Populism Part 3: Populism and the Economy

Populism Part 3: Populism and the Economy

This is the third and final installment of our series on populism. Part one defines populism and part two explores the contrast between populism and nationalism.

While not every populist movement should be considered a hindrance to business, identifying populist movements can help a company identify potential problems before they affect operations. Given what we’ve learned about populism, here are two ways that a populist movement could affect business conditions in a given country.

1. Populism may lead to structural economic changes

We know that grassroots support is a key to populist movements, therefore, it’s not surprising that many populist candidates offer solutions to improve the economy. The shape these improvements take, however, varies on the country.  

In the United States, populist movements have tended to support less market regulation.  Donald Trump’s 2017 campaign championed removing the bureaucratic red tape that he considered a hindrance to the growth of the economy. Moreover, the reduced regulations would give employers the funds to hire more employees, which would benefit the average person that the Trump campaign supported.

The ultimate effect a populist movement has in a historically capitalist country has yet to truly be determined. If the Trump presidency is to be considered as populist, it would be the first populist leader in power in the United States. Without any key economic reforms or policy changes, it is too early to properly gauge Trump’s impact on the economy.

When populist movements  gain power Latin America, it often comes with the advent of socialism. This often comes with reformist candidates with an eye towards a direct redistribution of wealth and resources to the common citizen that supported  a populist candidate. When we defined populism in part one of this series, we discussed the Chavez presidency in Venezuela.

While Venezuela is an extreme example of how the combination of populism and socialism can ravage an economy, a similar example can be found in Argentina, where several waves of populist movements beginning with Juan Peron in 1945 set in motion Argentina’s Argentina’s current economic problems, problems that it took a step towards alleviating when it announced that a year-long recession was over as of April 2017

2.  Populism may affect the global business climate

Populist movements tend to look inward, and protectionist economic policies such as tariffs are, at a minimum, offered as quick solutions to complex imbalances in global trade. This alone could affect the attractiveness of a given country for international investment, given the higher prices that a company exporting into a populist country would have to absorb.

In more extreme conditions, populism could lead to the nationalization of industries. Nationalization, or the government takeover of private industries, occurs globally and is not always linked to populism. South America, however, provides three examples of nationalization directly linked to populism:  Argentina’s nationalization of the petroleum industry in 1949, Bolivia’s nationalization of the natural gas industry in 2006, and Venezuela’s nationalization of the petroleum industry .

Conclusion

Changes to a country’s political atmosphere can cause disruptions to businesses of all sizes. Should the current trends prevail,  our series on populism will help you identify how this particular movement could affect your businesses operations around the globe.

 

,