Summary: Technological change, green transition and import-led competition have dealt a big blow to the manufacturing sector in most advanced economies. Voters’ reaction has been often to turn their favors towards populist and radical parties. Compensating those mostly hit and effective delivery of public good is the only way forward.
In every recent election in advanced economies, there is talk of a “worrying rise in populism”. The most recent general elections in Austria are just the latest ones, with right-wing populist FPOe becoming the first party with 29% of votes. Shortly before Austria, the German state of Brandenburg held elections, with the right-wing populist AfD finishing second, securing 24% of the vote. This summer the Paris Olympics were preceeded by president Macron of France calling a snap election, only to then face a deeply divided Parliament with the right- and left-wing populists electing very large delegations and squeezing Macron’s own party in the middle.
Mainstream parties have often decided to keep populist parties (and especially right-wing populists) away from government, putting down a so-called “sanitary cordon” around them and gathering all or many non-populist parties in grand-coalitions. These political choices had the advantage of keeping unpalatable policy stances on immigration or on Russia away from the centers of power, but may also further fuel the populist rethoric, always vocal against the “elite” who keeps them away from government irrespective of popular support.
Many researchers have written about populism in recent years, trying to understand its root characteristics and root causes. One common explanation for the rise of populism points the fingers on the discontent caused by globalization, and in particular from the effect of the rise of China (and Chinese imports) in the aftermaths of its admssion to the WTO in 2001. The story (carried out for example by Autor et al., 2020) is fairly simple: the inflow of cheap Chinese import dealt a heavy blow on the manufacturing sector in advanced economies; this phenomenon goes under the name of “China schock” and has been studied in particular by David Autor of MIT.
Its political consquences are then clear: according to another study, areas where manufacturing concentrated (and in particular manufacturing of goods that were heavily imported from China) economic decline, with increased unemployment and stagnant wages, beucase of Chinese competition. With this also came a strong sense of economic and cultural disenfranchisement. Populist parties tuned in with these sentiment and preached against globalization and immigration and in favor of protectionism, often married with some nativist rethoric. Such protectionist and often nationalistic narratives found support especially in places “left behind” by globalization, explaining to a large extent the success of populist parties in Europe and the United States.
Chinese imports are not the only reason of the industrial (and cultural) decline of manufacturing in many areas of Europe and the United States. Roughly at the same time as the admission of China in the WTO, another revolution took place. Since the early Nineties technological advances in automation brought by the IT revolution hit manufacturing as well, with robots substituting workers in many tasks. Researchers such as Italo Colantone and Pietro Stanig exploited this feature of technological change, looking at areas in which were manufacturing establishments more exposed to technological change concetrated.
This has vast ramification, a recent article in Nature points out that both in Europe and in the US exposure to international trade also makes voters negatively react to environmental policies. This is evidenced by decreased support for parties advocating for a green transition and an increasingly skeptical outlook on climateand on the urgency of climate action. Once more the stress put on local jobs by globalization in advanced economy leaves voters more worried that further regulation and restrictions such as environmental regulation may exacerbate the local economic impact. As reported recently in the Journal of International Economics, the consequences are not only economic, but British data highlight also an increase in mental distress in those involved in professions (especially blue-collar) more exposed to import-led competition.
The populist narrative is not just economic. Cultural and identity-based factors also play a crucial role, especially in countries experiencing rapid demographic changes. The influx of immigrants has heightened tensions over national identity, leading many to rally behind populist leaders who promise to preserve traditional values and social norms. For instance, in both Europe and the U.S., right-wing populism has grown by tapping into fears of cultural dilution, often framing immigration as a threat to national cohesion.
Major political parties have been unable to address this generalized discontent, but small-scale evidence from the city of Milan and from Italy in general may provide some way forward. Since 2019 the quasi-totality of the city of Milan banned to the most polluting cars, with polluting criteria becoming stricter along the years. This directly hit residents owning banned (or soon-to-be-banned) cars, while leaving others unaffected. Owners of the oldest and most polluting cars could access government incentives to purchase less-polluting vehicles. Researchers from Bocconi Unviersity found that residents who were directly hit by this policies were more likely to vote for parties strongly opposed to it (Lega), unless they were eligible for a compensation. There is instead no evidence of a shift in environmental attitudes also in those negatively hit by the ban. In other words: voters (in Milan) are fully aware both of the importance of environmental issues and of the fact that transition is costly. Addressing the costs that these politicies impose on some voters as a result of climate transition, globalization or technological change must be part of the political agenda. Otherwise, voters may increasingly favor parties with more extreme positions.
The second way in which research on Italy can be useful is even less costly. Researchers from the Unviersities of Bolzano, Torino and Barcelona found that one of the reasons voters turned to sketchy populist new-comers is … incompetence of incumbent politicians. As in many other countries, mayors in Italy are paid more if they oversee a larger population. A link between (mayors’) wage and competence has been already established in the literature: offering a higher wage to future mayors attracts better talents and begets a more effective local administration. Exploiting this sharp jump of mayoral wages at specific population thresholds, researchers have found that localities just above these thresholds were less likely to vote for populist parties than localities just below this threshold, and were able to prove a causal link between the more efficient administration and the lessened likelihood to vote for populist parties.
The daunting task of addressing the cultural anxieties of those part of the population that feel left behind by change remains an unaddressed issue of today. All in all, though, populism can be tackled also in more pragmatic and direct ways; as in many other context, a good way to remain in the market is to serve well your clients—or in this case, voters. Duely compensating voters who are hit by exogenous shocks (the green transition, technological change, globalization) and being good administrators can be both a good starting point.
Prof. Emanuele Bracco
Emanuele Bracco is an Associate Professor of Economics at the University of Verona, Italy. His research spans the fields of Political Economy and Public Economics, where he has conducted both theoretical and empirical studies. Emanuele's work includes significant contributions to understanding gerrymandering, fiscal federalism, social capital, and immigration. His research not only explores the complexities of these topics but also provides insights into their broader social and economic impacts. Through his academic endeavors, Emanuele continues to contribute to the advancement of knowledge in these critical areas of economics.