On the dangers of comparing every political event to Donald Trump
If Matteo Renzi’s proposals lose, insufficient economic reform could be to blame
Dec 3rd 2016, 10:24 BY B.C. | PRAGUE
ITALIANS take to the polls this weekend to vote on reforming their political system. Reform of many sorts would certainly be welcome; the IMF recently declared that it would take some two decades for Italy to regain the economic footing lost since 2007. Whether the referendum set for December 4th by Matteo Renzi, the prime minister, authorising a constitutional reform to which attempts to loosen up a sclerotic legislative system, is the right medicine remains to be seen. Yet many Italians will be basing their votes not on the content of the referendum question, but on how they feel about Mr Renzi and a course of labour-market reforms adopted last year.
Those changes were meant to make it easier to hire and fire workers. They apply only to new hires, however, and thus disproportionately target young people who now look set to vote “no” amid a rate of youth unemployment of 37%. Perhaps more importantly, they have been insufficiently ambitious in their scope.
Philippe Aghion, an economist at Harvard University, reckons that rich economies (and Italy qualifies, despite recent stagnation) cannot grow in a rapid and sustained fashion if they do not innovate, in ways that raise the economy’s economic potential. In his Schumpeterian view of the economy, long-term growth is driven by frontier innovation and innovation is driven by entrepreneurs looking to profit. Ideally, institutions allow creative destruction to displace old ways of doing things, while cushioning the blow for people left behind. Reforms to make labour markets more flexible should be paired with investments in jobless benefits designed to educate and retrain workers. “It’s redistribution linked to human capital,” Mr Aghion says during an interview on the sidelines of the European Commission’s annual SME Assembly in Bratislava in late November. Paring back redistribution and other interventions at the same time, in contrast, is a recipe for trouble. “Those who are left out have their revenge, like Brexit and Trump,” Mr Aghion says. In Italy, those same forces are mobilised by Beppe Grillo’s Five Star Movement, Mr Renzi’s leading antagonist in the run up to referendum.
Government policies that encourage imitation, like tax breaks with attract FDI or subsidised electricity prices for big manufacturers, are not the same as ones that encourage innovation. “Big firms tend to be barriers to the reforms that you need to generate innovation,” says Mr Aghion. In Italy energy firms like ENI and ENEL, carmaker Fiat and Telecom Italia are among the legacy companies that wield political power (through lobbying) to protect existing business models (rent-seeking). Instead, advanced economies must invest in higher education, liberalise labour markets and encourage a shift toward equity financing, he reckons. In the European context, there is data to back his argument. In the Netherlands, such reforms took place in 1982. Between 1977-1983, Dutch total factor productivity (TFP) growth averaged 0.5%, but from 1983 to 2002 it increased to 1.5%. In Sweden, the jump was even sharper. Relevant reforms came in the early 1990s, with an average TFP growth of 0.4% between 1976-1992 jumping to 1.9% between 1992-2008. Both country’s maintain robust welfare states.
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Growth around 2% is hardly revolutionary, but Italy has managed an average annual growth rate of just 0.6% since 1960. Faster, innovation growth has its drawbacks; innovations correlate with increased patents, which also tend correlate with an increased share of income going to the top 1%. Yet it also seems to increase social mobility.
Mr Renzi might have done more to limber up the Italian economy. His reforms did not apply to the country’s 3.5m public-sector workers or to those already employed—an omission whichmay actually discourage workers from moving jobs, keeping the labour market rigid. If Mr Renzi loses his referendum it is not because of the boldness of his reforms but rather his failure to go far enough. Europe might have done more to help, however. Mr Aghion contends that structural reforms should be matched with increased macroeconomic flexibility—in the Italian case leeway to support debt-ridden banks and temporarily running higher budget deficits: things Brussels (and Berlin) has resisted.
“You cannot let the reformer down, because otherwise tomorrow you have Beppe Grillo,” Mr Aghion says. Italians are about to make their choice.
On the dangers of comparing every political event to Donald Trump
Dec 2nd 2016, 22:04 BY BAGEHOT
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A PATTERN is emerging in political journalism. Whenever something can be construed as a rejection of the establishment, or a win for authoritarianism, or a triumph for swaggering, braces-twanging bombast—or some other shift the writer does not like—the subject is ascribed to a global Trump-ite revolution. Often this comes without nuance.
Take this week. On Monday responses to the election of a statist, pro-death-penalty MEP as UKIP leader obeyed the trend. “Paul Nuttall: Poundshop Trump” ran one much-shared tweet; “Trump minus the wig” was another. Today Tim Farron, the leader of the Liberal Democrats, called his centrist party’s victory in the Richmond Park by-election a “repudiation” of Mr Trump. On Sunday Italians may reject their government’s proposed constitutional reforms: “Italy has a Trump of its own” claimed a Haaretz headline of the leader of the “No” campaign. Also on Sunday a presidential election in Austria could produce Europe’s first far-right head of state since 1945. “Austrian nationalists hope for a ‘Trump bump’” fretted today's Washington Post. Barely a day goes by without politics somewhere being related to the president elect’s shock victory.
Enough. It’s not that the comparisons are fundamentally wrong. A populist, nationalist waveis sweeping the West. It has to do with the economic crisis, globalisation, automation, immigration, stagnant wages, social media and a less deferential culture; albeit in drastically varying proportions in different countries. Each instance of this shift spurs on the next. So to draw comparisons is fair. Important ideological and demographic traits unite Mr Trump’s election, Britain’s vote for Brexit, Mr Nuttall’s prospects in northern England, Norbert Hofer’s in Austria and those of the “No” campaign in Italy. There is also the Dutch vote in April against the EU-Ukraine association agreement, the rise of hard-right parties like the Sweden Democrats and Alternative for Germany, authoritarian leaders like those of Hungary and Poland, movements like Pegida and the Tea Party.
The problem is that talking about the similarities between these forces is all the rage, but talking about their differences is not. And that matters. For the similarities tell a flattering story: one of ordinary folk everywhere losing patience with their self-serving rulers; the private-jet-bound Davos crowd, the Clintons and Blairs, the Goldman Sachs bosses and their silky lobbyists. The similarities narrate a 1989 for the 21st century. The overlooked differences, however, are just as striking, and all-together less flattering.
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They tell local tales that give the populists less credit. Tales of Hillary Clinton’s failings and those of her campaign, of David Cameron’s endless use of Brussels as a punch bag, of the organisational weaknesses of Britain’s anti-Brexit campaign, of the liberal arguments against Mr Renzi’s constitutional reforms, of UKIP’s dysfunction and Nigel Farage’s inability to win even a favourable parliamentary seat last year. Each of these sagas is specific and rooted. Each, too, suggests that the populists in question are not quite the dynamic heralds of an unstoppable change that the similarities between them might imply.
The differences complicate the story of a sudden wave of change. They reveal that while Ms Le Pen may make the second round in the French election next year, her more overtly right-wing father pulled off the same feat in 2002. They reveal that while Mr Hofer could win the (mostly ceremonial) Austrian presidency on Sunday, his party has been an established force in his country for decades and became the larger part of a coalition government as long ago as 2000. They ascribe Italy’s “Trump of its own” to an anarchic Italian tradition that predates not just Mr Trump’s election win but also his birth. They reveal that the post-communist nationalism thriving in central European countries like Hungary and Poland has its roots not before the turn of the decade but before the fall of the Berlin Wall.
Most importantly, the differences belie the simple solutions proffered by some. It is widely said that the “liberal elite” cannot possibly understand the changes through which it is living because it does not understand the hard-up strivers driving them. Never mind that this sort of thinking cedes the designation of “elites” to the likes of Mr Trump, a billionaire, and Nigel Farage, a privately educated former stockbroker. It also fails to explain why Mr Trump’s success in neglected, rust-belt America is supposedly contiguous with that of his counterparts in, say, Sweden; a country with a gleaming welfare state and a former steel welder for a prime minister. Nor does it explain why Germany, pace most of the English-language press, still broadly likes Angela Merkel as it approaches 2m mostly Muslim incomers in a matter of years. Nor does it explain why the vast majority of hard-up strivers in America who happen not to be white voted for Hillary Clinton (or even acknowledge that she won the popular vote by over 2.5m votes). As a theory of the times we are in, the simplistic, undifferentiated “global Trumpism” narrative sucks.
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Most telling of all is how the populists cling to the comparisons. In his victory speech on Monday, Mr Nuttall vowed to “put the great back in Great Britain”, a limp echo of Mr Trump’s “make America great again”. Meanwhile the president elect has called himself “Mr Brexit” and given Mr Farage a high-profile ride in his golden elevator. Ms Le Pen and Mr Hofer celebrated both Britain’s vote to leave the EU and the American election outcome. The morning after the Brexit vote Breitbart, the in-house journal of the populist right, ran an editorial claiming: “It’s not just Britain, you see. The revolution against globalism is, well, global. Britain may be leading the charge, but insurgents and rebels from D.C. to Berlin are also hard at work tormenting their elitist overlords.” Wonder why these people revel in such arguments?
The answer is simple: unburdened by nuance, the comparisons tend to obscure messy local circumstances, beg fewer difficult questions and risk implying that any given populist force automatically has its finger on the pulse of international events. Commentators who reach for the “X is our country’s Trump” line without acknowledging the differences are abetting the forces of authoritarianism on whom they may believe they are helpfully shedding light.
Plenty of similarities do exist. The evidence of the past months is that populist success in one country can “embolden, enlighten and maybe even detoxify” populists in other places (as I, hands up, wrote yesterday about Mr Hofer’s presidential run). This process and especially its channels of communication and mobilisation (like the identitarian movement,which I profiled here) deserve extensive scrutiny. My point however, is that if these accounts of the similarities, of the trend, are not complemented by accounts of the differences, then that imbalance strengthens the populists. By all means spot and explain the trend. But describe its limits, too.
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