Populist versus liberal economic policy and it implications on Europe - State Jobs

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Friday, July 5, 2019

Populist versus liberal economic policy and it implications on Europe

Important foundations of our economic and social order are currently under attack: free world trade, competition and market economy, protection of private property, European integration, pluralism. Those in the front row are Donald Trump, Lega Nord and 5 stars, influential politicians in Poland and Hungary, Marine Le Pen, but there are also German politicians among them. They are all representatives of a policy called populist.


Populists describe society as split into two groups

On one side stands the "people", on the other the "elite". The elite is portrayed as corrupt. It steals wealth and identity from the people. Populists, on the other hand, claim to represent the interests of the people. 

What does populism mean in economic policy? 

There were political movements in the 19th and early 20th centuries, also in the United States, which were called populist. At that time it was about concerns of the rural population, quite meaningful.

The populist economic policy of the 21st century is very different. You can recognize them in seven properties
  1. Populist economic policy claims to act for groups that see their status and prosperity threatened; Groups feeling abandoned by the political establishment. 
  2. The populist agenda relies on short-term benefits. It neglects the long-term costs. For example, the expansion of public debt is always supported, regardless of the consequences. 
  3. The consideration of the advantages and disadvantages of various policy options does not like populists. Goal conflicts are ignored, checks and balances are rejected, as are restrictions on national sovereignty through free trade agreements or the EU. 
  4. The populist agenda focuses on individual and emotional issues such as immigration, import competition, or contrasts between rich and poor. 
  5. Foreigners, immigrants, and international trade are blamed for economic problems. 
  6. Populists provide simple solutions to complex problems. Protection by protectionism is an example. 
  7. These solutions are sham solutions, making things worse instead of improving them.

Under what conditions do populist parties gain support?

 The declining wealth of the middle class, especially in the United States, the global financial crisis, the euro crisis and the consequences for people in southern Europe, loss of control in migration; Nobody can be surprised that these events shake the trust in the liberal democracies and the so-called elites.
Populism in Europe

 In addition, there are fears of change: digitization, globalization, demographic change require adjustments, winners and losers. Many people are worried about this, populists stir up fears associated with it.

The populist answers to these problems only make things worse. In Italy, the Lega Nordand 5-star government has announced higher public debt and withdrawn labor market reforms.

 That has only led to rising interest rates. The country has slipped into a recession. Gifted young people leave, Italian entrepreneurs prefer to invest abroad.

In an economic superpower like the United States, it takes longer to see the cost of populist politics. But already today, many farmers in the United States are feeling tariffs on American agricultural exports introduced by other countries.

 These punitive tariffs are reactions to Trump's tariffs on European and Chinese products. The bigger shock will probably come after the elections, when the government has to take action against the much too high budget deficit, ie tax increases or spending cuts.

If these are the wrong answers, what are the right ones? 

Among the moderate political forces in Europe, many respond to the populist threat by promising to shield people from the adversities and dangers of life. It is a Europe that is afraid. 

A Europe that withdraws behind walls that no longer believe in itself. A fortress Europe. Within the fortress, freedom, markets and competition do not prevail - instead, harsh regulation takes place, and the shortage is managed.

 The French and German governments want to weaken competition in the European single market in order to create large corporations, alleged European champions. 

They should compete with companies from China and the United States. In fact, these privileged companies would only be lazy and inefficient, inequality in Europe would rise, growth would decline.

Others demand mandatory national minimum wages in all EU countries. That's the wrong way too. Although the EU can impose minimum wages, it can not ensure that there are jobs at these wages. This is only guaranteed by appropriate productivity. 

European politics can not and should not shield people in Europe from the challenges of economic change, let alone by eliminating internal competition and foreclosure. Instead, a policy should create conditions for people in Europe to meet these challenges. 

Most of them can do that, on their own. To achieve that, we need self-confidence and departure, not fear and withdrawal. We do not need a Europe that only protects. We need a Europe that empowers a Europe of opportunities. 

Everyone is responsible for taking advantage of these opportunities. That's why I say: The answer to populism is not the welfare state, which regulates everything, the correct answer is a liberal economic policy. 

demonstration of freedom

Freedom inevitably implies certain risks.
  1. Competition, open markets, private property, flexible prices and wages, self-responsibility are at the heart of this economic policy. Without these elements, there is no wealth. ? 
  2. Markets and competition need framework conditions. This includes competition policy that prevents cartels, banking regulation that prevents profits from being privatized and losses socialized as happened in the financial crisis, effective environmental and climate protection. ? 
  3. We need a Europe of opportunities that is open to the outside and dynamic and diverse inward. But a Europe that can effectively represent its interests in the world, where the Member States can not do it alone.
  4. In trade policy, migration policy, defense policy. Europe also has to act in a spirit of mutual cooperation: reforming the eurozone, developing European infrastructure and internal security. ? 
  5. We need a strong welfare state, but one that empowers, instead of incapacitating, people can only seize the opportunities offered by a free society if certain conditions are met. 
  6. Basic material needs, access to health care, social contacts, education and participation, opportunities to rise. A social state that empowers includes a social network that catches those who are unlucky, become unemployed or ill, and can not help themselves. 
Without these prerequisites, freedom of movement is of little value. In the United States, for example, there are more and more people who are missing all that. These people support political movements that emphasize things other than freedom and personal development.

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