2024 is reported to be the biggest election year in history. The media have been quick to highlight the trends toward populism. What could populism mean for the economy, the markets, and business?
The standard features of populism include the centralization of power, its personalization, and the polarization of society. Populism is not anti-democratic per se. It distinguishes itself from ‘liberal democracy’ by emphasizing majoritarianism, i.e., the notion that the majority rules while the rights of minorities, including, in extreme cases, fundamental ones, are de-emphasized. In that sense, populism is antinomic to pluralism.
Populism markets itself as a response to the idea that democracy has been hijacked by government institutions run by an elite minority (them) against the will of ‘the People’ (us). As such, populism is ‘ideologically fluid’ and breaks the traditional political molds of ‘left’ and ‘right.’
In ‘Populist Leaders and the Economy’ (2022), the authors paint a scathing picture of the impact of populism on the economy based on an analysis of more than 70 episodes of populism since 1900. They demonstrate that populist governments underperform peers by ten percentage points of GDP over 15 years. They attribute this adverse economic impact to a decline in social trust, increased corruption, the unpredictability arising from concentrated (as opposed to distributed and consensual) power, and unsustainable monetary and fiscal policies.
But who cares about long-term economic performance based on academic studies? With a global economy in transition and a political governance system struggling with socio-economic challenges, an alternative model has a high chance of capturing the minds of ‘the People.’ In that context, consumer, business, and market sentiment may improve under populism, at least during a honeymoon period.
Independently from the outcome of this year’s elections, the force of the undercurrent is unstoppable: populism has become a winning political proposition worldwide. It will define politics and policies for years, if not decades, since the answer to populism tends to be more populism, only of a different kind.
The implications for corporate executives are profound. Government policies will likely be subject to unusual volatility, with implications for industrial policies (regulation, business licenses), supply chains (investment in foreign countries, trade tariffs), or the ability to hire employees (immigration).
But that is not all. In ‘The Demand of Populism on Business’ (2022), the authors introduce the idea of ‘corporate political obligations’ as ‘a broad set of conditions, imposed […] by [the] government on firm unrelated to the firm’s own intrinsic motivations and moral understanding.’ Under a populist regime, one stakeholder is primus inter pares: the government – or governments for multinationals.
How shall firms behave under such circumstances? Remaining apolitical may not be possible, as saying nothing is saying something. Thus, corporates must contemplate various (nightmare) scenarios with their long-term stakeholders in mind to stress-test their fundamental values and principles.
In the age of social media, populism, of which only a preview has been experienced, is set to become the biggest challenge executives have met in modern times, overshadowing geopolitics, pandemics, or AI.