The rising global threats to prosperity

Nationalistic politicians' attacks on free markets and economic freedom driven primarily by the support and desires of rural voters

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Fraser Institute's Fred McMahon on the threats to prosperityAs France and Turkey show, populism and deepening urban/rural splits represent dangerous and confusing threats to prosperity.

The populist economic urge is cropping up around the world, however dissimilar the countries may seem to be.

Turkish President Recep Tayyip Erdogan secured his recent constitutional power grab through rural votes, while losing in the big three major cities.

Although she eventually lost, French National Front Leader Marine Le Pen was propelled into the second round of the recent French presidential election because of vast rural support.

Erdogan and Le Pen are nationalistic populists who attack free markets and economic freedom.

A dictionary could be filled with differing definitions of populist, but they typically come down to setting traditional values and ordinary patriotic people against immigrants, minorities, elites and liberal social values such as gay marriage, women’s rights and post-national diversity.

The urban/rural divide on social issues is consistent and clear across countries. Recent research suggests social issues trump economics in digging the divide. That leaves the populist economic picture scrambled.

Erdogan, once perceived as a free-market reformer, spews anti-free-market conspiracy theories and undermines the judiciary. Without an independent judiciary, free markets collapse into crony capitalism, as the rich and powerful enrich and empower themselves ever more.

Le Pen’s economic policy has striking similarities to that of the far-left, communist-supported presidential candidate Jean-Luc Mélenchon, a fan of Hugo Chavez, the architect of an unfolding human and economic tragedy in Venezuela.

Pierre Gattaz, head of the French employers’ federation, put it succinctly: “Mélenchon is the Venezuela scenario, Le Pen is the Argentine scenario,” where the leftist, populist husband-wife presidential duo of Néstor and Cristina Kirchner devastated Argentina’s economy and deepened poverty.

Venezuela and Argentina confirm what a quick glance around the globe reveals: aside from petro-states, only countries with high levels of economic freedom produce enduring prosperity. And even petro-states such as Venezuela can be ruined by a fulsome retreat from free markets. This is why the anti-market populist urge is dangerous.

Yet, despite the French and Turkish anti-market examples, populist economic policy is a mixed bag. Brexit and Donald Trump drew most of their support from outside large urban areas. Both campaigns damned specific free-trade agreements but were supportive of other areas of economic freedom, calling for reduced taxes and regulatory reform to limit government interference in the economy.

But rural free-market sentiment often takes a U-turn when rural voters’ interests are at stake. Canada is a prime example.

In the last federal election, the Conservatives, typically perceived as market-friendly, dominated rural constituencies with one exception. Every Atlantic Canadian rural (and urban) constituency went Liberal. Regionally enhanced employment insurance (EI) hugely exacerbates the region’s economic problems by using generous subsidies to bribe people not to work. That’s why, despite sky-high unemployment, Atlantic Canada desperately needs foreign workers. But many voters in Atlantic Canada like their ‘right’ to regionally-generous EI – and Conservatives had dared try to reform it.

Similarly, rural Americans may want government out of their faces but few politicians dare attack ethanol subsidies in Iowa or, more generally, trade-distorting agricultural subsidies.

Thailand is another striking example of this phenomenon. Urban Thai voters have grown disenchanted with pervasive corruption and wasteful government but, with numerical superiority, populist, rural “red-shirts” have won every election since 2001, defending rural subsidies, most recently an economically disastrous and corrupt rice subsidy. Massive urban “yellow-shirt” protests have led to two pro-yellow-shirt coups and a military-controlled government – but urbanites will lose any free election for the foreseeable future.

Similarly, in Iran and Russia, like Turkey, urbanites protest corruption, cronyism and the dismantling of judicial systems, while rural areas continue to support the populist, nationalist cronyism of Erdogan, Vladimir Putin and Iran’s religious conservatives.

The list could go on, but the bottom line is that while the populist surge and urban/rural split are common to many countries, national circumstances determine economic leanings, with consequences both dangerous and unclear.

Policy-makers facing a fractured world should understand these inconsistencies even more than grand theories.

Fred McMahon is a senior fellow at the Fraser Institute.

© Troy Media


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