January 21, 2014 2:57 pm

Populism puts global elite on alert

James Ferguson illustration for The World 2014 special report©James Ferguson

This year’s meeting of the World Economic Forum, which begins Wednesday, will be the first “normal” Davos for five years. Ever since the collapse of Lehman Brothers, in September 2008, a sense of crisis has hovered over the annual event.

The nature of the fears bothering Davos man – and woman – changed slightly from year to year as worries about the collapse of the global financial system gave way to a fear of another Great Depression, and then to more specific concerns about the collapse of the eurozone.

This year, however, the clouds have thinned, the terrors have lifted – and genuine optimism has returned. The threat of financial collapse now seems reassuringly remote. The US economy is strengthening and could grow 3 per cent this year. A strong rebound is also under way in the UK. And both the eurozone and Japan will also grow this year, albeit at slower rates.

An economic rebound has also led to a modest recovery in political confidence. Talk of the “decline of the west”, which has been ubiquitous in recent years, is less common. Instead, it is becoming fashionable to argue that emerging markets are due for a correction – and to highlight political problems in rising powers such as China, India and Brazil.

Genuine economic and political turmoil in the Bric nations or other emerging markets would be a source of deep concern. But a modest correction, if combined with a western revival, is not enough to disturb the “good news” story that is likely to dominate this year’s Davos.

But while optimism has returned for the bankers, businesspeople, politicians and random celebrities who like to assemble at the WEF, their overarching narrative about the way the world works is now more complicated than it was in the pre-crisis era.

Before the financial crash, Davos was essentially a festival devoted to celebrating the virtues of globalisation. While anti-globalisation protesters were occasionally given a voice (or more often confined to the “Open Forum”, well away from the posh hotels), their arguments about inequality were seen as pretty marginal.

In 2014, however, the sense that something is wrong with the way the rewards of globalisation are distributed has entered mainstream debate.

One common trend in recent years – linking the rich economies of the west, with the emerging powers – has been outbreaks of large-scale social protest, highlighting inequality and corruption.

The examples keep piling up: the “Occupy Wall Street” movement, the Indignados in Madrid, the anti-corruption protests in Delhi, the mass demonstrations in Brazilian cities last summer, the Gezi Park movement in Turkey and the rallies that followed last year’s coup in Egypt – all seem to demonstrate how quickly anti-establishment sentiment can be fanned in the age of social media.

Since the WEF is, essentially, a gathering of the global elite, its delegates will be concerned by evidence that “populism” (to use a favourite Davos term) is on the rise.

These worries have already been reflected in the world beyond the Swiss ski slopes as political leaders, operating in very different systems, attempt to respond to anti-elitist anger. In China, President Xi Jinping has launched a high-profile anti-corruption crusade and tried to restrict conspicuous consumption by officials. In India, the new rising political force is the Aam Aadmi party, whose symbol is a broom, and which has already swept to victory in the municipal elections in Delhi.

In the US, even Republican politicians are talking more about inequality and the economic pressures on the middle class, a belated reaction to the fact that, in real terms, the average American family now earns less than it did in 1989.

A central question for politics in the coming year is whether current political leaders are capable of responding effectively to this anti-establishment sentiment, or whether new, more radical, political forces will emerge.

The elections to the European Parliament in May are likely to see a surge in support for “outsider” political parties, many of which are likely to make opposition to the EU and immigration central themes, while stressing the pressure on living standards of working people.

The biggest shock could come in France where the National Front (FN), long regarded as a far-right party with links to fascism, may make a decisive breakthrough by emerging as the largest party in the European elections.

A low turnout, a proportional voting system, the deep unpopularity of President François Hollande and the FN’s attempts to clean up its image have helped it to strengthen its appeal.

But, whatever the extenuating circumstances, a very strong FN showing would still send shockwaves through the French system.

The wider European effect will be amplified because other fringe parties, including the United Kingdom Independence Party in Britain and the Freedom Party in the Netherlands, may also top the polls in their respective nations.

All told, the fringes could command up to 30 per cent of the seats in the new European Parliament.

The question for the European establishment will be how it adapts. Will it count on the likelihood that the traditional parties will bounce back, in more important national elections? Or would a strong populist showing in the European elections induce panic – leading to a radical rethink of the EU’s functions and policies such as free movement of people within the bloc.

A populist political surge in Europe could also have serious economic effects by disturbing the fragile confidence of the markets that the euro-crisis is finally under control.

Political radicalisation could also make itself felt in the US. There, the big political question for 2014 is whether the Republican party will take control of Congress after November’s midterm elections – and, if so, whether it will be a party that is increasingly in the grip of Tea Party radicals. A Republican victory and a Tea Party surge would be the nightmare scenario for Barack Obama, effectively hobbling him for his last two years in office.

But there is a chance that the president will benefit from a more benign scenario, in which a strengthening economy, allied to an improvement in the image of his trademark healthcare reforms, ensure the Democrats keep control of at least one house of Congress.

In international affairs, the major question will be whether a modest improvement in America’s economic fortunes will change the gathering impression that the US is no longer the global force it was.

The sense that America is pulling back will be strengthened throughout the year, by the spectacle of the allied withdrawal from Afghanistan. Continued carnage in Syria and a worsening situation in Iraq – both, more likely than not – would bolster the impression that the greater Middle East region is suffering from a power vacuum, as US-led diplomacy founders and the nation increasingly looks inwards.

But there is another, more positive, possibility. If Mr Obama and his team are able to negotiate a deal that freezes the Iranian nuclear programme – and eases the threat of war – the president’s emphasis on diplomacy and reluctance to use military force would be seen as a strength, not a weakness. A breakthrough with Iran would mean that the economic case for optimism in 2014 was also supported by positive developments in geopolitics.

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