The trap of populism steady hand

LONDON — As shown by the 2016 year, liberal democracy can no longer be regarded as something immutable, even in the West. Moreover, in many Western countries, public confidence in democracy is declining and for quite a long time (it follows from the data of the “world value survey”, which analyzed the political scientist at Harvard University Yasha monk).

How can we explain this trend? From the political turmoil of 2016, we can conclude that many people are disappointed with the democratic inaction. Slow income growth, unemployment, inequality, immigration, terrorism, the authorities does not seem to be addressing all of these issues quite strongly. The political establishment of the democratic countries seem to have been in a state of permanent stupor, which increases the demand of voters for strong leaders who promise to break out of the political stalemate and to break the resistance of bureaucrats bold, new policy.

Such leaders (who claim that they alone can solve the problems of their countries) often seek — and find — in the corporate world. Many are successful CEOs as people are able to reach clearly identified goals, and therefore they conclude that the businessman is able to solve the social problems that policy.

However, this is misleading, because political leadership is fundamentally different from corporate. In the language of economists it is the difference between the analysis of General and partial equilibrium. Corporate leaders need to work for their shareholders, they should not be too much concerned with everything that happens with the rest of society. If profit maximization requires cost-cutting and staff, a corporate leader can eliminate jobs, paying extra employees severance pay. What happens to these workers on the care of someone else, and more specifically, of the state.

Political leaders, for their part, are bound by the principle of “one person, one vote”, they must care equally about the haves and have-nots, employed and unemployed. The politician is obliged to ensure that the unemployed with new opportunities emerging, otherwise it runs the risk of losing their voices.

This does not mean that working as a Director of the company easier; however, there is no doubt that his work is defined much more clearly. Leaders who approach the political tasks of the corporate mentality are more likely to be focused on efficiency than on inclusion. However, if reforms are to ignore or to alienate too many voters, these reforms can then be cancelled.

As we saw in 2016, the Western countries urgently need to find ways to compensate or care for those who are lost in the modern global economy. This painful lesson of the post-Communist countries learned in the 1990s. According to the latest edition of the annual report on the transition (“Reform”) prepared by the European Bank for reconstruction and development, the first years of market reforms have caused damage to the vast majority of the population in these countries.

Interestingly, many people who supported reform, were advocates of “strong leaders”. They believed that, once these reforms are unpopular, they need to impose on society, not hinder them holding an excess of democratic procedures. Unfortunately, this argument led to the opposite effect. Some really strong leaders were able to quickly carry out reforms, but these measures benefited only a minority; many of these reforms were eventually cancelled.

A typical example is privatization. State-owned enterprises are almost always ineffective; as a rule, they have a surplus of workers. After privatization increased their efficiency, but they fired the staff. From the point of view of the company, that is partial equilibrium, it is positive. However, this may not be so, if you think about the situation of the dismissed workers and the consequences of their dismissal to society from the point of view of General equilibrium.

If privatization deprives the work of too many people, and without compensation, then the majority of citizens begin to consider it illegitimate that potentially weakens their support of private ownership of productive property. That is exactly what happened in many post-Communist countries, where privatization has become a dirty word.

The damage caused by certain unpopular reforms has been slower than reforms. In many post-Communist countries caused them pain created the political conditions for the rise to power of strong leaders-populists. And when some of these new leaders began to reverse the reforms, they have also engaged in eliminating institutional checks to its power to hinder the possibility of contesting the decisions taken. Consolidating power, they began to redistribute the country’s wealth for the benefit of close “friends”. Not surprisingly, the level of income inequality in many of these countries is higher today than at the time when they abandoned the policy of privatization and other reforms.

That is why democratic institutions are so important. They give the opportunity to those who have suffered from reforms to compensation. If the principle of “one man, one vote”, then vote “loser” is as important as the voices of the “winners”. A genuinely democratic politics needs to be inclusive, so implementation of reforms in a democratic country requires time and effort; however, the painful process of creating a broad coalition in support of reform ensures that these measures will prove to be durable.

In the long term inclusive reform remain, and conducted in haste — no. Democracy tortoise overtaking the hare of the dictatorship of good intentions.