More on the post-crisis political economy

So, I am chunking these posts now. I don’t think it makes a lot of sense to write everything at once, trying to be as comprehensive as possible by fitting a ridiculous amount of text into one post. So I tend to write in chunks. This is a follow on to my post on the global economy this morning.

The theory of middle class insecurity

If I could summarize my thesis, it would be this: the reigning economic paradigm in the West has destabilized the economic security of its middle class. And while this had been true for quite a number of years before the Great Financial Crisis, the trauma of a financial crisis made electorates unwilling to accept the instability.

Now, I focus on economic insecurity. But, often times, we are talking about cultural insecurity as well due to mass migration. And it’s that mix which has made right-wing populism attractive.

Take Sweden, for example. Here’s a country where a housing bubble didn’t pop in the crisis. Indeed, house prices have grown inordinately since the crisis. And the economy has grown prodigiously too. The economic crisis hit the country hard, no doubt, harder even than the mid-1990s slump.

But economic growth in Sweden has been as strong as anywhere in Western Europe over the past decade.

Yet, the right-wing nationalist Sweden Democrats got 17.6% of the vote at the last general election in September, forcing mainstream parties to adopt more restrictive immigration policies. That speaks to a cultural insecurity.

Identity and Globalization

So, let’s call the enemy ‘globalization’. And by that, I mean that developed economy middle classes are now reacting in political opposition to the free movement of labor, capital and goods and services because the changes this freedom has caused create insecurity, both economically and politically.

If you identify yourself as British and live and work with others you would identify as British, and over the course of say 5 to 10 years, your community changes and has a ten-fold increase in Eastern European residents, you might feel threatened. If you identify as American and live and work with others you identify as American, but come to work in an environment where you’re practically the only one speaking English – as in this one case at a Bell & Evans plant –  you will feel threatened.

Would economic security change that?

Look at the Bell & Evans story for a second:

When Heaven graduated high school in the spring of 2016, she had no desire to leave Fredericksburg. College didn’t interest her, because she hated school and wasn’t great at it, and she didn’t want to go out and see the world, either. She believed that everything she’d ever need was already here, so she felt content to apply for a job at Bell & Evans, whose water tower looms over the town, and where just about everyone she knew had already worked.

You’ll love it there, her sister said.

They’ve got great benefits, her mother said.

Give it a chance, her ex-boyfriend said.

It was now her 20th month of giving it a chance, and she was standing at the end of a long processing machine called the Multivac, wearing a white smock and blue latex gloves, making $13 an hour, waiting for the next four packages of chicken breasts to come down the line. They arrived every six seconds, and in that time she scanned for discoloration, leakage and mislabeling, setting aside defective packages for reprocessing. It was relentless: Here they came, there they went, every six seconds, about 40 in a minute, thousands in a shift — a shift during which so many things would upset her, but never the work.

She could handle the monotony. She could deal with standing under the vents, which cooled the production floor to 40 degrees. She could even tolerate the mess. The day chicken juice got all over her hair and face, the thing that had been intolerable had not been the smell or the taste, but that she didn’t have anyone to talk to about it.

Everyone at the plant spoke Spanish.

Good healthcare and $25 an hour is not going to make that sense of isolation go away. But, of course, this is an extreme example.

Someone’s getting rich

People aren’t stupid. They know Bill Gates and Jeff Bezos and Mark Zuckerberg and Warren Buffett are worth billions of dollars a year. So they know that someone is getting rich, just not them.

Meanwhile, they feel as if every day, there’s a new person, an immigrant, competing for wages with them. Or their entire factory, their entire job gets shipped overseas. Or their job is done by a machine instead of a real person.

These are real problems. And our economic system is not coming up with good answers to fix them. Cutting taxes for the rich and companies, so that they can invest and let the riches trickle down isn’t going to do it. But will cutting immigration and raising tariffs do it? I doubt it.

One option that the left has is simply taxing the rich and redistributing that money in the form of infrastructure, education spending and the like. That’s essentially the Nancy Pelosi approach. Will that work? Maybe. Over the short and medium-term, capital is less mobile than people think. Most rich Americans aren’t going to get up en masse and move to Switzerland or New Zealand.

Whatever solution you provide though, I think it’s critical to see this insecurity as the root cause of a lot of turmoil and division in our countries. Globalization has brought freedom. But since most middle class people in developed countries settle down in one country, even one city, the freedom to move capital, to move countries is not a big consideration. It’s the wealthy in the developed world and the workers in the developing world who benefit most from that.

In the aftermath of the financial crisis, the genie is out of the bottle. Middle class discontent with the status quo cannot be placated by making a few additions here and a few tweaks there. So, until politicians offer tangible rewards for the middle class in terms of both economic and cultural security, populism – and particularly right-wing populism – will be a force to reckon with.

Please feel free to comment.