Politics, and understanding the people

With the Austrian presidential election and Italian referendum taking place this weekend, the calendar of major electoral events for 2016 has been completed. And after a year when electorates across the globe have confounded the pollsters and rejected their leaders, the political class will no doubt breathe a huge sigh of relief, albeit tempered by the knowledge that 2017 promises more of the same.

Many words have been written on why politics has become so febrile in so many countries, and why establishment parties have fared so badly.  Undoubtedly there are country-specific reasons which differ from one electorate to another, but there are also common reasons which transcend national borders.  And in essence the fundamental cause of the current popular unrest across the democratic world is that politicians and their voters no longer agree about what are the major issues of the day.

At any given time the general public will have many concerns, and governments will have many political objectives.  But usually, there is one concern in the public’s mind that dominates all the others, and once governments have realised what this is, then if they wish to succeed (and be re-elected) they will make addressing that concern their main priority.

Fortunately for governments, this overarching public concern usually persists for some time;  long enough in fact for politicians to both understand it and then address it. But national moods and concerns do change over time.  Slowly, perhaps, but when they do, they do so decisively with no half measures.  And the point at which they change is very difficult for politicians still wedded to the old certainties – as the UK Conservative party is finding out, as it scrambles to realign itself with the new reality of a population which has voted to leave the EU.

History offers some examples of these seismic shifts in public opinion.  After World War 1 the people of Europe had had enough of huge empires and the wars they created, and craved national identity – this was the era of Irish independence, the break-up of the Russian, Austro-Hungarian and Ottoman empires and further afield the first stirrings of independence movements in Europe’s overseas colonies.  The problem was that national identity politics spawned nationalist politics, which could not handle the Great Depression (everyone tried trade barriers which made everyone poorer), and nationalist politics in an era of mass unemployment spawned dictatorships. And dictatorships spawned World War 2.

After World War 2 the people changed from being concerned about national identity and craved peace and security above all else.  And, mindful of the oft-quoted maxim that “Democracies do not go to war with each other”, the political establishment across Europe decided that the way to deliver this was democracy and co-operation.  And given the other conclusion that the political class derived from the 1930s (viz, that “Unemployment Kills Democracies”), for the first 30 years after 1945 the politics of most democracies also prioritised full employment.  Our UK readers of a certain age may still remember the headlines (in 1972) when unemployment in the UK reached the then unheard-of figure of one million – this was a rate of about 4% only but was deemed unacceptably high at the time.

This was fine until the ever more desperate attempts to keep unemployment down in the face of the oil shocks of the 1970s led to a crescendo of inflation. And by the end of that miserable decade, the people changed their priority from worrying about unemployment to worrying about inflation and, in the UK at least, its unfair effect on a society where half the workforce was strongly unionised and could win large compensating wage increases at the expense of the rest of the population which was not and could not.

(Interestingly, two of the more unexpected winners of the era, Margaret Thatcher and Ronald Reagan, owed their success mainly to the fact that they spotted this switch in public mood ahead of others.  In particular, Mrs Thatcher’s crusade against union power was a startling departure from the political orthodoxy of her day;  it won her many votes from the ordinary masses and three election victories, but it also created for her many bitter enemies, not just from among her opponents but also within her own party.   In this she was perhaps the Donald Trump of her day, siding with the concerns of the ordinary voter rather than following the orthodoxy of the establishment, and being roundly vilified by the intelligentsia for doing so).

In due course governments across the western world realised the change in public sentiment and changed their economic management to prioritise low inflation.  And – as they usually are when they put one objective above others – they were largely successful, and the result was the Great Moderation, a period of some 20 years from the late 1980s when inflation was mostly low and economies prospered.  This was the era when the phrase “It’s the economy, stupid” was coined[1];  it sums up the political view that what the people want, as in really want, is economic prosperity and that if an administration got the economy right and delivered growth, then they would be re-elected.

Unfortunately, politicians are still steering by this mantra. And as a result, since the financial crisis, developed world economic policy and central bank activity has been overwhelmingly directed at generating positive GDP growth.  Whatever the side effects.  And two of those side effects are an inability to properly clean up the banking system, because to do that might risk recession; and a tolerance of growing financial inequality, which is seen as unfortunate at best and by many in power as merely “a regrettable but minor consequence of the necessary and successful economic rescue mission”.

But the people do not agree. Instead, both consequences are seen as unfair and deeply unjust and undesirable, to the extent that the negatives outweigh the positive of having avoided a worse recession.  In effect electorates have “moved on” from prioritising economic growth and now prioritise fairness and equity of economic outcomes[2].  And what they observe only too clearly is that established politicians are not delivering it.

One can summarise this by saying that politicians are still guided by the rule “It’s the economy, stupid”, while the people are saying back to them “No it isn’t, it’s the unfairness, stupid”.  And they have increasingly less tolerance for politicians who do not hear them, who do not change tack and address their main concern.

Of course the distribution of economic reward has never been entirely “fair”.  There have always been winners and losers, rich and poor.  And by and large people know this and, to varying degrees, accept it.  What they did not expect, and do not accept, is that the aftermath of the Financial Crisis some 8 years ago would result in not austerity for all but austerity mainly for the less well off, while the gilded elite appear to have been almost unscathed and even (courtesy of central bank QE and rising asset prices), even better off than before.

It is this that seems to have finally triggered the change of public mood.  And when the public mood changes, politicians who do not respond rapidly find they lose respect, support and eventually legitimacy[3].  The travails of establishment politicians in 2016 have arisen because they are still prioritising the economy at the aggregate or macro level and have not noticed that their electorates have different objectives now, and are more concerned with distributional and micro outcomes.

The story of 2016 has been the success of insurgent politics.  The likes of Donald Trump and Nigel Farage have achieved their aims because of the single and simple fact that they have understood the electorates’ new priorities and concerns much more deeply than their establishment opponents.  The big question for 2017 will be whether, having won power, the new politicians are able to achieve anything with it.


[1]              By James Carville, campaign strategist for Bill Clinton in the 1992 US presidential election.

[2]              The UK referendum was merely the clearest of many indications that electorates no longer universally prioritise economic growth above all other issues.  The Remain camp warned that to leave the EU risked economic disaster, but more than half the electorate decided to vote to leave nevertheless.

[3]              It is possible to make the case that this inability to sense a change in public mood is the root cause of many of the EU’s problems.  Many in Brussels are still stuck right at the start of the post-war political discourse, when security and peace, and an end to Europe’s bloodletting, were the electorate’s main concerns. People in general moved on from prioritising these perhaps 50 to 60 years ago – but the EU still has them as its main rationale and objectives and lauds them as its main achievements.   It is this gap between the political leadership of the EU and the general public that is at the base of many of the EU’s challenges.