March of the Populists

A populist rebellion against globalization is going global. This self-destructive form of economic nationalism started along the Caracas-Moscow axis, as Presidents Vladimir Putin of Russia and Hugo Chávez of Venezuela trumpeted the classic populist promise: to steer wealth from the rich and the foreign to the poor and the homegrown. Increasingly, though, the same politics of fear is taking hold outside of troubled and newly flush oil states. What French President Dominique de Villepin calls "economic patriotism" has become acceptable from Tokyo to Washington. Multibillion-dollar campaigns to guarantee jobs or incomes for those left behind by national booms are now taking hold in the biggest markets of Asia. In Western Europe, a "populist zeitgeist" is dawning, with long-term consequences, says Antwerp University political scientist Cas Mudde. "Populism will be permanent. With so much insecurity, resentment will express itself much more readily."

The problem, and it is a problem, is much bigger than Chávez and Putin. True, Chávez's moves to nationalize energy resources and spend petrodollars for the poor, in what he bills as a post-postcolonial attack on foreign corporate imperialism, have since been copied by Bolivia and, just last week, by Ecuador. Still, only his smallest neighbors consider Chávez a model, while the populist phenomena continues to spread. From Asia to Eastern Europe, countries that were once at the forefront of economic reform, opening to the outside world, are now turning inward, reverting to the kind of state handouts their leaders once deplored.

One striking example is Indian Prime Minister Manmohan Singh, the reformer who opened the world's largest democracy to global trade in the early 1990s. When Singh in February hailed "the most significant legislation of our time," he was not talking about his latest efforts to modernize India through new roads, or new foreign deals. He was praising Parliament for passing his National Rural Employment Guarantee, a massive makework program that echoes Indira Gandhi's anti-poverty agenda of the 1960s. It promises to fund at least one job for each of India's poorest 150 million families by 2010, and is expected to cost a staggering $25 billion. No, Singh is not exactly backtracking on reform, but he is bowing to increasingly loud, and familiar, demands to share the wealth of the global economy.

Consider: in December China doubled the minimum taxable income (to about $200 a month) and abolished all agricultural levies, wiping away the tax burdens of millions of peasants. This year Beijing unveiled a huge public-works program to construct "a new socialist countryside." In Japan, reforming Prime Minister Junichiro Koizumi is under pressure from opposition leaders who are exploiting fears of a widening income gap. Last month Germany announced a new "rich-people's tax," and Spain is offering subsidies and tax breaks urging companies to make temp jobs permanent. In Eastern European elections, populists came in a close second recently in Hungary and look likely to win upcoming votes in the Czech Republic and Slovakia. Polish President Lech Kaczynski ran against the EU and on promises of a "new republic," more committed to attacking 18 percent unemployment and rural poverty.

The strongest bond among the new populists is a will to resist the global threat to local jobs. While slow job growth has long haunted Europe, the region's recent burst of populist energy traces to the European Union enlargement in 2004, which brought 10 largely postcommunist countries into the European fold and raised the specter of Poles "taking" jobs from Rome to Rotterdam. The surprise is that now in Asia, too, the egalitarian impulse is replacing fast growth as the top priority.

The Asian Development Bank warned this month of a looming "jobs crisis" in Asia, with export machines like China no longer producing jobs as fast as they once did. As in the West, rising global competition is pushing manufacturers to adopt technologies that boost productivity but reduce demand for workers. Twenty years ago in China, manufacturing employment rose 1 percent with every 3 percent rise in GDP; now it takes an 8 percent rise in GDP to produce the same gain in jobs. "The whole paradigm we saw in East Asia's newly industrialized economies no longer works," says Ifzal Ali, chief economist at the Asian Development Bank in Manila. "This is a major challenge to countries across the region."

In many cases populism is rising as a defensive response to popular unrest. China's new efforts to help the poor are aimed in part at quelling the record 85,000 protests that erupted last year, many involving peasants revolting against local land grabs and other economic injustices. In India, Singh has said addressing the spread of Maoist rebellions in the hinterlands is a top priority, and industrialist Ratan Tata has warned that India faces "the makings of a revolution" if it doesn't address growing income inequalities. "People are no longer willing to wait for decades for their lives to get better," warns ADB economist Ali. "Wherever they're having elections governments have been put on notice: you either deliver on this or we'll vote you out next time. In China, while you do not have elections, there is significant sensitivity that the rural-urban disparity has reached an unsustainable level."

Expectations have been raised by the degree of new wealth visible in booming export powers. In Poland, once the star reformer of Eastern Europe, have-nots have turned against their former rulers--the postcommunist elites who first dismantled state control of the economy and were seen to have enriched themselves in the process. In Japan, one of the opposition's favorite targets is Takafumi Horie, a flamboyant tech entrepreneur who wrote books about how to get rich, and ran unsuccessfully for Parliament last year at Koizumi's invitation, before his arrest in January on financial fraud charges (which he denies). The attacks on Horie-style "moneygrubbing" and "Anglo-Saxon market economics" are an indirect shot at Koizumi, and the reform majority that won election with him in September.

The challenge is only going to grow for governments in Asia, with regionwide unemployment topping 500 million. An additional 250 million workers are expected to come of age by 2015, and those who don't find jobs are increasingly well aware of what they're missing. For Asian governments, "the problem today is that the villages are watching television," says Mohammad Yunus, founder of microlender Grameen Bank in Bangladesh. "If telephones and televisions didn't exist people would think, 'I'm OK.' They wouldn't see what is happening in Bangalore, or all the fancy commercials declaring: 'This is a better refrigerator, this is a better air cooler'."

In Western Europe, populism has filtered into the political mainstream from a few fringe parties and leaders, like Austria's far-right Jörg Haider and the Netherlands' late libertarian Pim Fortuyn. In the 1990s, such figures gained large followings by opposing immigration and the blurring of national identities, but their influence has since waned for a simple reason: centrist parties have taken up those causes.

Across Europe, mainstream politicians have amped up their soak-the-rich rhetoric. Last year Germany's Social Democrats started a passionate "capitalism debate" in which Labor Minister Franz Müntefering railed at foreign "locusts" who bought German companies and rendered them "empty shells" before seeking new victims. Populists on both the left and the right routinely deride "Anglo-Saxon methods" or "American conditions," by which they mean more market competition and fewer welfare guarantees. Mudde argues that the new "populist style" embodies a loss of faith in the elite, a decline in party loyalty, and a media tendency to flock to charismatic outsiders.

The effect on the political middle has been paralyzing. Today governments must fight hammer and tong for even the mildest reforms--and they still often lose. With unemployment stuck at 10 percent in France, Villepin made jobs his top priority, attempting to add flexibility to the system by making it easier for employers to hire and fire young workers. But that sparked school shutdowns and a season of intense springtime protests across the country that devolved into riots and looting. After two months Villepin's jobs plan was withrawn--a humiliation with little historical precedent.

While economists agree that governments need to address widening income gaps, most decry the measures currently being proposed as inefficient and ineffective. In China, the late patriarch Deng Xiaoping's famous declaration that "to get rich is glorious" has given way to President Hu Jintao's vow "to put people first." He has been delivering on promises to redirect billions in state support to the hinterland. But all too often, such rural development translates into government-financed construction, with much wastage of gravel, steel and concrete. All too often, ill-conceived projects end up as little more than bad debt at state banks.

In India, critics predict that the new Singh plan will suffer the same fate as an infamous jobs scheme launched in the state of Maharashtra in 1973, in which hundreds of millions in government funds simply disappeared. "Less than 10 percent of what is actually meant for the poor will reach them," predicts Bibek Debroy, an economist and secretary general of PHD Chamber and Commerce, an industry lobby in New Delhi. "This whole notion of giving money directly to the poor to trigger economic activity is utter nonsense."

Politicians face another worry: the populist backlash can spawn a backlash of its own. In a bold experiment, Thailand's Prime Minister Thaksin Shinawatra won election in 2001 promising to energize rural communities, and spent billions on rural subsidies and extending health care to the poor. The spending prompted a boom and made him a hero in the hinterland, but helped trigger a rebellion among urban elites, who forced him to step down last month. Now the specter of middle-class revolt is spreading to India, where doctors, lawyers and Bollywood stars hit the streets last week to protest a government plan reserving more seats in professional schools for the lower castes.

Ironically, even as the populist impulse spreads from Paris to Bangkok, Warsaw to Delhi, it's hitting a wall where it started in Latin America. The allure of Chávez seems to be spreading among Westerners who remember Che Guevara fondly, but his allies are losing ground in electoral battles from Mexico to Peru. In the endgame of populism, as in the beginning, the world could do worse than to follow Latin America's lead.

With Tracy McNicoll in Paris, Sudip Mazumdar in New Delhi, Marites Vitug in Manila and Christian Caryl in Tokyo