Does Inequality Provoke Populism?

For over a decade, scholars have been asking what populism is and how it came to dominate politics in the West. The 2010s were very much a populist decade, featuring right-wing leaders like Jair Bolsonaro in Brazil and Donald Trump in the United States, but also a surge of left-wing populist candidates and parties, from Podemos in Spain to Jeremy Corbyn in the United Kingdom and Bernie Sanders in the United States, along with protest movements such as the French yellow vests. Populism, once considered a phenomenon of industrially lagging Latin American countries, became a familiar feature of politics in virtually every Western country.

What has always befuddled analysts and observers about populism is what is referred to as its “transversality,” namely the way populism is akin to an ingredient that can be mixed with both right-wing and left-wing agendas.

Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters, Eric Protzer and Paul Summerville, Polity, 213 pp., $59.95, January 2022

The Argentinian theorist Ernesto Laclau famously argued that this occurs because populism is not an ideology but a more general political logic, which involves an appeal to the totality of the people. Cas Mudde of the University of Georgia has proposed that populism is an ideology but a “thin-centered” one that focuses on the opposition between the “pure people” and the “corrupt elite.” But there are deeper reasons for why wherever one turns in contemporary politics one seems to encounter populism—and they are structural.

Economists such as Dani Rodrik, Joseph Stiglitz, and Thomas Piketty have argued that it is economic inequality that drives popular discontent. These authors have denounced the yawning gap between the rich and the poor in the United States and Europe, and the way it fosters resentment, often channeled against immigrants and minorities rather than economic elites.

Others have focused on more specific economic trends—from trade shocks such as those produced by China’s entrance in the world market, to automation and the way it churns out manual jobs, to immigration and its effect on the job market. Yet, the political consequences of these trends can only be understood through the general prism of rising economic inequality. But how exactly does inequality drive populist discontent—and should inequality really be the focus at all?

They contend that “people do not systematically care about how unequal incomes are; they care about whether outcomes are fair” and whether “the inequality in question results fairly or unfairly from differences between citizens.” For them, the key element of unfairness is decreasing social mobility, which for the authors is what makes citizens feel they are deprived of fair opportunities to prove their worth.

Distancing themselves from both purely utilitarian and radical egalitarian approaches, Protzer and Summerville take inspiration from John Rawls’s discussion of justice and fairness and from Angus Deaton’s position that inequality is an ill-fitting target for policymaking. They caution against the mistake of promises to deliver “enforced equal outcomes,” as they consider this aim to be tantamount to socialist authoritarianism with results that would be considered morally unfair by the public. Rather, they argue, the aim should be a principle of fairness that “stipulates that the rewards from cooperation should be principally divided according to individual contribution.”

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According to Protzer and Summerville, economic fairness is a basic moral principle that is widely accepted by the public. It asserts that “we are all better off when everyone has a fair chance at success, but equally that the fruits of success must accrue to those who earned them in fair measure.” For example, they argue that the financial crisis of 2008 sparked outrage because it clearly revealed the unfairness of the economic system, with billionaires and large banks bailed out with public funds.

In this sense, financial crashes are different from monopoly capitalism, in which the attribution of culpability may be more difficult. The monopolistic position of many digital companies and the way it has spectacularly enriched figures such as Jeff Bezos could be taken as another contemporary example of economic unfairness.

What, then, is the policy solution to this state of affairs? On this count, Protzer and Summerville are cautious. Differences across Western countries mean that one-size-fits-all solutions are not advisable. They propose to use a “diagnostic” method, which in each case should identify policy inputs that are missing.

In the case of the United States, the extortionate costs of higher education and of health care are identified as structural conditions that nurture feelings of unfairness; in the U.K. it is instead a dearth of housing that could be addressed by relaxing planning policies and overcoming an over-centralized system of government; in France and Italy, they see populism as deriving from political corruption and strict labor regulations.

The authors are lukewarm on demands for higher taxation on the rich, advocated by the left, seeing it as a losing issue at the polls. The few policy prescriptions they offer are effectively an updated version of Third Way liberalism of Bill Clinton and Tony Blair. But this is hardly enough to address the root causes of populism.

Protzer and Summerville’s book is an attempt to juggle sympathy for some redistributive measures and a continuing commitment to free markets. But this middle-of-the-road approach and the analytical disentanglement of social mobility from economic inequality that underpins the book’s argument are debatable. In fact, a number of economists—including former Chairman of the White House Council of Economic Advisers Alan Krueger in a famous 2012 address at the Center for American Progress that popularized the so-called Great Gatsby curve—have highlighted the fact that high economic inequality results in low social mobility.

Intergenerational social mobility tended to be low in countries with high income inequality, such as the United States.

Taking inspiration from F. Scott Fitzgerald’s rags-to-riches novel, Krueger’s graphic combined intergenerational earnings elasticity (measuring inequality transmitted across generations—a proxy for lack of social mobility) on the vertical axis, and the Gini index, the most popular indicator of economic inequality, on the horizontal one. The distribution showed that intergenerational social mobility tended to be low in countries with high income inequality, such as the United States.

In their 2009 book The Spirit Level, Kate Pickett and Richard Wilkinson had already highlighted that economic inequality and low social mobility are intertwined. Relying on a large dataset of Western countries’ social mobility data, they argued that “greater income inequality reduces social mobility.” This is due to the social and geographic segregation of the rich and poor that high income inequality fosters. In other words, high income inequality raises the obstacles to social mobility, excluding the poor from social networks and information that are necessary to advance economically, while shielding the rich in gated communities. Hence, there is no way to unleash social mobility without tackling inequality.

Protzer and Summerville’s argument about the centrality of fairness makes more sense from the standpoint of social psychology than political economy. The authors are correct to highlight that public perceptions are often a distorted mirror of structural conditions and that if the public displays concern about inequality this does not automatically mean that it espouses policies aimed at reducing it.

This paradox is highlighted by 2021 “Unequal Britain” report showing that while around 80 percent of British citizens are worried about inequality, only about 50 percent support redistribution from the rich to the poor. This seems to vindicate Protzer and Summerville’s point that policies that appear to contradict the contribution-rewards link, such as direct transfers of money to poor citizens, may be seen as unfair or even as promoting laziness. Yet, interestingly, the same study finds strong support for indirect redistributive policies such as public services, education, health, and other forms of public consumption. Funding these services would necessarily involve growing taxation of the rich, which is the real sticking point in contemporary politics.

As Joe Guinan and Martin O’Neill argued in the Guardian last year, Third Way policies, which attempted to marry low taxation of the rich and social welfare spending, cannot be replicated in the present, as they relied on the exceptionally favorable economic conditions of “the ‘long boom’ of the 1990s and early 2000s.” Given that—except for the current rebound of GDP, after the dip at the beginning of the COVID-19 pandemic—the 2020s are likely to continue on the trajectory of low growth, redistribution is destined to be a zero-sum game in which there is little choice but to target wealth hoarded during the upward swing of the business cycle and to confront monopolistic positions and rent-seeking behavior that fuels its continued growth.

While on the one hand, taxation on the rich is the only realistic way forward to fund public services and provide health care and pensions for an aging population, on the other hand, the political power of the wealthiest means that redistributive measures are likely to be met with stubborn resistance.

Countering proposals from the left of the Democratic Party, Protzer and Summerville suggest that there is no great appetite for higher taxation. Yet, these days a “tax the rich” policy is no longer a socialist rallying cry—polling data shows that over 60 percent of Americans think that the rich and corporations are paying too little, though support depends on the specific type of policy. Further, concrete tax policies, such as those proposed by the Biden administration and stalled in Congress, are very far from demands for “enforced equal outcomes” of the socialist kind but rather moderate attempts at rebalancing a glaringly unfair situation.

From the 1950s until the 1970s, what today would be considered punitive levels of taxation were common in the United States and Europe, even under right-wing politicians, with the famous example of the top income tax rate of 91 percent under U.S. President Dwight D. Eisenhower. Yet these days, the United States and many European countries have some of the lowest tax rates on corporate profits, wealth, and high incomes in recent history. While a return to those earlier levels of taxation may not be realistic in a globalized world, it is evident that the present record-low levels of taxation on the rich and corporations are not fiscally sustainable either.

Many voters see inequality as the net result of political decisions taken by representatives against the best interests of those they represent.

Some countries such as the U.K. are already making some partial moves toward higher corporate taxes. The global agreement on a corporate minimum tax is a further indication of the shape of things to come. But it remains a very unsatisfactory point of departure, with multinationals often paying less in taxes on their profits than workers. Ultimately a fundamental measure of fairness is balancing the rewards toward labor over capital—both through taxation and through a strengthening of trade unions’ bargaining power; this is what politicians should pursue with far more vigor.

Populism has often been described as the mirror of democracy—and of its failings. Protzer and Summerville interestingly use low trust in political institutions as a proxy for populist sentiment. Citizens don’t turn to populist movements and leaders just because they are concerned about the effects of inequality or “unfairness,” they do so because they see this inequality as the net result of political decisions taken by representatives against the best interests of those they represent.

This sentiment is only likely to be reinforced in the United States by the current political wrangling around Bidenomics, and the obstructionism of centrist figures such as Sens. Joe Manchin and Kyrsten Sinema. While President Joe Biden’s economic agenda was by and large designed as an insurance policy against a return of Trump or a Trump clone, its current failure in addressing populism’s root causes may soon lead to a revival of the most destabilizing form of populism—led by a radical right that is not interested in addressing the economic roots of populism but rather in riding the wave of their social and political consequences.

Correction, Feb. 14, 2022: Paul Summerville is a Canadian business professor; a previous version of this article misstated his nationality.