game.

Economic populism is distinct from the political kind, as argued recently by Dani Rodrik, a prominent economist who teaches at Harvard University. Both types of populists detest constraints on the elected government, claiming to represent “the will of the people” which needs to be protected against “the enemies of the people” (sound familiar?).

In politics, this means a rejection of checks and balances on the executive exercised by lawmakers and judges, as well as by free media.

Economic populists also reject restraints on the conduct of policy but specifically of economic policy. Their perceived enemies are independent central banks, autonomous regulatory agencies and external constraints such as global trade rules, Rodrik writes.

While some regimes are populist in both the political and economic sense, in other cases populism manifests itself only in one of those domains. For example, Augusto Pinochet was a dictator but he delegated economic policy to technocrats.

What is unusual about Rodrik’s argument is his assertion that economic populism is sometimes necessary. “Exceptional times require the freedom to experiment in economic policy,” he writes. That freedom should be used to address inequality and economic insecurity while keeping the politics pluralist.

For instance, Rodrik suggests that elected governments would sometimes do well to regain more control over economic policy-making by relaxing restrictive trade agreements, as parts of these have tended to benefit multinational corporations at the expense of workers.

History has shown that economic populism can be justified. Franklin D Roosevelt’s New Deal was a package of populist policies that was necessary “to both tame and redirect the populist passions the Great Depression had inflamed”, Rodrik says. Although Roosevelt initially supported traditional policies such as a balanced budget, he soon changed tack and introduced initiatives that “were dressed in explicitly populist garb”.

A new tax on wealth was known as the “soak the rich” tax. Roosevelt pushed through minimum wage laws, resisted by the conservative courts, by threatening to increase the size of the Supreme Court so he could appoint more sympathetic judges and obtain a majority. He delinked the value of the dollar from gold – up until that point a major external constraint on US monetary policy. The dollar duly depreciated and US interest rates fell, boosting GDP.

Roosevelt’s economic reforms were also aimed at staving off threats to democracy, such as that from Father Charles Coughlin, a self-proclaimed fascist with tens of millions of followers on the radio.

“We now know that FDR was right,” Rodrik writes. “It was impossible to save either the economy or democracy without significantly relaxing the prevailing harnesses on economic policy. There are times when economic populism may be the only way to forestall its much more dangerous cousin, political populism.”

As campaigning for the snap election officially begins this week, Labour and the Liberal Democrats may want to consider whether high inequality and rising economic insecurity in the UK, as well as the threat of political populism from the Tories warrant a closer look at crowd-pleasing economic policies.