This broadcast is in Urdu
Thursday 10 January 2019
‘We the people’: the battle to define populism
The noisy dispute over the meaning of populism is more than just an academic squabble – it’s a crucial argument about what we expect from democracy writes Peter C Baker in The Guardian
When populism appears in the media, which it does more and more often now, it is typically presented without explanation, as if everyone can already define it. And everyone can, sort of – at least as long as they’re allowed to simply cite the very developments that populism is supposed to explain: Brexit, Trump, Viktor Orbán’s takeover of Hungary, the rise of Jair Bolsonaro in Brazil. The word evokes the long-simmering resentments of the everyman, brought to a boil by charismatic politicians hawking impossible promises. Often as not, populism sounds like something from a horror film: an alien bacteria that has somehow slipped through democracy’s defences – aided, perhaps, by Steve Bannon or some other wily agent of mass manipulation – and is now poisoning political life, creating new ranks of populist voters among “us”. (Tellingly, most writing about populism presumes an audience unsympathetic to populism.)
There is no shortage of prominent voices warning how dangerous populism is, and that we must take immediate steps to fight it. Tony Blair spends his days running the Institute for Global Change (IGC), an organisation founded, per its website, “to push back against the destructive approach of populism”. In its 2018 world report, Human Rights Watch warned democracies of the world against “capitulation” to the “populist challenge”. The rise of “populist movements”, Barack Obama said in a speech last summer, had helped spark a global boom for the “politics of fear and resentment and retrenchment” that pave a path to authoritarianism. “I am not being alarmist. I am just stating facts,” Obama said.
When populism is framed this way, the implication is clear. All responsible citizens have a responsibility to do their part in the battle – to know populism when they see it, understand its appeal (but not fall for it), and support politics that stop populism in its tracks, thereby saving democracy as we know it. “By fighting off the current infection,” writes Yascha Mounk, until recently executive director of Blair’s IGC and a prominent anti-populist writer, “we might just build up the necessary antibodies to remain immune against new bouts of the populist disease for decades to come.”
But as breathless op-eds and thinktank reports about the populist menace keep piling up, they have provoked a sceptical backlash from critics who wonder aloud if populism even exists. It is now relatively common to encounter the idea that, just as there were no real witches in Salem, there are no real populists in politics – just people, attitudes and movements that the political centre misunderstands and fears, and wants you, reader, to fear too, although without the burden of having to explain exactly why. Populism, in this framing, is a bogeyman: a nonentity invoked for the purpose of stirring up fear. This argument has even made its way to the centrist mainstream. “Let’s do away with the word ‘populist,’” wrote the New York Times columnist Roger Cohen in July. “It’s become sloppy to the point of meaninglessness, an overused epithet for multiple manifestations of political anger. Worse, it’s freighted with contempt, applied to all voters who have decided that mainstream political parties have done nothing for their static incomes or disappearing jobs or sense of national decline these past two decades.”
It is hard to deny that much talk of populism obscures more than it illuminates, and tells us more about anti-populist crusaders than any real live populist parties or voters. But long before populism became an object of transatlantic media fascination – before it became a zeitgeisty one-word explanation for everything – a small group of academics was studying it, trying to figure out exactly what it is and what lessons it holds for democratic politics. The debate they have produced is, like many academic debates, knotty and self-referential – and will always live in the shadow of the muddled media and political discourse. But it helps us see that the idea of populism is something more than just a centrist fairytale.
Thanks in large part to the persistent failure of governments across the west to enact anything resembling a credible vision of shared prosperity and security in the post-manufacturing era, we are now living through a time when familiar webs connecting citizens, ideologies and political parties are, if not falling apart, at least beginning to loosen and shift. As a result, the question of populism is not going away. The coming years are likely to include all of the following: more movements being labelled as populist, more movements calling themselves populist, more movements defensively insisting that they are not populist, and more conversations about the extent to which populism represents the problem or the solution.
The academic debate on populism shows us that making sense of this landscape requires more than just a usable definition of the P-word. In short, it shows us that we can’t really talk about populism without talking about our conflicting conceptions of democracy – and the question of what it truly means for citizens to be sovereign.
It may be telling that very little of the public discussion of the alleged populist threat to democracy has been devoted to the workings of democracy itself. Perhaps we assume, without much thought, that democracy is such a self-explanatory idea that we already know all there is to know about the subject. Or perhaps we have come to regard democracy in its existing western form – basically liberal democracy – as the only possible endpoint for the evolution of politics. Populism, though it comes in many forms, always reminds us that nothing could be further from the truth.
In 2004 a young Dutch political scientist named Cas Mudde published The Populist Zeitgeist, a paper that proposed a new and concise definition of populism – one that would become the backbone of academic populism studies, a field that hardly existed at the time. Mudde was convinced that populism was a useful concept, which meant something more specific than “democracy, but practised in a way that I find distasteful”. He was especially keen to challenge two common intuitions about populism: that it is uniquely defined by “highly emotional and simplistic” rhetoric, and that it primarily consists of “opportunistic policies” that aim to “buy” the support of voters.
Populism, Mudde argued, is more than just demagogy or opportunism. But it is not a fully formed political ideology like socialism or liberalism – it is instead a “thin” ideology, made up of just a few core beliefs. First: the most important division in society is an antagonistic one between “the people”, understood to be fundamentally good, and “the elite”, understood to be fundamentally corrupt and out of touch with everyday life. Second: all populists believe that politics should be an expression of the “general will” – a set of desires presumed to be shared as common sense by all “ordinary people”. (Implicit in this belief is another: that such a thing as this “general will” exists.)
A populist movement, then, is one that consistently promises to channel the unified will of the people, and by doing so undercut the self-serving schemes of the elite establishment. As the National Front founder Jean-Marie Le Pen put it in 2007: “I will give voice to the people. Because in democracy only the people can be right, and none can be right against them.” (Note how, in this formulation, there is no disagreement among “the people”.) Or, in the more recent words of Donald Trump, speaking at his inauguration: “We are transferring power from Washington DC and giving it back to you, the people … The establishment protected itself, but not the citizens of our country.” (Note how members of “the establishment” are implicitly excluded from “the citizens”.)
For decades, attempts at clear-headed conversations about populism had been stymied by the question of how it could be attributed to parties and politicians that were so obviously different: how can Bernie Sanders and Donald Trump, for example, both be called populist? In what way are Occupy Wall Street and Brexit both possible examples of populist phenomena? Mudde’s simple definition caught on because it has no trouble answering this type of question. If populism is truly ideologically “thin”, then it has to attach itself to a more substantial host ideology in order to survive. But this ideology can lie anywhere along the left-right spectrum. Because, in Mudde’s definition, populism is always piggybacking on other ideologies, the wide variety of populisms isn’t a problem. It’s exactly what you would expect.
“The people” and “the elite”, Mudde wrote, are groupings with no static definition from one populist movement to another. These categories are, first and foremost, moral: people good, elites bad. The question of exactly who belongs in which group, though, depends on the character of the populist movement, and which “thick” ideology the populism ends up attached to. A populist “people” can define itself by an ethnic identity it feels is under threat, but just as easily by a shared sense of being victims of economic exploitation. What matters is that it blames a perceived class of corrupt elites; in the case of rightwing populisms, it may also heap scorn on some underclass, whether immigrants or racial minorities, whom the elites are accused of favouring with special treatment as part of their plot to keep power away from “real people”.
When populism appears in the media, which it does more and more often now, it is typically presented without explanation, as if everyone can already define it. And everyone can, sort of – at least as long as they’re allowed to simply cite the very developments that populism is supposed to explain: Brexit, Trump, Viktor Orbán’s takeover of Hungary, the rise of Jair Bolsonaro in Brazil. The word evokes the long-simmering resentments of the everyman, brought to a boil by charismatic politicians hawking impossible promises. Often as not, populism sounds like something from a horror film: an alien bacteria that has somehow slipped through democracy’s defences – aided, perhaps, by Steve Bannon or some other wily agent of mass manipulation – and is now poisoning political life, creating new ranks of populist voters among “us”. (Tellingly, most writing about populism presumes an audience unsympathetic to populism.)
There is no shortage of prominent voices warning how dangerous populism is, and that we must take immediate steps to fight it. Tony Blair spends his days running the Institute for Global Change (IGC), an organisation founded, per its website, “to push back against the destructive approach of populism”. In its 2018 world report, Human Rights Watch warned democracies of the world against “capitulation” to the “populist challenge”. The rise of “populist movements”, Barack Obama said in a speech last summer, had helped spark a global boom for the “politics of fear and resentment and retrenchment” that pave a path to authoritarianism. “I am not being alarmist. I am just stating facts,” Obama said.
When populism is framed this way, the implication is clear. All responsible citizens have a responsibility to do their part in the battle – to know populism when they see it, understand its appeal (but not fall for it), and support politics that stop populism in its tracks, thereby saving democracy as we know it. “By fighting off the current infection,” writes Yascha Mounk, until recently executive director of Blair’s IGC and a prominent anti-populist writer, “we might just build up the necessary antibodies to remain immune against new bouts of the populist disease for decades to come.”
But as breathless op-eds and thinktank reports about the populist menace keep piling up, they have provoked a sceptical backlash from critics who wonder aloud if populism even exists. It is now relatively common to encounter the idea that, just as there were no real witches in Salem, there are no real populists in politics – just people, attitudes and movements that the political centre misunderstands and fears, and wants you, reader, to fear too, although without the burden of having to explain exactly why. Populism, in this framing, is a bogeyman: a nonentity invoked for the purpose of stirring up fear. This argument has even made its way to the centrist mainstream. “Let’s do away with the word ‘populist,’” wrote the New York Times columnist Roger Cohen in July. “It’s become sloppy to the point of meaninglessness, an overused epithet for multiple manifestations of political anger. Worse, it’s freighted with contempt, applied to all voters who have decided that mainstream political parties have done nothing for their static incomes or disappearing jobs or sense of national decline these past two decades.”
It is hard to deny that much talk of populism obscures more than it illuminates, and tells us more about anti-populist crusaders than any real live populist parties or voters. But long before populism became an object of transatlantic media fascination – before it became a zeitgeisty one-word explanation for everything – a small group of academics was studying it, trying to figure out exactly what it is and what lessons it holds for democratic politics. The debate they have produced is, like many academic debates, knotty and self-referential – and will always live in the shadow of the muddled media and political discourse. But it helps us see that the idea of populism is something more than just a centrist fairytale.
Thanks in large part to the persistent failure of governments across the west to enact anything resembling a credible vision of shared prosperity and security in the post-manufacturing era, we are now living through a time when familiar webs connecting citizens, ideologies and political parties are, if not falling apart, at least beginning to loosen and shift. As a result, the question of populism is not going away. The coming years are likely to include all of the following: more movements being labelled as populist, more movements calling themselves populist, more movements defensively insisting that they are not populist, and more conversations about the extent to which populism represents the problem or the solution.
The academic debate on populism shows us that making sense of this landscape requires more than just a usable definition of the P-word. In short, it shows us that we can’t really talk about populism without talking about our conflicting conceptions of democracy – and the question of what it truly means for citizens to be sovereign.
It may be telling that very little of the public discussion of the alleged populist threat to democracy has been devoted to the workings of democracy itself. Perhaps we assume, without much thought, that democracy is such a self-explanatory idea that we already know all there is to know about the subject. Or perhaps we have come to regard democracy in its existing western form – basically liberal democracy – as the only possible endpoint for the evolution of politics. Populism, though it comes in many forms, always reminds us that nothing could be further from the truth.
In 2004 a young Dutch political scientist named Cas Mudde published The Populist Zeitgeist, a paper that proposed a new and concise definition of populism – one that would become the backbone of academic populism studies, a field that hardly existed at the time. Mudde was convinced that populism was a useful concept, which meant something more specific than “democracy, but practised in a way that I find distasteful”. He was especially keen to challenge two common intuitions about populism: that it is uniquely defined by “highly emotional and simplistic” rhetoric, and that it primarily consists of “opportunistic policies” that aim to “buy” the support of voters.
Populism, Mudde argued, is more than just demagogy or opportunism. But it is not a fully formed political ideology like socialism or liberalism – it is instead a “thin” ideology, made up of just a few core beliefs. First: the most important division in society is an antagonistic one between “the people”, understood to be fundamentally good, and “the elite”, understood to be fundamentally corrupt and out of touch with everyday life. Second: all populists believe that politics should be an expression of the “general will” – a set of desires presumed to be shared as common sense by all “ordinary people”. (Implicit in this belief is another: that such a thing as this “general will” exists.)
A populist movement, then, is one that consistently promises to channel the unified will of the people, and by doing so undercut the self-serving schemes of the elite establishment. As the National Front founder Jean-Marie Le Pen put it in 2007: “I will give voice to the people. Because in democracy only the people can be right, and none can be right against them.” (Note how, in this formulation, there is no disagreement among “the people”.) Or, in the more recent words of Donald Trump, speaking at his inauguration: “We are transferring power from Washington DC and giving it back to you, the people … The establishment protected itself, but not the citizens of our country.” (Note how members of “the establishment” are implicitly excluded from “the citizens”.)
For decades, attempts at clear-headed conversations about populism had been stymied by the question of how it could be attributed to parties and politicians that were so obviously different: how can Bernie Sanders and Donald Trump, for example, both be called populist? In what way are Occupy Wall Street and Brexit both possible examples of populist phenomena? Mudde’s simple definition caught on because it has no trouble answering this type of question. If populism is truly ideologically “thin”, then it has to attach itself to a more substantial host ideology in order to survive. But this ideology can lie anywhere along the left-right spectrum. Because, in Mudde’s definition, populism is always piggybacking on other ideologies, the wide variety of populisms isn’t a problem. It’s exactly what you would expect.
“The people” and “the elite”, Mudde wrote, are groupings with no static definition from one populist movement to another. These categories are, first and foremost, moral: people good, elites bad. The question of exactly who belongs in which group, though, depends on the character of the populist movement, and which “thick” ideology the populism ends up attached to. A populist “people” can define itself by an ethnic identity it feels is under threat, but just as easily by a shared sense of being victims of economic exploitation. What matters is that it blames a perceived class of corrupt elites; in the case of rightwing populisms, it may also heap scorn on some underclass, whether immigrants or racial minorities, whom the elites are accused of favouring with special treatment as part of their plot to keep power away from “real people”.
Bernie Sanders supporters in California in March 2016. Photograph: Robyn Beck/AFP/Getty Images
When The Populist Zeitgeist was published, populism wasn’t a hot topic: in all of 2005, Mudde’s paper was cited only nine times. But as the field of populism studies has ballooned alongside mainstream interest in the subject, the paper has become widely recognised as a classic. By a wide margin, Mudde is now the populism scholar most likely to be cited or interviewed by journalists – as often as not, for articles in which his definition intermingles with the same old sloppy generalisations he set out to overturn.
Today, no academic disputes the dominance of Mudde’s definition, especially among the growing number of scholars hoping to be part of the conversation about populism as a global phenomenon. One major factor in its success, in fact, is the way that it anticipated events in world politics. The market crashes of 2008 led to the emergence of anti-austerity movements – such as Podemos in Spain, Syriza in Greece, and Occupy worldwide – motivated by rage at financial institutions and the small class of people who benefited from their profits. These movements were obviously animated by a sense of opposition between “the people” and “the elite” – but old theories of populism that defined it specifically as rightwing, racist or anti-immigrant were insufficiently capacious to describe these new developments in populist politics.
The thin-ideology definition is also extremely congenial to the landscape of contemporary academic political science, which places a considerable premium on broad frameworks that enable young scholars to do empirical, quantitative work. Many new scholars of populism no longer feel the need to argue over definitions. Instead, they perform textual analyses designed to detect how often populism’s core ideas, as laid out in Mudde’s 2004 article, pop up in party platforms, political speeches, manifestos and tweets. Or they administer surveys designed to track the prevalence of the core tenets of populism in different populations, searching for profiles of archetypal populist voters.
Every time another paper relying on the ideological framework is published, it becomes a little more entrenched – a matter of some frustration to the minority of academics who still think it misses the point.
The rise of the thin-ideology definition, and its increasing influence in the still-ballooning public conversation about populism, has consistently provoked the objections of a small but persistent camp of dissenters within populism studies. These academics think defining populism in terms of core beliefs is a deep methodological error: many of them also think defining populism as an ideology runs the risk of making effective and worthwhile political strategies seem irresponsible, even dangerous.
These academics are likely to stress the extent to which mainstream political parties in the US and Europe have converged in recent decades, narrowing the range of opinions that find real purchase in national decision-making. They take as a given that this has swelled the ranks of people who feel that what gets called democracy responds to their concerns much less than it caters to the whims of a small, wealthy, self-dealing class of elites – elites who vigorously deny their own complicity in this state of affairs, often by insisting that there is no alternative.
As you might expect, these scholars tend to be most interested in challenges to the status quo that come from the left – from “the 99%” of Occupy Wall Street and the Sanders campaign, to the “many not the few” of Jeremy Corbyn’s Labour party – and foreground an insistence that politics is not yet serving the correct constituency. They are also instinctively alert to the possibility that the self-preserving centre will try to defang outsider challenges by making anyone who endorses them appear unreasonable, frightening and constitutionally unequipped for the sober task of governance.
This makes them suspicious of any suggestion that there is an identifiable ideology called populism that has fundamental similarities no matter where on the political spectrum it appears. For this crowd, talk of an essence of populism – however thin – shades too easily into a charge of guilt by association, which inevitably has the effect of saddling leftwing populist movements (or even populist-looking movements) with the baggage of their xenophobic and racist rightwing counterparts. More specifically, they are likely to worry that the emphasis on exaggerated moralism as a defining feature of populism makes it too easy to depict legitimate opposition to elite power as irrational mobs.
Most objections to the thin-ideology definition owe a substantial debt to a duo of leftist political theorists: Chantal Mouffe, a Belgian who teaches at the University of Westminster, and her late husband, the Argentine Ernesto Laclau. Both thinkers have directly informed the new European left populist movements, including Syriza, Podemos and Jean-Luc Mélenchon’s La France Insoumise.
Mouffe and Laclau’s writings on Marxism and populism – some of which they produced together, and some separately – are famously dense and sometimes resistant to summary. But at their core is the idea that conflict is an inescapable and defining feature of political life. In other words, the realm of politics is one where antagonism is natural and unavoidable, in which consensus cannot ever be permanent, and there is always a “we” and a “they”.
“Political questions are not mere technical issues to be solved by experts,” Mouffe insists. “Properly political questions always involve decisions which require us to make a choice between conflicting alternatives.” This emphasis on conflict produces a vision of democratic life that looks more radical than typical mainstream accounts of liberal democracy – but, Laclau and Mouffe would argue, one that more accurately describes the actual logic of politics.
In this view, any existing socio-political order (or “hegemony” in Mouffe and Laclau’s preferred formation, borrowed from the Italian Marxist philosopher and politician Antonio Gramsci) is subject to challenge. Every status quo – however sturdy – is only temporary, and can always be challenged by a movement that seeks to replace it with something new. Political change, in other words, is the result of demands against the existing order, which must be fused together in a movement to change it – a movement that may look a lot like populism.
When my demands and your demands and our neighbours’ demands are brought together in such a movement, they can become the basis for a new political “we”: a “people” insisting that the current arrangement of power be altered in their name. To the extent that such a movement succeeds, it creates a new hegemony – a new baseline – which itself becomes open to challenge over time.
From this perspective, populism is just another word for real politics: for people (“us”) creating together, live on the ground, a sense of how our dissatisfactions relate, who is to blame (“them”), and how to force a change.
But those who benefit from the status quo don’t want it to change; to this end, they might champion toothless approaches to collective decision-making: bipartisan consensus as an end in itself; the elevation of “rational” experts over hot-headed partisans; “Third Way” centrism that shuns ideological conflict in favour of “what works” or mediation by liberal institutions. These approaches (Mouffe calls them “non-politics”) may for a time become dominant, as they did in the Anglo-American 1990s and early 2000s. But nothing lasts for ever, especially when the number of people who feel politicians are making their lives more precarious is rising. And then politics – real politics, which is to say populist politics – make a return.
When The Populist Zeitgeist was published, populism wasn’t a hot topic: in all of 2005, Mudde’s paper was cited only nine times. But as the field of populism studies has ballooned alongside mainstream interest in the subject, the paper has become widely recognised as a classic. By a wide margin, Mudde is now the populism scholar most likely to be cited or interviewed by journalists – as often as not, for articles in which his definition intermingles with the same old sloppy generalisations he set out to overturn.
Today, no academic disputes the dominance of Mudde’s definition, especially among the growing number of scholars hoping to be part of the conversation about populism as a global phenomenon. One major factor in its success, in fact, is the way that it anticipated events in world politics. The market crashes of 2008 led to the emergence of anti-austerity movements – such as Podemos in Spain, Syriza in Greece, and Occupy worldwide – motivated by rage at financial institutions and the small class of people who benefited from their profits. These movements were obviously animated by a sense of opposition between “the people” and “the elite” – but old theories of populism that defined it specifically as rightwing, racist or anti-immigrant were insufficiently capacious to describe these new developments in populist politics.
The thin-ideology definition is also extremely congenial to the landscape of contemporary academic political science, which places a considerable premium on broad frameworks that enable young scholars to do empirical, quantitative work. Many new scholars of populism no longer feel the need to argue over definitions. Instead, they perform textual analyses designed to detect how often populism’s core ideas, as laid out in Mudde’s 2004 article, pop up in party platforms, political speeches, manifestos and tweets. Or they administer surveys designed to track the prevalence of the core tenets of populism in different populations, searching for profiles of archetypal populist voters.
Every time another paper relying on the ideological framework is published, it becomes a little more entrenched – a matter of some frustration to the minority of academics who still think it misses the point.
The rise of the thin-ideology definition, and its increasing influence in the still-ballooning public conversation about populism, has consistently provoked the objections of a small but persistent camp of dissenters within populism studies. These academics think defining populism in terms of core beliefs is a deep methodological error: many of them also think defining populism as an ideology runs the risk of making effective and worthwhile political strategies seem irresponsible, even dangerous.
These academics are likely to stress the extent to which mainstream political parties in the US and Europe have converged in recent decades, narrowing the range of opinions that find real purchase in national decision-making. They take as a given that this has swelled the ranks of people who feel that what gets called democracy responds to their concerns much less than it caters to the whims of a small, wealthy, self-dealing class of elites – elites who vigorously deny their own complicity in this state of affairs, often by insisting that there is no alternative.
As you might expect, these scholars tend to be most interested in challenges to the status quo that come from the left – from “the 99%” of Occupy Wall Street and the Sanders campaign, to the “many not the few” of Jeremy Corbyn’s Labour party – and foreground an insistence that politics is not yet serving the correct constituency. They are also instinctively alert to the possibility that the self-preserving centre will try to defang outsider challenges by making anyone who endorses them appear unreasonable, frightening and constitutionally unequipped for the sober task of governance.
This makes them suspicious of any suggestion that there is an identifiable ideology called populism that has fundamental similarities no matter where on the political spectrum it appears. For this crowd, talk of an essence of populism – however thin – shades too easily into a charge of guilt by association, which inevitably has the effect of saddling leftwing populist movements (or even populist-looking movements) with the baggage of their xenophobic and racist rightwing counterparts. More specifically, they are likely to worry that the emphasis on exaggerated moralism as a defining feature of populism makes it too easy to depict legitimate opposition to elite power as irrational mobs.
Most objections to the thin-ideology definition owe a substantial debt to a duo of leftist political theorists: Chantal Mouffe, a Belgian who teaches at the University of Westminster, and her late husband, the Argentine Ernesto Laclau. Both thinkers have directly informed the new European left populist movements, including Syriza, Podemos and Jean-Luc Mélenchon’s La France Insoumise.
Mouffe and Laclau’s writings on Marxism and populism – some of which they produced together, and some separately – are famously dense and sometimes resistant to summary. But at their core is the idea that conflict is an inescapable and defining feature of political life. In other words, the realm of politics is one where antagonism is natural and unavoidable, in which consensus cannot ever be permanent, and there is always a “we” and a “they”.
“Political questions are not mere technical issues to be solved by experts,” Mouffe insists. “Properly political questions always involve decisions which require us to make a choice between conflicting alternatives.” This emphasis on conflict produces a vision of democratic life that looks more radical than typical mainstream accounts of liberal democracy – but, Laclau and Mouffe would argue, one that more accurately describes the actual logic of politics.
In this view, any existing socio-political order (or “hegemony” in Mouffe and Laclau’s preferred formation, borrowed from the Italian Marxist philosopher and politician Antonio Gramsci) is subject to challenge. Every status quo – however sturdy – is only temporary, and can always be challenged by a movement that seeks to replace it with something new. Political change, in other words, is the result of demands against the existing order, which must be fused together in a movement to change it – a movement that may look a lot like populism.
When my demands and your demands and our neighbours’ demands are brought together in such a movement, they can become the basis for a new political “we”: a “people” insisting that the current arrangement of power be altered in their name. To the extent that such a movement succeeds, it creates a new hegemony – a new baseline – which itself becomes open to challenge over time.
From this perspective, populism is just another word for real politics: for people (“us”) creating together, live on the ground, a sense of how our dissatisfactions relate, who is to blame (“them”), and how to force a change.
But those who benefit from the status quo don’t want it to change; to this end, they might champion toothless approaches to collective decision-making: bipartisan consensus as an end in itself; the elevation of “rational” experts over hot-headed partisans; “Third Way” centrism that shuns ideological conflict in favour of “what works” or mediation by liberal institutions. These approaches (Mouffe calls them “non-politics”) may for a time become dominant, as they did in the Anglo-American 1990s and early 2000s. But nothing lasts for ever, especially when the number of people who feel politicians are making their lives more precarious is rising. And then politics – real politics, which is to say populist politics – make a return.
Pablo Iglesias, leader of Spain’s Podemos coalition, in June 2016. Photograph: Francisco Seco/AP
According to Mouffe and Laclau, the only inherent connection between rightwing and leftwing populist movements is that both embrace the same fundamental truth about democracy: that it is an ever-shifting contest over how the default “we” of politics is defined and redefined, in which no one definition can be guaranteed to last. The goal, they argue, should not be placid consensus but “agonistic pluralism”: a state in which opposition and disagreement are accepted as the norm, and in which people maintain the capacity to disagree intensely without demonising each other, or descending into war.
Mouffe, in particular, has in recent years argued that the political question of the immediate future is not how to fight populism, but rather which type of populist you want to be. It’s about who you’re with (who belongs in your “chain of equivalence”), who you’re against (who is causing the problem, and how), and where to take your stand. Populism isn’t the problem: instead, leftwing populism is the solution.
Not all the academics who take inspiration from Mouffe and Laclau go quite this far, especially in the sober pages of peer-reviewed political science journals. But their work is palpably motivated by a sense that the real threat of “populism” is that our panic over the word will foreclose the possibility of new kinds of politics and new challenges to the status quo – and that fear of populism on the left could enable the victory of populism of the right.
These scholars’ preference is for definitions in which it has no ideological essence – not even the “thin” one posited by Cas Mudde. For them, even though the thin definition readily recognises populism’s ideological portability, it is still irrevocably tainted by pejorative overtones that push participants in debates about populism to take a position “for” or “against” all populisms. With no internal essence, populism is harder to categorise as inherently good or bad. Paris Aslanidis, a Yale political scientist, calls populism a “discourse” – a mode of talking about politics, rather than a set of beliefs – one that frames politics in terms of the “supremacy of popular sovereignty”.
Benjamin Moffitt, a senior lecturer in politics at the Australian Catholic University, refers to populism as a “political style”, the presence of which “tells us very little about the substantive democratic content of any political project”. Under definitions of this type, the central question is not whether a given political actor or group is or isn’t populist. It is instead whether, from moment to moment, they are “doing populism”, and how, and with what impact.
Of course, these disputes aren’t really about the difference between a “thin ideology” and a “discourse.” They are about whether “populist” is always an insult, and if the project of defining populism can ever be disentangled from the concept’s pejorative baggage. Ultimately, they are disputes about which types of politics make us suspicious, and why.
The current discussion of populism in the west is strongly coloured by the populist far-right parties that emerged in Europe in the late 1980s and early 90s, such as the Austrian Freedom party, the Danish People’s party and the French National Front. What most people knew about these parties, at first, was that they were openly nativist and racist. They talked about “real” citizens of their countries, and fixated on the issue of national and ethnic “purity,” demonising immigrants and minorities. Many of their party leaders flirted winkingly with antisemitism, and their electoral victories coincided with a resurgence of extreme right-wing violence in Europe, such as the 1991 attack on immigrant workers and asylum seekers in the east German town of Hoyerswerda.
When journalists and politicians started calling these parties and their supporters populist, the term was an expression of alarm at a problem and, simultaneously, a euphemism that made it possible to gloss over that problem’s exact qualities. This was especially useful for journalists who feared being viewed as anything less than politically neutral. Populist was obviously not a compliment, but it sounded less alarming than “extreme right” or “radical right”. What the term seemed to communicate more than anything else was backwardness: a juvenile incapacity to bring your preferences to the political arena and engage in the complex give-and-take of rational compromise. The populist combination of immaturity, emotional resentment and intolerance was widely held to constitute a threat to postwar European democracy.
In one respect, the thin-ideology definition popularised by Cas Mudde dismantled this view of things, freeing populism from its exclusively far-right connotations, and cautioning against the conflation of populism with the other -isms it was often paired to.
Mudde and many other scholars who use the ideological definition have in fact repeatedly argued that neither Trump nor Brexit should be regarded primarily as populist phenomena. Of course both Trump and Brexiters used ample populist rhetoric; but in both cases, they argue, the majority of support was motivated not by passion for populism’s core ideas, but by other ideological factors. After the Cambridge Dictionary declared populism 2017’s “word of the year”, Mudde wrote a Guardian column criticising the decision. (“It has become the buzzword of the year,” he noted acidly, “mostly because it is very often poorly defined and wrongly used.”) For the radical-right parties whose electoral campaigns in the Netherlands, France, Germany and Austria raised alarms across Europe, “populism comes secondary to nativism, and within contemporary European and US politics, populism functions at best as a fuzzy blanket to camouflage the nastier nativism”, Mudde concluded.
According to Mouffe and Laclau, the only inherent connection between rightwing and leftwing populist movements is that both embrace the same fundamental truth about democracy: that it is an ever-shifting contest over how the default “we” of politics is defined and redefined, in which no one definition can be guaranteed to last. The goal, they argue, should not be placid consensus but “agonistic pluralism”: a state in which opposition and disagreement are accepted as the norm, and in which people maintain the capacity to disagree intensely without demonising each other, or descending into war.
Mouffe, in particular, has in recent years argued that the political question of the immediate future is not how to fight populism, but rather which type of populist you want to be. It’s about who you’re with (who belongs in your “chain of equivalence”), who you’re against (who is causing the problem, and how), and where to take your stand. Populism isn’t the problem: instead, leftwing populism is the solution.
Not all the academics who take inspiration from Mouffe and Laclau go quite this far, especially in the sober pages of peer-reviewed political science journals. But their work is palpably motivated by a sense that the real threat of “populism” is that our panic over the word will foreclose the possibility of new kinds of politics and new challenges to the status quo – and that fear of populism on the left could enable the victory of populism of the right.
These scholars’ preference is for definitions in which it has no ideological essence – not even the “thin” one posited by Cas Mudde. For them, even though the thin definition readily recognises populism’s ideological portability, it is still irrevocably tainted by pejorative overtones that push participants in debates about populism to take a position “for” or “against” all populisms. With no internal essence, populism is harder to categorise as inherently good or bad. Paris Aslanidis, a Yale political scientist, calls populism a “discourse” – a mode of talking about politics, rather than a set of beliefs – one that frames politics in terms of the “supremacy of popular sovereignty”.
Benjamin Moffitt, a senior lecturer in politics at the Australian Catholic University, refers to populism as a “political style”, the presence of which “tells us very little about the substantive democratic content of any political project”. Under definitions of this type, the central question is not whether a given political actor or group is or isn’t populist. It is instead whether, from moment to moment, they are “doing populism”, and how, and with what impact.
Of course, these disputes aren’t really about the difference between a “thin ideology” and a “discourse.” They are about whether “populist” is always an insult, and if the project of defining populism can ever be disentangled from the concept’s pejorative baggage. Ultimately, they are disputes about which types of politics make us suspicious, and why.
The current discussion of populism in the west is strongly coloured by the populist far-right parties that emerged in Europe in the late 1980s and early 90s, such as the Austrian Freedom party, the Danish People’s party and the French National Front. What most people knew about these parties, at first, was that they were openly nativist and racist. They talked about “real” citizens of their countries, and fixated on the issue of national and ethnic “purity,” demonising immigrants and minorities. Many of their party leaders flirted winkingly with antisemitism, and their electoral victories coincided with a resurgence of extreme right-wing violence in Europe, such as the 1991 attack on immigrant workers and asylum seekers in the east German town of Hoyerswerda.
When journalists and politicians started calling these parties and their supporters populist, the term was an expression of alarm at a problem and, simultaneously, a euphemism that made it possible to gloss over that problem’s exact qualities. This was especially useful for journalists who feared being viewed as anything less than politically neutral. Populist was obviously not a compliment, but it sounded less alarming than “extreme right” or “radical right”. What the term seemed to communicate more than anything else was backwardness: a juvenile incapacity to bring your preferences to the political arena and engage in the complex give-and-take of rational compromise. The populist combination of immaturity, emotional resentment and intolerance was widely held to constitute a threat to postwar European democracy.
In one respect, the thin-ideology definition popularised by Cas Mudde dismantled this view of things, freeing populism from its exclusively far-right connotations, and cautioning against the conflation of populism with the other -isms it was often paired to.
Mudde and many other scholars who use the ideological definition have in fact repeatedly argued that neither Trump nor Brexit should be regarded primarily as populist phenomena. Of course both Trump and Brexiters used ample populist rhetoric; but in both cases, they argue, the majority of support was motivated not by passion for populism’s core ideas, but by other ideological factors. After the Cambridge Dictionary declared populism 2017’s “word of the year”, Mudde wrote a Guardian column criticising the decision. (“It has become the buzzword of the year,” he noted acidly, “mostly because it is very often poorly defined and wrongly used.”) For the radical-right parties whose electoral campaigns in the Netherlands, France, Germany and Austria raised alarms across Europe, “populism comes secondary to nativism, and within contemporary European and US politics, populism functions at best as a fuzzy blanket to camouflage the nastier nativism”, Mudde concluded.
A pro-Brexit campaign bus in London, January 2019. Photograph: Matthew Chattle/Rex/Shutterstock
And yet, despite these caveats, the thin definition nonetheless positions populism as always posing at least something of a majoritarian threat to liberal democracy. It is this judgment, more than any other, that keeps the fight going between scholars who adopt the ideological definition, on one hand, and their Mouffe- and Laclau-inspired critics, on the other.
Liberal democracy, in this context, has almost nothing to do with contemporary distinctions between left and right. It refers, instead, to the idea that government should facilitate pluralistic coexistence by balancing the never fully attainable ideal of popular sovereignty with institutions that enshrine the rule of law and civil rights, which cannot easily be overturned by a political majority. (In this regard, as Mudde writes in his original paper, liberal democracy is “therefore only partly democratic”.) Today, liberal democracy is what most people mean when they talk about democracy – and therefore, to be deemed a threat to liberal democracy is, in the context of most political discussions, a devastatingly negative judgment.
Because populism, as described by the ideological definition, involves a moralised conception of an absolutely sovereign “people” – whose verdicts are regarded as practically unanimous – it is inevitable that populist movements will come into conflict with the liberal aspects of liberal democracy.
If all “real” people think the same way about the things that matter most in politics, then the idea of institutional protections for a dissenting minority are are at best superfluous and at worst nefarious. For the populists, they are just another wall that the corrupt elite has built to keep real power away from the people. The same is true for the independence of judges or regulators, or checks and balances between branches of government – especially when they appear to stymie the plans of a populist leader. In this account, the most basic elements of liberal democracy become both kindling and fuel for the populist fire.
No one who studies populism seriously – and not even the most opportunistic participants in the cottage industry of anti-populist alarmism – denies that populist movements can raise valid critiques of the status quo, and of the very real anti-democratic power of elites. Many take a viewpoint similar to that of the Mexican political theorist Benjamin Arditi, who described populism as a drunken guest at democracy’s dinner party, one who disrespects the rules of sociability and, along the way, brings up the failure and hypocrisies that everyone else in the room has agreed to ignore. In Populism: A Very Short Introduction, Mudde and his frequent co-author, the Chilean political scientist Cristóbal Kaltwasser, describe contemporary populism as an “illiberal democratic response to an undemocratic liberalism” – one that “asks the right questions but provides the wrong answers”.
Reading critics from the left, however, one often gets the sense that for them this adds up to so much lipstick on a pig: a sprinkling of nuance and restraint that still leaves populism, no matter its ideological stripe, with an undeserved taint of inherent danger. The unhappiness of these critics is magnified by the fact that populism rarely appears in mainstream discussion as anything but an insult – often in the mouth of pundits and politicians who regard the left and the right as an equal threat.
The fear in these circles is that saying anything negative about “populism” – however qualified and analytical – simply hands more ammunition to the very people who helped make politics such a hollow, undemocratic mess in the first place. Positioning any populism as fundamentally antithetical to liberal democracy, in this view, simply reinforces the association between populism and mob psychology, and stokes fears that individual rights will always be trampled by group identities.
Some scholars in this camp now argue that we should be talking less about populism and more about the centrist “anti-populism” that fears and demonises it. “Just as the adulterous spouse is always the one most suspicious of their own partner,” wrote the Italian sociologist Marco d’Eramo in New Left Review in 2013, “so those who eviscerate democracy are the most inclined to see threats to it everywhere. Hence all the to-do about populism betrays a sense of uneasiness, smacks of overkill.”
For each side in this debate, the obvious temptation is to simply dismiss the other – or to insist that what the other side calls “populism” isn’t really populism at all, but just something populist-ish. But to conclude that the two camps are simply talking past each other would be to miss the extent to which they are in agreement –and what, taken together, they tell us about the current political moment.
In 1967, when political theorists from around the world gathered at the London School of Economics for the first ever academic conference on populism, they had a hard time figuring out exactly what they were supposed to be talking about. The word came from the “prairie populists”, an 1890s movement of US farmers who supported more robust regulation of capitalism. But in the intervening decades it had been used for a wide and varied grab bag of phenomena from around the world, from McCarthyite anti-communist witch-hunts in the US to charismatic Latin American leaders.
In the end, the conference proceedings failed to clarify the matter at hand. “There can at present be no doubt about the importance of populism,” read a summary report. “But no one is clear what it is.”
Over half a century later, there has been some progress. Populism, specialists now agree, is an ideologically portable way of looking at politics as a forum for opposition between “people” and “elites”. This definition creates more questions: is the conceptual “people” of populism inherently defined in a way that spells danger to pluralistic coexistence? Or, less menacingly, is the idea of “the people” a necessary but always malleable concept – simply part of what it means to do politics?
But populism, whatever it is, is not a chemical: no scientist will ever come along and reveal its exact, objective composition. Populism is a lens for looking at our politics, including – down a long hall of mirrors – the politics of what gets called populist, and with what implications.
The questions of populism would have little urgency were it not for the widespread agreement about the shortcomings of the political status quo: about the abyss between the shining ideals of equality and responsive government implied by our talk about democracy and the tarnished reality of life on the ground. The notion that “the people” are being poorly served by politics has vast resonance across the political spectrum, and for good reason.
But what is the remedy? Among the proponents of the ideological definition, some decline to provide an answer, claiming that they are looking only to define and measure populism, not take a stance on it. Others admit that, in the case of populism, the options for producing a description without forming a judgment are basically nonexistent. The order of the day, in their view, is to convince citizens to recommit to liberal democracy and its institutions.
There is, however, widespread recognition in this camp – more than they are credited with by their critics on the left – that it will no longer suffice to insist that there is no acceptable alternative to existing liberal democracy. Writing in the Guardian in 2017, Mudde argued that responding to populism required more than “purely anti-populist campaigns”; it would take, he claimed, “a return to ideological politics”. Even liberals who want some issues to be “depoliticised” – to be removed from the realm of democracy and handed over to experts – will have to, at a minimum, remake the case for those decisions. Nothing can stay depoliticised for ever; that’s politics.
If you squint just a little, this looks more than a bit like what you would expect from Ernesto Laclau and Chantal Mouffe, with their insistence that there is no space “beyond left and right” and no way to put political decisions – decisions about our collective fate – outside the reach of politics. Arguably, you might say that the defenders of liberal democracy are being suddenly reacquainted with the need to construct a democratic “we” – a people – around their demand to protect liberal institutions and procedures, in opposition to radical rightwing parties who are happy to see them discarded.
The corresponding challenge for anyone further on the left is to figure out the relationship between their long-term goals and the ideals of liberal democracy. There have always been critics for whom liberal democracy is sham democracy: a nice-sounding set of universal principles that, in practice, end up functioning as smokescreens that normalise the exploitations and inequities of capitalism.
Other theorists, Mouffe included, view something like the European social democracy of the 60s and 70s as the precondition for whatever comes next – for “radical democracy” that forces liberal democracy to make good on its promises of equality. But even Mouffe is no longer optimistic about our ability to revive our democratic prospects. Two years ago she wrote: “In 1985 we said ‘we need to radicalise democracy’; now we first need to restore democracy, so we can then radicalise it; the task is far more difficult.” What that task will look like on the ground is an open question.
The media framing of populism almost always sounds like a discussion about the margins: about forces from outside “normal” or “rational” politics threatening to throw off the balance of the status quo. But the scholarly discourse makes clear that this is backward: that populism is inherent to democracy, and especially to democracy as we know it in the contemporary west. It finds life in the cracks – or more lately, the chasms – between democracy’s promises and the impossibility of their full, permanent realisation.
The question of populism, then, is always the question of what kind of democracy we want, and the fact that we will never stop arguing about this. Anxiety about populism can be a smokescreen for people who don’t want the world as they know it to be disturbed. But it also flows from the core insight that we can never know exactly where democracy is going to take us – not this time, nor the next, nor the time after that.
And yet, despite these caveats, the thin definition nonetheless positions populism as always posing at least something of a majoritarian threat to liberal democracy. It is this judgment, more than any other, that keeps the fight going between scholars who adopt the ideological definition, on one hand, and their Mouffe- and Laclau-inspired critics, on the other.
Liberal democracy, in this context, has almost nothing to do with contemporary distinctions between left and right. It refers, instead, to the idea that government should facilitate pluralistic coexistence by balancing the never fully attainable ideal of popular sovereignty with institutions that enshrine the rule of law and civil rights, which cannot easily be overturned by a political majority. (In this regard, as Mudde writes in his original paper, liberal democracy is “therefore only partly democratic”.) Today, liberal democracy is what most people mean when they talk about democracy – and therefore, to be deemed a threat to liberal democracy is, in the context of most political discussions, a devastatingly negative judgment.
Because populism, as described by the ideological definition, involves a moralised conception of an absolutely sovereign “people” – whose verdicts are regarded as practically unanimous – it is inevitable that populist movements will come into conflict with the liberal aspects of liberal democracy.
If all “real” people think the same way about the things that matter most in politics, then the idea of institutional protections for a dissenting minority are are at best superfluous and at worst nefarious. For the populists, they are just another wall that the corrupt elite has built to keep real power away from the people. The same is true for the independence of judges or regulators, or checks and balances between branches of government – especially when they appear to stymie the plans of a populist leader. In this account, the most basic elements of liberal democracy become both kindling and fuel for the populist fire.
No one who studies populism seriously – and not even the most opportunistic participants in the cottage industry of anti-populist alarmism – denies that populist movements can raise valid critiques of the status quo, and of the very real anti-democratic power of elites. Many take a viewpoint similar to that of the Mexican political theorist Benjamin Arditi, who described populism as a drunken guest at democracy’s dinner party, one who disrespects the rules of sociability and, along the way, brings up the failure and hypocrisies that everyone else in the room has agreed to ignore. In Populism: A Very Short Introduction, Mudde and his frequent co-author, the Chilean political scientist Cristóbal Kaltwasser, describe contemporary populism as an “illiberal democratic response to an undemocratic liberalism” – one that “asks the right questions but provides the wrong answers”.
Reading critics from the left, however, one often gets the sense that for them this adds up to so much lipstick on a pig: a sprinkling of nuance and restraint that still leaves populism, no matter its ideological stripe, with an undeserved taint of inherent danger. The unhappiness of these critics is magnified by the fact that populism rarely appears in mainstream discussion as anything but an insult – often in the mouth of pundits and politicians who regard the left and the right as an equal threat.
The fear in these circles is that saying anything negative about “populism” – however qualified and analytical – simply hands more ammunition to the very people who helped make politics such a hollow, undemocratic mess in the first place. Positioning any populism as fundamentally antithetical to liberal democracy, in this view, simply reinforces the association between populism and mob psychology, and stokes fears that individual rights will always be trampled by group identities.
Some scholars in this camp now argue that we should be talking less about populism and more about the centrist “anti-populism” that fears and demonises it. “Just as the adulterous spouse is always the one most suspicious of their own partner,” wrote the Italian sociologist Marco d’Eramo in New Left Review in 2013, “so those who eviscerate democracy are the most inclined to see threats to it everywhere. Hence all the to-do about populism betrays a sense of uneasiness, smacks of overkill.”
For each side in this debate, the obvious temptation is to simply dismiss the other – or to insist that what the other side calls “populism” isn’t really populism at all, but just something populist-ish. But to conclude that the two camps are simply talking past each other would be to miss the extent to which they are in agreement –and what, taken together, they tell us about the current political moment.
In 1967, when political theorists from around the world gathered at the London School of Economics for the first ever academic conference on populism, they had a hard time figuring out exactly what they were supposed to be talking about. The word came from the “prairie populists”, an 1890s movement of US farmers who supported more robust regulation of capitalism. But in the intervening decades it had been used for a wide and varied grab bag of phenomena from around the world, from McCarthyite anti-communist witch-hunts in the US to charismatic Latin American leaders.
In the end, the conference proceedings failed to clarify the matter at hand. “There can at present be no doubt about the importance of populism,” read a summary report. “But no one is clear what it is.”
Over half a century later, there has been some progress. Populism, specialists now agree, is an ideologically portable way of looking at politics as a forum for opposition between “people” and “elites”. This definition creates more questions: is the conceptual “people” of populism inherently defined in a way that spells danger to pluralistic coexistence? Or, less menacingly, is the idea of “the people” a necessary but always malleable concept – simply part of what it means to do politics?
But populism, whatever it is, is not a chemical: no scientist will ever come along and reveal its exact, objective composition. Populism is a lens for looking at our politics, including – down a long hall of mirrors – the politics of what gets called populist, and with what implications.
The questions of populism would have little urgency were it not for the widespread agreement about the shortcomings of the political status quo: about the abyss between the shining ideals of equality and responsive government implied by our talk about democracy and the tarnished reality of life on the ground. The notion that “the people” are being poorly served by politics has vast resonance across the political spectrum, and for good reason.
But what is the remedy? Among the proponents of the ideological definition, some decline to provide an answer, claiming that they are looking only to define and measure populism, not take a stance on it. Others admit that, in the case of populism, the options for producing a description without forming a judgment are basically nonexistent. The order of the day, in their view, is to convince citizens to recommit to liberal democracy and its institutions.
There is, however, widespread recognition in this camp – more than they are credited with by their critics on the left – that it will no longer suffice to insist that there is no acceptable alternative to existing liberal democracy. Writing in the Guardian in 2017, Mudde argued that responding to populism required more than “purely anti-populist campaigns”; it would take, he claimed, “a return to ideological politics”. Even liberals who want some issues to be “depoliticised” – to be removed from the realm of democracy and handed over to experts – will have to, at a minimum, remake the case for those decisions. Nothing can stay depoliticised for ever; that’s politics.
If you squint just a little, this looks more than a bit like what you would expect from Ernesto Laclau and Chantal Mouffe, with their insistence that there is no space “beyond left and right” and no way to put political decisions – decisions about our collective fate – outside the reach of politics. Arguably, you might say that the defenders of liberal democracy are being suddenly reacquainted with the need to construct a democratic “we” – a people – around their demand to protect liberal institutions and procedures, in opposition to radical rightwing parties who are happy to see them discarded.
The corresponding challenge for anyone further on the left is to figure out the relationship between their long-term goals and the ideals of liberal democracy. There have always been critics for whom liberal democracy is sham democracy: a nice-sounding set of universal principles that, in practice, end up functioning as smokescreens that normalise the exploitations and inequities of capitalism.
Other theorists, Mouffe included, view something like the European social democracy of the 60s and 70s as the precondition for whatever comes next – for “radical democracy” that forces liberal democracy to make good on its promises of equality. But even Mouffe is no longer optimistic about our ability to revive our democratic prospects. Two years ago she wrote: “In 1985 we said ‘we need to radicalise democracy’; now we first need to restore democracy, so we can then radicalise it; the task is far more difficult.” What that task will look like on the ground is an open question.
The media framing of populism almost always sounds like a discussion about the margins: about forces from outside “normal” or “rational” politics threatening to throw off the balance of the status quo. But the scholarly discourse makes clear that this is backward: that populism is inherent to democracy, and especially to democracy as we know it in the contemporary west. It finds life in the cracks – or more lately, the chasms – between democracy’s promises and the impossibility of their full, permanent realisation.
The question of populism, then, is always the question of what kind of democracy we want, and the fact that we will never stop arguing about this. Anxiety about populism can be a smokescreen for people who don’t want the world as they know it to be disturbed. But it also flows from the core insight that we can never know exactly where democracy is going to take us – not this time, nor the next, nor the time after that.
Wednesday 9 January 2019
Brexit proved our economy is broken, but our leaders still have no clue how to fix it
Politicians obsess over GDP growth yet its benefits are unequally shared. And Labour leave areas suffer most writes Aditya Chakrabortty in The Guardian
From David Cameron down, leading remainers considered the economy their trump card. In the biggest single choice Britain had had to make for four decades, they were sure economics would be the deciding factor. But with less than a month to go before the vote, seasoned operative Coetzee could see the strategy was failing. Why, just a few days earlier, George Osborne had produced Treasury analysis that Brexit would send house prices plunging by as much as 18% – and BBC journalists reported being deluged with calls from would-be buyers asking where they could sign up.
As remain started losing its central argument so, internal polling analysis showed, it began trailing leave. Hence the panic in that late-night memo, quoted by Tim Shipman in his history of the referendum, All Out War. One of Shipman’s Labour sources in the campaign cut close to the bone: “When we started just saying, ‘the economy will be fucked’, it showed what a profound misunderstanding they had of Labour motives. Across the north-east and the north-west people already felt like the economy was fucked and not working for them.”
Bingo. Project Fear stuck as a catchphrase precisely because Osborne’s rhapsodies over the health of the economy sounded to so many like Project Fantasy.
Osborne banged on about Britain’s miracle recovery even while pay remained below pre-crash levels. His replacement at No 11, Philip Hammond, made a big flourish in his last budget of doling out “little extras” to schools where teachers now face huge funding shortfalls. Over the past few years Westminster has embarked on a march of the makers that looked more like a punch-drunk stagger, erected a northern powerhouse almost invisible to the naked eye, and declared a war on skivers and freeloaders – led by Iain Duncan Smith, the cabinet minister who claimed £39 in expenses for one solitary breakfast.
But this economic chasm runs deeper and longer than just the past decade. Around the same time that Coetzee was raising the alarm in Westminster, I was reporting in Pontypool, south Wales. It was market day, and locals reminisced about old times, when the town centre would be “rammed”. In that day’s drizzle it was half-deserted. In the 80s and 90s, voters in south Wales were assured that vibrant new industries would replace the coalmines and steelworks that had shut down. What actually filled the void was public spending, and casual work and self-employment that barely paid its way.
“It’s dead now, because they took what they wanted,” Neil told me, his glasses specked with paint from his day job as a decorator. “They” meant Westminster, London, the rich. “Thatcher smashed the unions. Boosh! We’re out of here. Boosh! They’ve moved on.” Raised in a Labour family in a blood-red part of the country that had been deceived by the political classes for so long, he now considered all politicians “liars”. And in the EU referendum, he intended to let them know.
In the crudest of ways, Neil and others got some of what they wanted. Since the summer of 2016, politicians and pundits will freely declare that something in British politics and economics is broken. The trouble is, the governing classes are no closer to knowing what exactly is bust, let alone how to fix it.
It ultimately comes down to this: decades of privatisation, hammering unions and chucking billions at the housing market while stripping the welfare state has effectively ended any semblance of a national, redistributive economy in which a child born in Sunderland can expect to have similar life chances to one born in Surrey. Yet politicians remain fixated on mechanisms that no longer work adequately for those who actually depend on the economy. They obsess over GDP growth when the benefits of that are unequally shared between classes and regions. They boast about job creation when wages are still on the floor.
Most of all, they brag about London, the one undoubted gleaming success of the British economic model. “A pound spent in Croydon is of far more value to the country than a pound spent in Strathclyde,” to quote Boris Johnson, the Conservative party’s last surviving greyback. But that is to ignore how London itself is rapidly becoming unlivable for many Londoners. New research by academics the Foundational Economy Collective shows that Londoners are the least likely in the country to have a mortgage and the most likely to swim in the shark-infested waters of the private rental sector. This is great for landlords and for employers, who enjoy a conveyor belt of ready-made renters and workers supplied to them from the rest of Britain and Europe. It is not such a great bargain for the rest of us. The high income generated by London is matched by the massive income inequality suffered by Londoners.
The irony is that Neil and other Labour leave voters have handed the keys to the very people least interested in reversing any of this. The top economic brains among the Brexiteers, miserable throwbacks such as Patrick Minford and John Redwood, believe the problem with Thatcher’s revolution is that it didn’t go far enough.
We rarely ask people what they want from the economy; if we did it more often, the answers might surprise us. The free-marketeers at the Legatum Institute did pose the question in a survey conducted in 2017. Top priorities for respondents were: food and water; emergency services; universal healthcare; a good house; a decent well-paying job; and compulsory and free education. At the bottom were owning a car and cheap air travel. HS2, a new runway at Heathrow or a garden bridge on the Thames didn’t even rank.
After reporting the survey, the Legatum Institute concluded: “Significant portions of the country … are vehemently anti-capitalist.” The report was co-authored by Matthew Elliott, former head of the Vote Leave campaign. Which just about sums up the Brexiteers’ politics: savvy enough to listen to what people want, cynical enough never to enact it.
Illustration: Sébastien Thibault
Just after midnight on 25 May 2016, a senior staffer in the remain campaign sent colleagues an urgent message. “Voters are very sceptical about our warnings on the economy,” began his email. “They don’t trust the numbers. They don’t trust the Treasury.” As head of strategy for Britain Stronger in Europe, Ryan Coetzee had bombarded Britons with evidence of the economic damage they would do to themselves if they didn’t stay in the EU. He and his team enlisted the Bank of England, the IMF, the OECD and pretty much every acronym that mattered. They’d wagged fingers, flung numbers around and pointed out the danger signs.
Just after midnight on 25 May 2016, a senior staffer in the remain campaign sent colleagues an urgent message. “Voters are very sceptical about our warnings on the economy,” began his email. “They don’t trust the numbers. They don’t trust the Treasury.” As head of strategy for Britain Stronger in Europe, Ryan Coetzee had bombarded Britons with evidence of the economic damage they would do to themselves if they didn’t stay in the EU. He and his team enlisted the Bank of England, the IMF, the OECD and pretty much every acronym that mattered. They’d wagged fingers, flung numbers around and pointed out the danger signs.
From David Cameron down, leading remainers considered the economy their trump card. In the biggest single choice Britain had had to make for four decades, they were sure economics would be the deciding factor. But with less than a month to go before the vote, seasoned operative Coetzee could see the strategy was failing. Why, just a few days earlier, George Osborne had produced Treasury analysis that Brexit would send house prices plunging by as much as 18% – and BBC journalists reported being deluged with calls from would-be buyers asking where they could sign up.
As remain started losing its central argument so, internal polling analysis showed, it began trailing leave. Hence the panic in that late-night memo, quoted by Tim Shipman in his history of the referendum, All Out War. One of Shipman’s Labour sources in the campaign cut close to the bone: “When we started just saying, ‘the economy will be fucked’, it showed what a profound misunderstanding they had of Labour motives. Across the north-east and the north-west people already felt like the economy was fucked and not working for them.”
Bingo. Project Fear stuck as a catchphrase precisely because Osborne’s rhapsodies over the health of the economy sounded to so many like Project Fantasy.
Osborne banged on about Britain’s miracle recovery even while pay remained below pre-crash levels. His replacement at No 11, Philip Hammond, made a big flourish in his last budget of doling out “little extras” to schools where teachers now face huge funding shortfalls. Over the past few years Westminster has embarked on a march of the makers that looked more like a punch-drunk stagger, erected a northern powerhouse almost invisible to the naked eye, and declared a war on skivers and freeloaders – led by Iain Duncan Smith, the cabinet minister who claimed £39 in expenses for one solitary breakfast.
But this economic chasm runs deeper and longer than just the past decade. Around the same time that Coetzee was raising the alarm in Westminster, I was reporting in Pontypool, south Wales. It was market day, and locals reminisced about old times, when the town centre would be “rammed”. In that day’s drizzle it was half-deserted. In the 80s and 90s, voters in south Wales were assured that vibrant new industries would replace the coalmines and steelworks that had shut down. What actually filled the void was public spending, and casual work and self-employment that barely paid its way.
“It’s dead now, because they took what they wanted,” Neil told me, his glasses specked with paint from his day job as a decorator. “They” meant Westminster, London, the rich. “Thatcher smashed the unions. Boosh! We’re out of here. Boosh! They’ve moved on.” Raised in a Labour family in a blood-red part of the country that had been deceived by the political classes for so long, he now considered all politicians “liars”. And in the EU referendum, he intended to let them know.
In the crudest of ways, Neil and others got some of what they wanted. Since the summer of 2016, politicians and pundits will freely declare that something in British politics and economics is broken. The trouble is, the governing classes are no closer to knowing what exactly is bust, let alone how to fix it.
It ultimately comes down to this: decades of privatisation, hammering unions and chucking billions at the housing market while stripping the welfare state has effectively ended any semblance of a national, redistributive economy in which a child born in Sunderland can expect to have similar life chances to one born in Surrey. Yet politicians remain fixated on mechanisms that no longer work adequately for those who actually depend on the economy. They obsess over GDP growth when the benefits of that are unequally shared between classes and regions. They boast about job creation when wages are still on the floor.
Most of all, they brag about London, the one undoubted gleaming success of the British economic model. “A pound spent in Croydon is of far more value to the country than a pound spent in Strathclyde,” to quote Boris Johnson, the Conservative party’s last surviving greyback. But that is to ignore how London itself is rapidly becoming unlivable for many Londoners. New research by academics the Foundational Economy Collective shows that Londoners are the least likely in the country to have a mortgage and the most likely to swim in the shark-infested waters of the private rental sector. This is great for landlords and for employers, who enjoy a conveyor belt of ready-made renters and workers supplied to them from the rest of Britain and Europe. It is not such a great bargain for the rest of us. The high income generated by London is matched by the massive income inequality suffered by Londoners.
The irony is that Neil and other Labour leave voters have handed the keys to the very people least interested in reversing any of this. The top economic brains among the Brexiteers, miserable throwbacks such as Patrick Minford and John Redwood, believe the problem with Thatcher’s revolution is that it didn’t go far enough.
We rarely ask people what they want from the economy; if we did it more often, the answers might surprise us. The free-marketeers at the Legatum Institute did pose the question in a survey conducted in 2017. Top priorities for respondents were: food and water; emergency services; universal healthcare; a good house; a decent well-paying job; and compulsory and free education. At the bottom were owning a car and cheap air travel. HS2, a new runway at Heathrow or a garden bridge on the Thames didn’t even rank.
After reporting the survey, the Legatum Institute concluded: “Significant portions of the country … are vehemently anti-capitalist.” The report was co-authored by Matthew Elliott, former head of the Vote Leave campaign. Which just about sums up the Brexiteers’ politics: savvy enough to listen to what people want, cynical enough never to enact it.
Volatility: how ‘algos’ changed the rhythm of the market
Critics say high-frequency trading makes markets too fickle amid rising anxiety over the global economy writes Robin Wigglesworth in The FT
Philippe Jabre was the quintessential swashbuckling trader, slicing his way through markets first at GLG Partners and then an eponymous hedge fund he founded in 2007 — at the time one of the industry’s biggest-ever launches. But in December he fell on his sword, closing Jabre Capital after racking up huge losses. The fault, he said, was machines.
“The last few years have become particularly difficult for active managers,” he said in his final letter to clients. “Financial markets have significantly evolved over the past decade, driven by new technologies, and the market itself is becoming more difficult to anticipate as traditional participants are imperceptibly replaced by computerised models.”
Mr Jabre is not alone. There has been recently a flurry of finger-pointing by humbled one-time masters of the universe, who argue that the swelling influence of computer-powered “quantitative”, or quant, investors and high-frequency traders is wreaking havoc on markets and rendering obsolete old-fashioned analysis and common sense.
Those concerns were exacerbated by the volatility in financial markets in December, when US equities suffered their biggest monthly decline since the financial crisis, despite little fundamental economic news. And with growing anxiety over the strength of the global economy, tightening monetary policy across the world and an escalating trade war between China and the US, these trades are getting more attention.
Even hedge fund veterans admit the game has changed. “These ‘algos’ have taken all the rhythm out of the market, and have become extremely confusing to me,” Stanley Druckenmiller, a famed investor and hedge fund manager, recently told an industry TV station.
It is true that markets are evolving. HFTs dominate the market-making once done by humans in trading pits and the bowels of investment banks. Various quant strategies — ranging from simple ones packaged into passive funds to pricey, complex hedge funds — manage at least $1.5tn, according to Morgan Stanley. JPMorgan estimates that only about 10 per cent of US equity trading is now done by traditional investors. Other markets remain more human, yet are slowly but surely being transformed.
This has made “the algos” a fashionable bugbear whenever markets tremble like they did in December. Torsten Slok, Deutsche Bank’s chief international economist, put them at the top of his list of the 30 biggest risks for markets, and even Steven Mnuchin, the US Treasury secretary who caused market unease with comments on liquidity late last year, has said the government will study whether the evolving market ecosystem fed the recent turmoil.
But markets have always been tempestuous, and machines make a convenient, faceless bogeyman for fund managers who stumble. Meanwhile, quants point out that they are still only small players compared with the vastness of global markets.
“It’s insane,” says Clifford Asness, the founder of AQR Capital Management. “People are missing the forest for the trees. That we trade electronically doesn’t change things, we just deliver the same thing more efficiently . . . It’s just used by pundits and fund managers as an excuse.”
The recent turmoil has unnerved many investors, but two other debacles stand out as having first crystallised the fear that algorithms are making markets more fickle and fragile.
At 2:32pm on May 6 2010, US equities suddenly and mysteriously careened lower. In just 36 minutes the S&P 500 crashed more than 8 per cent, before rebounding just as powerfully. Dubbed the “flash crash” it put a spotlight on the rise of small ultra-fast, algorithmic trading firms that have elbowed out investment banks as the integral intermediaries of many markets.
Michael Lewis, author of Flash Boys, fanned the flames with his book by casting HFTs as mysterious, investor-scalping antagonists “rigging” the stock market. What was once an esoteric, little-appreciated evolution in the market’s plumbing suddenly became the topic of a vitriolic mainstream debate.
“It was a wake-up call,” says Andrei Kirilenko, former chief economist at the Commodity Futures Trading Commission who wrote the US regulator’s report on the 2010 event and now leads Imperial College London’s Centre for Global Finance and Technology. “The flash crash was the first market crash in the era of automated, algorithmic trading.”
In August 2015, markets were once again abruptly thrown into a tailspin — and this time volatility-sensitive quantitative strategies were identified as the primary culprits. The spark was rising concern over China’s economic slowdown, but on August 24, the S&P 500 crashed on opening, triggering circuit-breakers — implemented in the wake of the flash crash to pause wild trading — nearly 1,300 times. That rippled through a host of exchange traded funds, worsening the dislocations as they briefly became divorced from the value of their underlying holdings.
Many investors and analysts blamed algorithmic strategies that automatically adjust their market exposure according to volatility for aggravating the 2015 crash. Targeting a specific level of volatility is common among strategies known as “risk parity” — trend-following hedge funds and “managed volatility” products sold by insurance companies. Estimates vary, but there is probably more than $1tn invested in a variety of such funds.
Risk parity, a strategy first pioneered by Ray Dalio’s Bridgewater Associates in the 1990s, often shoulders much of the opprobrium. The theory is that a broad, diversified portfolio of stocks, bonds and other assets balanced by the mathematical risk — in practice, volatility — of each asset class should over time enjoy better returns than traditional portfolios. Bonds are less volatile than equities, so that often means “leveraging” these investments to bring the risk-adjusted allocation up to that of stocks. As volatility goes up, risk parity funds in theory rein in their exposure.
However, risk parity funds can vary greatly in the details of their approach, and are generally slower moving than the $300bn trend-following hedge fund industry. These funds surf market momentum up and down, and also use volatility metrics to scale their exposure. When markets are calm they buy, and when turbulence spikes they sell.
This has been a successful strategy over time. But it leaves the funds vulnerable to abrupt reversals — such as the market tumble last February — and means they can accentuate turbulence by selling when markets are already sliding.
Leon Cooperman, the founder of Omega Advisors, has argued that the US Securities and Exchange Commission should investigate and tame the new “wild, wild west environment in the stock market” caused by these volatility-sensitive strategies.
“I think your next guest ought to be somebody from the SEC to explain why they have sat back calmly, quietly, without saying anything and allowing these algorithmic, trend-following models to wreak havoc with what has, up to now, been the best capital market in the world,” he told CNBC in December.
Some quants will grudgingly admit that volatility-targeting is inherently pro-cyclical and can at least in theory exacerbate market movements. But they say critics wildly overestimate just how much money is invested in these strategies, how much they trade, and their impact.
“Risk parity is basically a passive portfolio with some periodic, counter-cyclical rebalancing. Our volatility targets aren’t perfectly static, but they only change over a 10-year window,” says Bob Prince, co-chief investment officer at Bridgewater. Other risk parity strategies may vary, but overall “it's only ever going to be a drop in the ocean”, he adds.
Markets had been vulnerable to panicky plunges long before trading algorithms emerged, yet fears over machines seem deeply embedded in our psyche. A 2014 University of Pennsylvania paper found evidence of what it dubbed “algorithm aversion”, showing how human test subjects instinctively trusted human forecasters more than algorithmic ones, even after seeing the algo make fewer and less severe forecasting errors.
And there are plenty of other potential culprits to blame for exacerbating recent turbulence. Many traditional active funds suffered a battering in 2018. That has led to a rise in investor redemption notices and has forced many to sell securities to meet the end-of-year withdrawals.
Hedge fund flow data come with a lag, but traditional equity funds saw withdrawals rise to nearly $53bn in the seven days up to December 12, according to data provider EPFR — comfortably the biggest one-week outflow on record. That probably both reflected and exacerbated the slide that left the S&P 500 nursing a 6 per cent loss for 2018.
At the same time, market liquidity— a broad term denoting how easy it is to trade quickly without causing prices to move around too much — tends to weaken in December, when many fund managers become more defensive ahead of the end of the year. Liquidity can be particularly poor in the last weeks of the year, when bank traders ratchet back how much risk they take on to avoid extra regulatory charges.
“This makes it more expensive for dealers to perform their essential functions: providing liquidity, absorbing shocks and facilitating the transfer and socialisation of risk,” Joshua Younger, a JPMorgan analyst, wrote in a recent note. “These costs are generally passed on to customers in the form of higher rates on short-term loans, thinner markets and the risk — now realised — of spikes in volatility.”
That markets are undergoing a dramatic, algorithmic evolution is an inescapable fact. Although some humbled hedge fund managers may unfairly castigate “algos” for their own failings, there are real risks in how some of these different factors can interact at times of market stress.
HFTs are far more efficient market-makers than human pit traders. Yet the entire sector probably has less capital than just one of the major banks, says Charles Himmelberg, head of global markets research at Goldman Sachs. It means that they tend to adjust their bids aggressively when market mayhem breaks out.
Under those circumstances, even a modest amount of selling could have an outsized impact. This is an issue both for human traders and quants, but quant strategies are programmed, quick and on autopilot, and if they start pounding an increasingly thin market, it can cause dislocations between buy and sell orders that can produce big gains or falls.
For example, JPMorgan estimates that the depth of the big and normally liquid S&P 500 futures market — as measured by how many contracts trade close to the current price — deteriorated in 2018, and was exceptionally shallow in the last months of the year. In December it was even worse than the levels seen in the financial crisis.
“While it is incorrect to say that systematic flows are the sole driver of recent market moves, it would be equally incorrect to say that systematic flows don’t have a meaningful impact,” says Marko Kolanovic, head of quantitative strategy at JPMorgan.
Poor liquidity and market volatility have always been linked, and it is in practice impossible to dissect and diagnose the myriad triggers and drivers of a sell-off. But modern markets do appear more vulnerable to abrupt dislocations.
The question is whether anything should, or even could, be done to mitigate the risks. Mr Kirilenko cautions that a mix of better understanding and modest tweaks may be the only conclusion.
“We just have to accept that financial markets are nearly fully automated,” he says, “and try to make sure that things don’t get so technologically complex and inter-connected that it’s dangerous to the financial system.”
Anxiety inducing: the triggers for market fears
Although the recent market slide has reawakened the debate about whether modern machine-driven markets can exacerbate the severity of any volatility, the fundamental drivers of the turbulence are more conventional. As 2018 progressed, investors grew concerned at three factors: signs that the global economy is weakening; the impact of tighter monetary policy in the US and the end of quantitative easing in Europe; and the escalating trade war between the US and China. The global economy started last year on a strong footing, but markets are always focused on inflection points. Since the summer the impact of US tax cuts has appeared to fizzle, European growth has slowed, and China’s decelerating economy has been buffeted by the trade dispute. That has led analysts to trim their estimates for corporate profits in 2019. At the same time, the Federal Reserve raised interest rates four times last year, and has kept shrinking its balance sheet of bonds acquired in the wake of the financial crisis. That has lifted short-term ultra-safe Treasury bill yields to a 10-year high, and undermined the long-term argument that “there is no alternative” which has helped sustain market valuations. As a result, Treasury bills beat the returns of almost every major asset class last year. Goldman Sachs says that over the past century there have only been three other periods when Treasury bills have enjoyed such a broad outperformance: when the US ratcheted up interest rates to 20 per cent in the early 1980s to subdue inflation; during the Great Depression; and at the start of the first world war.
Tuesday 8 January 2019
Monday 7 January 2019
Corbyn's opposition to Brexit is vindicated by the EU state aid rules
Jonathan Ford in The FT
Some six years ago, British minicab company, Addison Lee took Transport for London on a journey through the law courts that ended up in 2015 at the European Court of Justice. At issue was a rule that allows only black cabs to use London’s bus lanes.
Hardly an EU matter you might think, worrying about transport policy in Britain’s capital. But think again. The minicab company argued not only that the rule infringed its freedom to provide services; it was also illegal state aid. Letting black cabs use a bus lane was, in effect, selective support for a specific participant in the wider taxi trade.
Admittedly the argument did not prevail in Luxembourg and London’s bus lanes remain limited to buses and traditional taxis. But while the ECJ failed to deem the policy state assistance, it did not entirely rebut the principle.
The justices recognised that TfL’s policy could affect trade between member states because it potentially made it harder for European-owned minicabs to penetrate the market. The definitional ratchet of unfair state aid turned gently another notch.
“It illustrates how the definition of state aid has expanded over the years,” says James Webber, an antitrust partner at the law firm Shearman & Sterling. “Originally designed to contain industrial subsidy competition, state aid is now much wider than commonly assumed, covering many public spending decisions such as infrastructure investment and tax changes which could be seen to benefit a specific region, sector or even just to incentivise desirable corporate behaviour.”
Quite right too, you might say. Unfettered subsidy competition is not only wasteful; it is ultimately pointless, for any advantage is lost if it descends into a free-for-all. Which is why it was so uncontentious when Theresa May conceded early in Brexit negotiations that the UK would stick with EU state-aid rules. But in practice what has been signed up to is far from uncontentious. The prime minister’s agreement has contrived to put the UK into a uniquely disadvantageous place, forced to follow the EU’s state-aid rules but not protected by them in return.
The mischief lies in the so-called Irish backstop, which would leave the whole of the UK still subject to single market regulation in state aid even though the country was formally outside the EU. As a consequence, Britain will continue to apply not only those substantive state-aid rules that existed at exit, but any new ones too.
The rules are only part of any state-aid decision. What really matters is the discretionary power possessed by the commission to approve or disapprove — sometimes with conditions — any plans member states propose which trigger state-aid concerns. That is inevitably a political process. The UK’s Hinkley Point nuclear project was generously state-aided. But the commission blessed it because two big member states — Britain and France (which was supplying the technology) — had the clout to ram it through.
While that clout disappears along with Britain’s representation in Brussels at Brexit, UK interests are in theory protected because the discretionary power passes from the EU to the Competition and Markets Authority. But really it does not. In practice the UK regulator will have to get the European Commission’s sign-off, and the final arbiter will be the ECJ. And that is just in Great Britain. In Northern Ireland, the commission will remain in total control of the whole process itself.
Its discretion may not be used in Britain’s favour. Not only will the UK no longer have insider clout, but it will also be seen as a strategic competitor. Just last week, the foreign secretary Jeremy Hunt was in Singapore, talking admiringly about its economic model, which extends fiscal support to favoured industries. It remains to be seen how keen the commission will be to sign off fiscal measures designed to enhance UK competitiveness and offset any exit bumps.
Worse, Britain’s anomalous backstop status may mean that while it cannot protect its own industries, it will be defenceless against EU states dangling subsidies to encourage British companies to relocate. State aid in the EU is not problematic if it attracts jobs to the union from non-EEA countries. European goodwill is the only backstop here.
There is no certainty too that this will be unravelled in any trade deal. Given the permanence of the backstop, the EU has no incentive to offer Britain more favourable terms than the ones in the withdrawal agreement.
The deal would unwittingly lock Britain into a regulatory iron maiden of Brussels’ manufacture. As with such contraptions, extraction once inserted may prove harder than clambering in.
Some six years ago, British minicab company, Addison Lee took Transport for London on a journey through the law courts that ended up in 2015 at the European Court of Justice. At issue was a rule that allows only black cabs to use London’s bus lanes.
Hardly an EU matter you might think, worrying about transport policy in Britain’s capital. But think again. The minicab company argued not only that the rule infringed its freedom to provide services; it was also illegal state aid. Letting black cabs use a bus lane was, in effect, selective support for a specific participant in the wider taxi trade.
Admittedly the argument did not prevail in Luxembourg and London’s bus lanes remain limited to buses and traditional taxis. But while the ECJ failed to deem the policy state assistance, it did not entirely rebut the principle.
The justices recognised that TfL’s policy could affect trade between member states because it potentially made it harder for European-owned minicabs to penetrate the market. The definitional ratchet of unfair state aid turned gently another notch.
“It illustrates how the definition of state aid has expanded over the years,” says James Webber, an antitrust partner at the law firm Shearman & Sterling. “Originally designed to contain industrial subsidy competition, state aid is now much wider than commonly assumed, covering many public spending decisions such as infrastructure investment and tax changes which could be seen to benefit a specific region, sector or even just to incentivise desirable corporate behaviour.”
Quite right too, you might say. Unfettered subsidy competition is not only wasteful; it is ultimately pointless, for any advantage is lost if it descends into a free-for-all. Which is why it was so uncontentious when Theresa May conceded early in Brexit negotiations that the UK would stick with EU state-aid rules. But in practice what has been signed up to is far from uncontentious. The prime minister’s agreement has contrived to put the UK into a uniquely disadvantageous place, forced to follow the EU’s state-aid rules but not protected by them in return.
The mischief lies in the so-called Irish backstop, which would leave the whole of the UK still subject to single market regulation in state aid even though the country was formally outside the EU. As a consequence, Britain will continue to apply not only those substantive state-aid rules that existed at exit, but any new ones too.
The rules are only part of any state-aid decision. What really matters is the discretionary power possessed by the commission to approve or disapprove — sometimes with conditions — any plans member states propose which trigger state-aid concerns. That is inevitably a political process. The UK’s Hinkley Point nuclear project was generously state-aided. But the commission blessed it because two big member states — Britain and France (which was supplying the technology) — had the clout to ram it through.
While that clout disappears along with Britain’s representation in Brussels at Brexit, UK interests are in theory protected because the discretionary power passes from the EU to the Competition and Markets Authority. But really it does not. In practice the UK regulator will have to get the European Commission’s sign-off, and the final arbiter will be the ECJ. And that is just in Great Britain. In Northern Ireland, the commission will remain in total control of the whole process itself.
Its discretion may not be used in Britain’s favour. Not only will the UK no longer have insider clout, but it will also be seen as a strategic competitor. Just last week, the foreign secretary Jeremy Hunt was in Singapore, talking admiringly about its economic model, which extends fiscal support to favoured industries. It remains to be seen how keen the commission will be to sign off fiscal measures designed to enhance UK competitiveness and offset any exit bumps.
Worse, Britain’s anomalous backstop status may mean that while it cannot protect its own industries, it will be defenceless against EU states dangling subsidies to encourage British companies to relocate. State aid in the EU is not problematic if it attracts jobs to the union from non-EEA countries. European goodwill is the only backstop here.
There is no certainty too that this will be unravelled in any trade deal. Given the permanence of the backstop, the EU has no incentive to offer Britain more favourable terms than the ones in the withdrawal agreement.
The deal would unwittingly lock Britain into a regulatory iron maiden of Brussels’ manufacture. As with such contraptions, extraction once inserted may prove harder than clambering in.
Sunday 6 January 2019
Subscribe to:
Posts (Atom)