The political economics of populist politics

INVESTORS have consistently underestimated populism. Now, with the election of Donald Trump in the United States, there is a sudden reappraisal of what wider populism might mean. It seems likely that populism will play a significant and potentially destabilising role in global markets in the coming years.

Populism prioritises the views of a majority of the population. That is not the same as democracy; democracy gives rights to the minority, and creates institutions that protect those rights. With populism, the will of the majority is the only legitimising factor. Populism appeals to the group in society "left behind" by the economic developments of the past quarter-century. Rural, older, and lower-skilled workers have seen their relative incomes decline. By claiming to give this group "a voice", populist politicians can win support.

Populism is also helped by social media. Social media encourages the idea of direct democracy: everyone's opinion should be heard. If you can vote directly on something as important as a pop idol, [POP IDOL]then why should you not have a direct vote on negotiations for free trade? However, most constitutions rely on some form of representative democracy; people vote for someone they think is best qualified to make decisions on their behalf. When direct democracy and representative democracy collide, the result is populist politicians: representatives who claim they will speak for the people and be their voice.