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The optimism error

We are told that austerity has triumphed and that the British economy is running full steam ahead. The reality is more alarming.

In Cardiff last Thursday, 7 January, George Osborne warned of a “dangerous cocktail of new threats” to Britain’s prosperity. These include collapsing global stock-market and commodity prices, weak growth in China and Latin America, stagnation in Europe and turbulence in the Middle East. Osborne was right to prepare us for “headwinds”. What he could not admit was that the fragility of the British recovery he now discerns – just two months after his triumphal Autumn Statement – is due, in no small measure, to his own austerity policies.

The unpalatable truth is that austerity in the face of the private-sector collapse of 2008-2009 has weakened our ability to produce output. Britain has been left overfinancialised, overborrowed and underinvested. It is not surprising that it is exceptionally exposed to any global downturn.

Before John Maynard Keynes it was believed, by economists at least, that a competitive market would normally produce full employment. As the facts of experience appeared to indicate otherwise, economists, prompted by Keynes, sharpened up their theory. A market economy would ­always lead to full employment provided wages and prices were flexible. Workers, if facing unemployment, had only to accept wage reductions to “price themselves back into work”.

However, as it seemed unrealistic to suppose that workers would do this – or do it quickly enough – government policy could short-circuit the painful process of adjustment. When a slump threatened or occurred, a government could stimulate spending by cutting interest rates and by incurring budget deficits. This was the main point of the Keynesian revolution.

This policy ran from the 1950s to the 1970s. It was overthrown in the 1980s, when unemployment prevention became confined to interest-rate policy, eventually run by the central bank, not the government. By keeping the rate of inflation constant, the monetary authority could keep unemployment at its “natural rate”. This worked quite well for a time, but then, following the widespread failure of the banking system, the world economy collapsed in 2008.

In a panic, the politicians, from Barack Obama to Gordon Brown, took Keynes out of the cupboard, dusted him down, and “stimulated” the economy like mad. When this produced some useful recovery they got cold feet. “Keynes,” they said, “you’ve done your job. Back in the cupboard you go.” I wrote a book at the time called The Return of the Master. A reviewer pointed out that the Master had returned for six months only.

Why had the politicians’ nerve failed and what were the consequences?

The answer is that in bailing out leading banks and allowing budget deficits to soar, governments had incurred huge debts that threatened their financial credibility. It was claimed that bond yields would rise sharply, adding to the cost of borrowing. This was never plausible in Britain, but bond yield spikes threatened default in Greece and other eurozone countries early in 2010. Long before the stimulus had been allowed to work its magic in restoring economic activity and government revenues, the fiscal engine was put into reverse, and the politics of austerity took over.

Yet austerity did not hasten recovery; it delayed it and rendered it limp when it came. Enter “quantitative easing” (QE). The central bank would flood the banks and
pension funds with cash. This, it was expected, would cause the banks to lower their interest rates, lend more and, by way of a so-called wealth effect, cause companies and high-net-worth individuals to consume and invest more. But it didn’t happen. There was a small initial impact, but it soon petered out. Bank lending, an important index of recovery, in fact went down as the institutions sat on piles of cash and the wealthy speculated in property.

So we reach the present impasse. Events have confirmed that a competitive market economy is subject to severe collapses, and the effects of these linger in the form of elevated unemployment, lower output, lower productivity and increased poverty. At the same time, however, counter-cyclical policy is disabled. Monetary expansion is much less potent than people believed; and using the budget deficit to fight unemployment is ruled out by the bond markets and the ­Financial Times. The levers either don’t work, or we are not allowed to pull them. Where do we go from here?

 

The present situation

The first thing is to establish where we now are. How much recovery has there been in Britain? Economists try to answer this question with reference to the output gap – the difference between what an economy is actually producing and what it can produce. The OECD’s most recent estimate of this gap in the UK stands at a negligible -0.017 per cent. We might conclude from this that the British economy is running full steam ahead and that we have, at last, successfully recovered from the crash. This is the basis of George Osborne’s triumphalism. His critics, including myself, have been proved wrong. His austerity policies have worked. Or so we are told.

But such a conclusion would be premature. Although we are producing as much output as we can, our capacity to produce output has fallen. This can be shown by comparing the current economic situation to where we would expect to be, according to the historic trend.

From this perspective, championed by the Oxford economist Simon Wren-Lewis, the position is far less rosy. Growth in output per person in Britain (roughly “living standards”) averaged 2.25 per cent per year for the half-century before 2008. Recessions in the past have caused deviations downward from this path, but recoveries had delivered above-trend growth, lifting us back up to the previous path. One can say that the “business cycle” oscillates between errors of pessimism and errors of optimism. In other words, the loss of output is temporary.

This time it was different. The recovery from the financial crisis was the weakest on record, and the result of this is a yawning gap between where we are and where we should have been. Output per head is between 10 and 15 per cent below trend.

We are faced with a puzzle. If the output gap is as small as the OECD believes, then the British economy appears to have lost much of its productive potential. It is no longer a case of demand falling short of supply, leaving a surplus of workers and capital equipment. The supply is no longer available: we have lost eight years’ growth of productivity. Between 1971 and 2007 productivity growth averaged 2-3 per cent a year. Since the recession started it has been close to zero. Why is it that the recession turned spare capacity into lost capacity? One answer lies in the ugly word “hysteresis”.

 

Hysteresis

This is an idea borrowed from physics. If an insulated wire is wrapped around an iron bar, and an electric current is then passed along the wire, the iron bar becomes magnetised. Some of this magnetism remains even after the current has been switched off. A shock has a long-lasting effect. This is labelled hysteresis.

An economy experiences hysteresis not when output falls relative to potential output, but when potential output itself falls as a result of a recession. What happens is that the recession itself shrinks productive capacity: the economy’s ability to produce output is impaired.

The intuition behind it is simple enough: if you let a recession last long enough for capital and labour to rust away you will lose growth potential, on account of discouraged workers, lost skills, broken banks and missing investment in future productivity. By not taking steps to offset the negative shock of the recession with the positive shock of a stimulus, the coalition government cost the country 10 per cent or more of potential output.

The phenomenon of hysteresis is not ­necessarily captured by high levels of “headline” unemployment. In fact, low levels of unemployment may reflect low productivity growth, as employers prefer to use cheap workers to investing in machines: unemployed workers may be re-employed in part-time or minimum-wage or zero-hour contract jobs. Much of the new private-sector job creation lauded by the Chancellor is exactly in such low-productivity sectors. The collapse of investment is particularly serious, because investment is the main source of productivity.

The challenge for policy is to liquidate the hysteresis – to restore supply. How is this to be done?

 

Blockage of policy

An economic recession is precipitated by a fall in private spending, be it investment or consumption. It can be countered by monetary and fiscal policy, aiming either to stimulate private spending or to replace it temporarily by public spending. On the monetary front, the bank rate was dropped to near zero; this not being enough, the Bank of England pumped out hundreds of billions of pounds between 2009 and 2012, but too little of the money went into the real economy. As Keynes recognised, it is the spending of money, not the printing of it, which stimulates productive activity, and he warned: “If . . . we are tempted to assert that money is the drink which stimulates the system to activity, we must remind ourselves that there may be several slips ­between the cup and the lip.”

That left fiscal policy. Fiscal policy can fight recession by cutting taxes or increasing public spending. Both involve deliberately budgeting for a deficit. In Britain, any possible tolerance for a deficit larger than the one automatically caused by a recession was destroyed by fearmongering about unsustainable debt. From 2009 onwards, the difference between Labour and ­Conservative was about the speed of deficit reduction. The contribution that deliberate deficit budgeting might make to recovery was never mentioned, except by unreconstructed Keynesians.

So we now have a situation in which the main tools available to government to bring about a robust recovery are out of action. In addition, sole reliance on monetary policy for stimulus creates a highly unbalanced recovery. The money the government pours into the economy either sits idle or simply pumps up house prices, threatening to re-create the asset bubble that produced the crisis in the first place. We already have the highest rate of post-crash increase in house prices of all OECD countries. This suggests that the next crash may not be far off.

 

The public accounts trap

From 2009 onwards the main obstacle to a sensible recovery policy has been the obsession with balancing the national budget. A government can finance its spending in one of three ways: it can raise taxes, borrow from the private sector, or borrow from the Bank of England (that is, “print money”). Each has advantages and disadvantages, but public opinion has decided that the first of these – covering all spending by taxes – is the only “honest” way. In popular discourse, borrowing signifies a “deficit”, and a particular horror attaches to deficits, because they suggest the government is not “paying its way”. “We must get the deficit down” has been the refrain of all the parties.

Printing money to finance public investment has been suggested by both the Labour leader and the shadow chancellor as a way to get round the borrowing constraint. Its advantage is that it wouldn’t directly increase the national debt, because the government would only owe the money to itself. On the other hand, it might destroy confidence in the state’s ability to control its spending, and it would jeopardise the independence of the central bank. So, printing money to pay for public spending should only be a remedy of the last resort.

It is right to be concerned about a rising national debt (now roughly £1.6trn). But the way to reverse it is not to cut down the economy, but to cause it to grow in a sustainable way. In many circumstances, that involves deliberately increasing the deficit. This is a paradox too far for most people to grasp. But it makes perfect sense if the increased deficit causes the economy, and thus the government’s revenues, to grow faster than the deficit. If the economy is in the doldrums, practically all forms of government expenditure should be welcomed, as they utilise idle resources.

In our present situation, with little spare capacity, the government needs to think much more carefully about what it should be borrowing for. Public finance theory makes a clear distinction between current and capital spending. A sound rule is that governments should cover their current or recurrent spending by taxation, but should borrow for capital spending, that is, investment. This is because current spending gives rise to no government-owned assets, whereas capital spending does.

If these assets are productive, they pay for themselves by increasing government earnings, either through user charges or through increased tax revenues. If I pay for all my groceries “on tick” my debt will just go on rising. But if I borrow to invest in, say, my education, my increased earnings will be available to discharge my debt.

Covering current account spending by taxation is at the heart of the balanced budget rule. But as Thomas J Sargent, certainly no Keynesian, wrote in 1981 (Federal Reserve Bank of Minneapolis, Research Department Working Paper W): “The principles of classical economic theory condone deficits on capital account.”

Now is an ideal time for the government to be investing in the economy, because it can borrow at such low interest rates. But surely this means increasing the deficit? Yes, it does, but in the same unobjectionable way as a business borrows money to build a plant in the expectation that the investment will pay off. It is because the distinction between current and capital spending has become fuzzy through years of misuse and obfuscation that we have slipped into the state of thinking that all government spending must be balanced by taxes – in the jargon, that net public-sector borrowing should normally be zero. George Osborne has now promised to “balance the budget” – by 2019-20. But within this fiscal straitjacket the only way he can create room for more public investment is to reduce current spending, which in practice means cutting the welfare state.

 

A British Investment Bank

How can we break this block on capital spending? Several of us have been advocating a publicly owned British Investment Bank. The need for such institutions has long been widely acknowledged in continental Europe and east Asia, partly because they fill a gap in the private investment market, partly because they create an institutional division between investment and current spending. This British Investment Bank, as I envisage it, would be owned by the government, but would be able to borrow a multiple of its subscribed capital to finance investment projects within an approved range. Its remit would include not only energy-saving projects but also others that can contribute to rebalancing the economy – particularly transport infrastructure, social housing and export-oriented small and medium-sized enterprises (SMEs).

Unfortunately, the conventional view in Britain is that a government-backed bank would be bound, for one reason or another, to “pick losers”, and thereby pile up non-performing loans. Like all fundamentalist beliefs, this has little empirical backing. Two relevant comparators – the European Investment Bank and Germany’s KfW (Kreditanstalt für Wiederaufbau) – show that, in well-regulated financial systems, such banks pay for themselves. Neither bank has had to go back to its shareholder(s) to raise fresh money to cover losses. The EU is setting up a European Fund for Strategic Investments, which, with a capitalisation of €21bn, is expected to lever at least €315bn of investment over the first three years.

George Osborne has rejected this route to modernisation. Instead of borrowing to renovate our infrastructure, the Chancellor is trying to get foreign, especially Chinese, companies to do it, even if they are state-owned. Looking at British energy companies and rail franchises, we can see that this is merely the latest in a long history of handing over our national assets to foreign states. Public enterprise is apparently good if it is not British.

Britain already has two small state investment banks – the Green Investment Bank (GIB) and the British Business Bank. But the Treasury is so obsessed with avoiding any increase in the deficit that, up to this point, it has deprived these newly formed institutions of any power to borrow. This has restricted their investment potential. The Green Investment Bank was capitalised with £3.8bn of public funds in 2012; it has so far invested £2bn. Now the government proposes to privatise the GIB, because “it is necessary to move the bank off the public balance sheet if it is to arrange additional funding through borrowing”. The same fate no doubt awaits the British Business Bank, set up to channel money to SMEs.

Apart from exposing its unjustified belief that public investment must be loss-making, the Treasury’s stance is an artefact of its insistence that there should be no net borrowing. It was to avoid this grave effect on public investment that Gordon Brown, as chancellor, was drawn into the large-scale Private Finance Initiative, when there were cheaper financing mechanisms available.

Setting up a British Investment Bank with enough borrowing power to make it an effective investment vehicle is the essential first step towards rebuilding supply. Distancing it from politics by giving it a proper remit would create confidence that its ­projects would be selected on commercial, not political criteria. But this step would not be possible without a different accounting system. The solution would be to make use of comprehensive accounting that appropriately scores increases in net worth of the bank’s assets. The British Investment Bank I envisage would only finance investment in productive assets: although its borrowing would show up in the public accounts, it would be financed by revenue from its own activities. This is fundamentally different from tax-financed debt, and fully in line with the conventional theory of public finance outlined above.

Has the Chancellor the courage to grasp the opportunity?

He can justifiably congratulate himself on having avoided the worst disasters to which Treasury accounting rules and narrow ideology could have led him. But in the non-political recesses of his mind he must understand that the recovery over which he has presided is incomplete, fragile and, above all, unfair.

The first necessary step is to reform the way we do our national accounts, in order to dispel the deficit and debt phobia that blights sensible policy.

Robert Skidelsky is a cross-bench peer and a leading biographer of J M Keynes. His most recent book is “Britain Since 1900: a Success Story?” (Vintage)

This article first appeared in the 14 January 2016 issue of the New Statesman, David Bowie

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The people is sublime: the long history of populism, from Robespierre to Trump

If liberal democracy is to survive, the tide of populism will have to be turned back. The question is: how?

A spectre of populism is haunting the world’s liberal democracies. Donald Trump’s victory in the US presidential election, the narrow Leave majority in the EU referendum, Theresa May’s decision to call a snap election – breaking the spirit of the Fixed-Term Parliaments Act passed by the government of which she was a member – and Recep Tayyip Erdogan’s victory in the recent Turkish referendum all testify to the strength of the populist tide that is sweeping through the North Atlantic world. The consequences have been calamitous: a shrunken public realm, a demeaned civic culture, threatened minorities, contempt for the rule of law and an increasingly ugly public mood. If liberal democracy is to survive, the tide will have to be turned back. The question is: how?

The first essential is to understand the nature of the beast. This is more difficult than it sounds. Most democratic politicians seek popularity, but populism and popularity are not the same. Today’s populism is the descendant of a long line of ancestors. The first unmistakably populist movement in history appeared well over two centuries ago during the later stages of the French Revolution. It was led by Robespierre (Thomas Carlyle’s “sea-green incorruptible”) and the Jacobins who promised a reign of “virtue”. They were inspired by the cloudy prose of Jean-Jacques Rousseau, who believed that mere individuals should be subject to the general will of the social whole and – if necessary – “forced to be free”. As the revolution gathered pace and foreign armies mustered on France’s frontiers, the Jacobins launched the first organised, state-led and ideologically legitimised Terror in history. Chillingly, Robespierre declared, “The people is sublime, but individuals are weak.” That is the cry of populists through the ages. Appropriately, the Terror ended with Robespierre lying on a plank, screaming with pain before he was executed by guillotine.

The French Revolution – which began with the storming of the Bastille and ended with Napoleon’s ascent to an ersatz imperial throne – has an epic quality about it missing from later chapters in the populist story. Ironically, the second chapter, which opened half a century later, was the work of Louis Bonaparte, nephew of the great Napoleon. In 1848 came a second revolution and a second Republic; Louis Bonaparte was elected president by a huge majority. He tried and failed to amend the constitution to make it possible for him to have a second term; and then seized power in a coup d’état. Soon afterwards he became emperor as Napoleon III. (“Napoleon le petit”, in Victor Hugo’s savage phrase.) The whole story provoked one of Karl Marx’s best aphorisms: “History repeats itself; the first time as tragedy and the second as farce.”

There have been plenty of tragedies since – and plenty of farces, too. Trump’s victory was a tragedy, but farcical elements are already in evidence. Erdogan’s victory was even more tragic than Trump’s, but farce is conspicuously absent. The Leave victory in the referendum was tragic: arguably, the greatest tragedy in the three-century history of Britain’s union state. As with Trump, farce is already in evidence – the agitated comings and goings that have followed Theresa May’s loss of her Commons majority; the inane debate over the nature of the Brexit that Britain should seek; and the preposterous suggestion that, freed of the “Brussels” incubus, Britain will be able to conclude costless trade deals with the state-capitalist dictatorship of China and the “America First” neo-isolationists in Washington, DC. Unlike the French farce of Napoleon III’s Second Empire, however, the British farce now in progress is more likely to provoke tears than laughter.


Picture: André Carrilho

Populism is not a doctrine or a governing philosophy, still less an ideology. It is a disposition, perhaps a mood, a set of attitudes and above all a style. The People’s Party, which played a significant part in American politics in the late 19th century, is a case in point. The farmers whose grievances inspired the People’s Party wanted cheaper credit and transport to carry their products to markets in the eastern states. Hence the party’s two main proposals. One was the nationalisation of the railways, to cheapen transport costs; the other was “free silver” – the use of silver as well as gold as currency, supposedly to cheapen credit. Even then, this was not a particularly radical programme. It was designed to reform capitalism, not to replace it, as the largely Marxist social-democratic parties of Europe were seeking to do.

Rhetoric was a different matter. Mary Elizabeth Lease, a prominent member of the People’s Party, declared that America’s was no longer a government of the people by the people and for the people, but “a government of Wall Street, by Wall Street and for Wall Street”. The common people of America, she added, “are slaves and monopoly is the master”.

The Georgian populist Tom Watson once asked if Thomas Jefferson had dreamed that the party he founded would be “prostituted to the vilest purposes of monopoly” or that it would be led by “red-eyed Jewish millionaires”. The People’s Party’s constitutive Omaha Platform accused the two main parties of proposing “to sacrifice our homes, lives and children on the altar of Mammon; to destroy the multitude in order to secure corruption funds from the millionaires”. The party’s aim was “to restore the government of the Republic to the hands of ‘the plain people’ with which class it originated”. Theodore Roosevelt promised “to walk softly and carry a big stick”. The People’s Party walked noisily and carried a small stick. Jeremy Corbyn would have been at home in it.

Almost without exception, populists promise national regeneration in place of decline, decay and the vacillations and tergiversations of a corrupt establishment and the enervated elites that belong to it. Trump’s call to “make America great again” is an obvious recent case. His attacks on “crooked Hillary”, on the courts that have impeded his proposed ban on Muslim immigrants from capriciously chosen Middle Eastern and African countries, on the “fake news” of journalists seeking to hold his administration to account, and, most of all, his attack on the constitutional checks and balances that have been fundamental to US governance for more than 200 years, are the most alarming examples of populist practice, not just in American history but in the history of most of the North Atlantic world.

There are intriguing parallels between Trump’s regime and Erdogan’s. Indeed, Trump went out of his way to congratulate Erdogan on Turkey’s referendum result in April – which gives him the right to lengthen his term of office to ten years, to strengthen his control over the judiciary and to decide when to impose a state of emergency. Even before the referendum, he had dismissed more than 100,000 public servants, including teachers, prosecutors, judges and army officers; 4,000 were imprisoned. The Kurdish minority was – and is – repressed. True, none of this applies to Trump. But the rhetoric of the thin-skinned, paranoid US president and his equally thin-skinned and paranoid Turkish counterpart comes from the same repertoire. In the Turkish referendum Erdogan declared: “My nation stood upright and undivided.” It might have been Trump clamorously insisting that the crowd at his inauguration was bigger than it was.

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The best-known modern British populists – Margaret Thatcher, Nigel Farage and David Owen – form a kind of counterpoint. In some ways, all three have harked back to the themes of the 19th-century American populists. Thatcher insisted that she was “a plain, straightforward provincial”, adding that her “Bloomsbury” was Grantham – “Methodism, the grocer’s shop, Rotary and all the serious, sober virtues, cultivated and esteemed in that environment”. Farage declared that the EU referendum was “a victory for ‘the real people’ of Britain” – implying, none too subtly, that the 48 per cent who voted Remain were somehow unreal or, indeed, un-British.

On a holiday job on a building site during the Suez War, Owen experienced a kind of epiphany. Hugh Gaitskell was criticising Anthony Eden, the prime minister, on television and in the House of Commons, but Owen’s workmates were solidly in favour of Eden. That experience, he said, made him suspicious of “the kind of attitude which splits the difference on everything. The rather defeatist, even traitorous attitude reflected in the pre-war Apostles at Cambridge.” (Owen voted for Brexit in 2016.)

Did he really believe that Bertrand Russell, John Maynard Keynes and George Moore were traitorous? Did he not know that they were Apostles? Or was he simply lashing out, Trump-like, at an elite that disdained him – and to which he yearned to belong?

Thatcher’s Grantham, Farage’s real people and David Owen’s workmates came from the same rhetorical stable as the American populists’ Omaha Platform. But the American populists really were plain, in their sense of the word, whereas Thatcher, Farage and Owen could hardly have been less so. Thatcher (at that stage Roberts) left Grantham as soon as she could and never looked back. She went to Somerville College, Oxford, where she was a pupil of the Nobel laureate Dorothy Hodgkin. She married the dashing and wealthy Denis Thatcher and abandoned science to qualify as a barrister before being elected to parliament and eventually becoming prime minister. Farage worked as a metals trader in the City before becoming leader of the UK Independence Party. Owen went to the private Bradfield College before going up to Cambridge to read medicine. Despite his Welsh antecedents, he looks and sounds like a well-brought-up English public school boy. He was elected to parliament in 1966 at the age of 28 and was appointed under-secretary for the navy at 30. He then served briefly as foreign secretary in James Callaghan’s miserable Labour government in the 1970s.

Much the same is true of Marine Le Pen in France. She is a hereditary populist – something that seems self-contradictory. The Front National (FN) she heads was founded by her father, Jean-Marie Le Pen – Holocaust denier, anti-Semite, former street brawler and sometime Poujadist. In the jargon of public relations, she has worked hard to “de-toxify” the FN brand. But the Front is still the Front; it appeals most strongly to the ageing and insecure in the de-industrialised areas of the north-east. Marine Le Pen applauded the Leave victory in Britain’s referendum – she seeks to limit immigration, just as Ukip did in the referendum and as the May government does now.

Above all, the Front National appeals to a mythologised past, symbolised by the figure of Joan of Arc. Joan was a simple, illiterate peasant from an obscure village in north-eastern France, who led the French king’s forces to a decisive victory over the English in the later stages of the Hundred Years War. She was captured by England’s Burgundian allies, and the English burned her at the stake at the age of 19. She was beatified in 1909 and canonised in 1920. For well over a century, she has been a heroine for the Catholic French right, for whom the revolutionary triad of liberté, egalité, fraternité is either vacuous or menacing.

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The past to which the FN appeals is uniquely French. It is also contentious. A struggle over the ownership of the French past has been a theme of French politics ever since the French Revolution. But other mythologised pasts have figured again and again in populist rhetoric and still do. Mussolini talked of returning to the time of the Roman empire when the Mediterranean was Mare Nostrum. Trump’s “Make America great again” presupposes a past when America was great, and from which present-day Americans have strayed, thanks to Clintonesque crooks and the pedlars of fake news. “Take back control” – the mantra of the Brexiteers in the referendum – presupposes a past in which the British had control; Owen’s bizarre pre-referendum claim that, if Britain left the EU, she would be free to “rediscover the skills of blue water diplomacy” presupposed a time when she practised those skills. Vladimir Putin, another populist of sorts, is patently trying to harness memories of tsarist glory to his chariot wheels. Margaret Thatcher, the “plain, straightforward provincial” woman, sought to revive the “vigorous virtues” of her Grantham childhood and the “Victorian values” that underpinned them.

As well as mythologising the past, populists mythologise the people. Those for whom they claim to speak are undifferentiated, homogeneous and inert. Populists have nothing but contempt for de Tocqueville’s insight that the ever-present threat of majority tyranny can be kept at bay only by a rich array of intermediate institutions, including townships, law courts and a free press, underpinned by the separation of powers.

For populists, the threat of majority tyranny is a phantom, invented by out-of-touch and craven elitists. Law courts that stand in the way of the unmediated popular will are “enemies of the people”, as the Daily Mail put it. There is no need to protect minorities against the tyranny of the majority: minorities are either part of the whole, in which case they don’t need protection, or self-excluded from it, in which case they don’t deserve to be protected.

Apparent differences of interest or value that cut across the body of the people, that divide the collective sovereign against itself, are products of elite manipulation or, in Thatcher’s notorious phrase, of “the enemy within”. For there is a strong paranoid streak in the populist mentality. Against the pure, virtuous people stand corrupt, privileged elites and sinister, conspiratorial subversives. The latter are forever plotting to do down the former.

Like pigs searching for truffles, populists search for subversives. Inevitably, they find what they are looking for. Joe McCarthy was one of the most squalid examples of the populist breed: for years, McCarthyism was a baneful presence in Hollywood, in American universities, newspaper offices and in the public service, ruining lives, restricting free expression and making it harder for the United States to win the trust of its European allies. The barrage of hatred and contempt that the tabloid press unleashed on opponents of Theresa May’s pursuit of a “hard” Brexit is another example. Her astounding claim that a mysterious entity known as “Brussels” was seeking to interfere in the British general election is a third.

As the Princeton political scientist Jan-Werner Müller argues, all of this strikes at the heart of democratic governance. Democracy depends on open debate, on dialogue between the bearers of different values, in which the protagonists learn from each other and from which they emerge as different people. For the Nobel laureate, philosopher and economist Amartya Sen, democracy is, above all, “public reasoning”; and that is impossible without social spaces in which reasoning can take place. Populism is singular; democracy is plural. The great question for non-populists is how to respond to the populist threat.

Two answers are in contention. The first is Theresa May’s. It amounts to appeasement. May’s purported reason for calling a snap general election was that the politicians were divided, whereas the people were united. It is hard to think of a better – or more frightening – summary of the spirit of populism. The second answer is Emmanuel Macron’s. For the moment, at least, he is astonishingly popular in France. More important, his victory over Le Pen has shown that, given intelligence, courage and generosity of spirit, the noxious populist tide can be resisted and, perhaps, turned back. 

David Marquand’s most recent book is “Mammon’s Kingdom”: an Essay on Britain Now” (Allen Lane)

This article first appeared in the 14 January 2016 issue of the New Statesman, David Bowie