In the past few years demagogy has risen in many countries around the world and has taken the form of nationalistic movements, opposition to globalization and, perhaps more ominously, the rise of veiled threats against minorities. Although there are common threads in practically all countries around the world, I will confine the comparison in the two countries that I know best: Greece, where I was born, and the United States, where I have lived in the past 47 years. The electorates in both countries have shown signs of unfathomable immaturity with one year time lag. In 2015, the Greek people elected a demagogue as their Prime Minister. In 2016, the Republican Americans elected a demagogue as their presidential candidate.
What are the similarities and differences in these developments? What triggered the ascent of Alexis Tsipras to the highest elected office in Greece and of Donald Trump to the highest position of the Republican Party during a general election year? Are there any common explanations behind these events? Can one find a common cause for the rise of demagogy in western countries during the second decade of the 21st century?
The answer is “yes”. These phenomena, and their closely related political dimensions, namely the rise of nationalistic parties, have one well-known common cause: globalization. In its simplest form, globalization is the relatively easy movement of labor from less developed to more developed countries, and the movement of capital from high wage to low wage countries in search of cost minimization of the production process.
But why should a free-er movement of labor and capital lead to demagogy? Simply put, because globalization, despite its enormous benefits for the world economy, also created a disaffected local class, which not only did not benefit from the fruits of expanded trade, but also saw its fortunes deteriorate over time. Very few western politicians took the time (or found the energy) to explain that the real issue is a global redistribution of income and wealth in favor of the Far East. And that for every worker in Europe or America who lost her job (or whose earnings remained stagnant for many years) there are five, ten, perhaps twenty laborers in India, China, Pakistan, Vietnam, Malaysia etc., who were lifted from poverty and are on their way to break the ceiling of the middle class. To take China as the primary example, The Economist reports that, since 1978, more than 700 million people have been lifted out of poverty, and today the Chinese middle class numbers about 225 million, compared with only 5 million in 2000! Between 1999 and 2014 per capita income in China increased 13-fold in real terms, whereas globally it less than tripled. These are staggering statistics and worth keeping in mind if one is prepared to understand globalization from a world-wide perspective.
Why should the secular transfer of income and wealth from the western countries to the Far East via globalization lead to demagogy in the “old world”? The answer is because the establishment politicians have not taken the trouble to (a) explain the benefits of globalization to their citizens, and (b) attempt to correct the income disparities that could result from it. In the absence of convincing communication policies, the newly emerging alienated and disgruntled classes will be victims of demagogues who could rise to power through lies, hypocrisies, distortions, and false promises about a promised land—namely the return to the old status quo. In the absence of candid and scientifically defensible explanations, a demagogue will prey on the electorate’s fears, concerns and misinformation to grab political power.
All these issues are by now well-known, because they have become part of the narrative of the 2016 Presidential election season in the United States. But an important question remains: are voters so naïve and clueless? Don’t they see the dubious nature of a demagogue’s arguments? Can’t they understand the fallacious logic, the erroneous conclusions? Here the simple answer is ”no”, because the disillusioned classes have steadily lost ground also in terms of education, objective information and knowledge dissemination; those who struggle to get a high-school diploma lack the knowledge base to appreciate the complexities emanating from globalization, and to grasp the range of sound solutions. According to the 2012 ranking (latest available) of high school students based on the OECD-sponsored PISA test, the United States ranked 36th and Greece 42nd out of 65 countries. In the United States only 8.8 percent of high-school students were ranked among the top performers in mathematics; in Greece that share was even lower at 3.9 percent. The situation is dramatically worse in Greece if one considers the level of higher education; according to the 2017 Times ranking of World Universities, only one Greek University ranks between 300-350, one more between 350-400 and the remainder rank over 500. (In contrast, among the top 20 World Universities the United States occupies 15 places). Of course, those who vote need not have a higher education degree. Therefore, the comparison at the secondary level is much more relevant—and much more compelling. Which brings us back to a historical comparison between America and Greece.
There is a fascinating statistic about these countries: for both Greece and the US the beginning of the rise of the disaffected class was the year 1981; however, the type of events that led to a large and growing mass of embittered voters were different between them.
In the United States the process was straightforward. President Ronald Reagan, a Hollywood B-film actor-turned-politician, came to power with strong, simple, nationalistic messages against Jimmy Carter, a weak President in terms of personality but probably the most underrated President in terms of policies in the second half of the 20th century. Reagan was naïve and simplistic, and his economic message was summarized by a simple phrase: “trickle-down economics”. That term implied strengthening the economic position of the wealthy and the privileged in the hope that some benefits will eventually trickle down to the middle and the lower income classes. This discredited policy, which began with the 1981 tax reform, alone compressed the middle class until the 1990s, when globalization was strengthened with the collapse of the Soviet Union. Then, the combined forces of “trickle-down economics” (which continued under Presidents G.H.W. Bush and G.W. Bush) and globalization gave the final push towards the emergence of the greatest income inequality of the late 20th and early 21st century: between 1980 and 2014 the Gini coefficient in the United State increased from 0.40 to 0.48. The great financial crisis of 2008, which resulted in over 5 million foreclosures, was the coup-de-grâce to the “disaffected” class.
In Greece, 1981 saw the election of the socialist government of Andreas Papandreou to power, the first time that a left-of-center party ruled Greece for 20 years almost uninterruptedly. Unlike the US, the push in Greece was in favor of the middle and lower classes, which arguably had not benefited from the economic growth of the 1950s, 1960s and 1970s. But in trying to achieve better income equality, the successive socialist governments ignored both elementary economic principles and the building of institutions—and in some cases undermined the existing ones. The Greek economic model of the 1980s and 1990s was based on the “borrow and spend” principle, with little regard to productivity. Eventually, Greek competitiveness was eroded, and economic, social and legal institutions remained primitive. When globalization began to affect the Greek economy, the country was not prepared to address the ensuing major economic and social challenges. In Greece, too, the coup-de-grâce came with the global 2008 financial crisis, which led to the bankruptcy of the country in 2010. Greece entered a series of bailout programs with the IMF and its Eurozone partners that continue to date. In 2015, the Greek electorate, disillusioned and embittered with the “establishment” parties that had ruled the country in the past thirty-five years, elected the SYRIZA party that had never gained power before. The problem was that SYRIZA’s platform was based on a series of economic promises that violated every principle of macroeconomic theory. Demagogy had won over reality.
Is there a difference between the American and the Greek downtrodden classes? Yes, a major one. In the US, the marginalized class is a minority, and the basic policy challenge is how to improve income distribution and strengthen the middle class. In Greece the disaffected class is, by some reasonable definition, most of the population. The reason is that the whole country has suffered from the 2010 crisis. Although Greek citizens have obviously been affected to varying degrees in the past six years, the collapse of the economic activity has been widespread: between 2008 and 2016 Greek GDP declined by 25 percent and unemployment jumped to (and remains at) 25 percent, with youth unemployment standing at over 50 percent. Now the country as a whole is facing the consequences of not only misguided economic policies in the past 40 years, but also of inadequate, ineffective and obsolete institutions. This is why economists call for “structural reforms” in Greece but only for “change in economic policies” in the US. The former is much harder than the latter.
Returning to the comparison between Mr. Trump and Mr. Tsipras, the demagogy of the former convinced about 45 percent of the US Republican electorate during the 2016 primary elections. The demagogy of Mr. Tsipras convinced about 35 percent of the Greek electorate in the September 2015 general election. The percentages clearly do not represent the majority of the population. However, Mr. Tsipras is already in power (due to the twisted electorate system in Greece) and Mr. Trump could win the general election if the Republican Party strongly coalesces behind him. Greece has been unable to address the challenges of globalization successfully, it is rapidly receding from the radar screen of investors, and its fate as a continuing member of the Eurozone is in the hands of its European partners. Whether the US will be able to reject the demagogy against globalization is a question that will depend on the outcome of the November elections.