For the better part of a century, populism was widely regarded as a distinctly Latin American phenomenon, a recurring political plague on countries such as Argentina, Ecuador, and Venezuela. In the last few years, however, populism has gone global, upending the politics of countries as diverse as Hungary, Italy, the Philippines, and the United States. Jair Bolsonaro, Brazil’s president-elect, is the latest example of a larger trend.
Populist politicians gain traction when workers and middle-class citizens feel wronged by their countries’ elites. In their unhappiness, voters turn to strong, charismatic personalities whose rhetoric often focuses on the causes and consequences of inequality. Moreover, populist leaders are nationalistic, and their currency is confrontation. Hence, “the people” must be pitted against the political establishment, large corporations, banks, multinationals, immigrants, and other foreign institutions.
Once in power, populist governments tend to implement policies aimed at redistributing income. More often than not, this entails unsustainable fiscal deficits and monetary expansion. Populist policies – which also include protectionism, discriminatory regulation, and capital controls – violate most of the core principles of traditional economics. But heterodoxy implies a break from the status quo. And according to populists, because the status quo is the source of their countries’ ills, breaking with it is the only solution.
Venezuela offers a textbook example of how populism can take hold. The initial event that lent momentum to the country’s populist movement occurred almost ten years before Hugo Chávez came to power. On February 27, 1989, riots erupted in the capital, Caracas, following an announcement that public transportation fares would rise by 30%. To reestablish order, the government was forced to call in the military. After five days of violence, more than 300 people had been killed.
This episode set the stage for Chávez’s failed coup in February 1992. During the two years he spent in prison, Chávez prepared to run for the presidency, and when he was released, he visited town after town to present his populist program. The economy was struggling, and the poor adored him. In the December 1998 presidential election, he won by a landslide.
Similar deep-seated crises are behind the surge of right-wing populism today. In Brazil, Bolsonaro owes his sudden popularity to an economic and social crisis that has been brewing for almost a decade, producing high unemployment and undercutting wages across the board. At the same time, the country has been mired in massive and successive corruption scandals that resulted in the jailing of former President Luiz Inácio Lula da Silva, and the impeachment and removal from office of his successor, Dilma Rousseff.
Likewise, the 2008 financial crisis laid the foundation for populism to emerge in developed countries. Ordinary citizens abhorred the bailout of the banks, and immigration crises in Europe and elsewhere added fuel to the nationalist fire.
There are many similarities between Latin America’s experience with populism and that of the advanced economies today. Fiscal deficits in the US and some European countries are reaching new heights, and borrowing has risen to dangerous levels. The lesson from history is that a debt crisis could be in the offing.
There are also remarkable similarities with respect to how populist leaders actually conduct politics, particularly their emphasis on mobilizing public demonstrations of popular support. To be sure, US President Donald Trump’s “MAGA” rallies are not the same as Chávez’s mass marches. But Trump’s mocking attacks against political adversaries, anti-globalization rhetoric, and contempt for elites are all familiar tropes to many Latin Americans. And like past Latin American populists, the Trump administration is pursuing a protectionist agenda to shield domestic industries from competition.
Moreover, Latin America populists have long made a point of condemning established institutions, particularly those that are supposed to provide checks and balances on the exercise of government power. Chávez criticized the Supreme Tribunal of Justice, and then packed it with loyalists; former Ecuadorian President Rafael Correa threatened to reform the country’s stable monetary regime; and former Peruvian President Alan García launched scathing attacks against the International Monetary Fund.
Similarly, Trump has disparaged the US Federal Reserve as “crazy” and “loco” for its pursuit of monetary-policy normalization. And in Italy, where the government has proposed a budget that violates the European Union’s deficit rules, Deputy Prime Minister Matteo Salvini has had harsh words for the European Central Bank and the European Commission.
Of course, there are also differences. Most important, many of the advanced economies where populist forces have made headway still have restrictions on monetary policy. Unlike in Latin America, the Fed and the ECB cannot be forced to finance governments’ fiscal expenditures. Though Italy belongs to the eurozone, it has very little influence on how the ECB operates. So long as this remains the case, Italy’s populist moment is unlikely to end with a major inflationary flare-up, as has traditionally been the case in Latin America. Argentina, for example, had 41% inflation immediately following the back-to-back presidencies of Néstor Kirchner and his wife, Cristina Fernández de Kirchner.
That said, there has been talk of a possible “Italeave,” whereby Italy would exit the eurozone and reintroduce the lira. But Italians should understand that when other countries (for example, Liberia) have reintroduced a domestic currency, it has not ended well. Indeed, the most important lesson to take from Latin America’s populist experiences is that they have invariably ended badly. Ultimately, lower- and middle-income households typically find themselves worse off than they were when the populist experiment was launched.