European dystopia policy | Nouriel Roubini

The recent victory of the conservative Law and Justice (PiS) party in Poland confirms a recent trend in Europe: the rise of illiberal state capitalism, led by authoritarian right-wing populists. To call Poutinomic in Russia, rbanomy in Hungary, Erdoğanomic in Turkey, or a decade of Berlusconomic from which Italy is still recovering. Soon we will no doubt see Kaczyńskiomic Poland.

All are variations on the same discordant theme: a nationalist leader comes to power when economic malaise gives way to chronic and secular stagnation. This authoritarian elected representative then began to reduce political freedoms by strictly controlling the media, especially television. Then he (so far this has always been a man, although Frenchwoman Marine Le Pen would follow the model if she came to power) pursues an agenda opposed to the European Union (when the country is a member) or to other institutions of national supra-governance.

It will also oppose free trade, globalization, immigration and foreign direct investment, while favoring domestic workers and businesses, especially state-owned enterprises and private and financial groups linked to power. In some cases, racist and purely nativist parties support such a government or offer an even deeper authoritarian and undemocratic streak.

Of course, such forces are not yet in power in most of Europe. But they are becoming increasingly popular almost everywhere: Le Pen’s National Front in France, Matteo Salvini’s Lega Nord (Northern League) in Italy and Nigel Farage’s UK Independence Party (Ukip). All view Russia’s illiberal state capitalism as a model and its president, Vladimir Putin, as a leader worthy of admiration and emulation. In Germany, the Netherlands, Finland, Denmark, Austria and Sweden as well, the popularity of right-wing populist, anti-EU and anti-migrant parties is on the rise.

Most of these parties tend to be socially conservative. But their economic policies – anti-market and fearing that liberal capitalism and globalization would erode national identity and sovereignty – have many elements in common with populist left-wing parties, such as Syriza in Greece (before its surrender to its creditors), Podemos in Spain and the Five Star Movement in Italy. Indeed, just as many supporters of radical left parties in the 1930s flip-flopped and ended up supporting authoritarian right-wing parties, the economic ideologies of today’s populist parties seem to converge in several ways.

In the 1930s, economic stagnation and depression led to the rise of Hitler in Germany, Mussolini in Italy, and Franco in Spain (among other authoritarians). The current brand of illiberal rulers may not yet be as politically virulent as their 1930s predecessors. But their economic corporatism and autocratic style are similar.

The re-emergence of nationalist and nativist populism is not surprising: economic stagnation, high unemployment, increasing inequalities and poverty, lack of opportunities and fears that migrants and minorities will “steal” jobs. and revenues have boosted these forces. The backlash against globalization – and the free flow of goods, services, capital, labor, and accompanying technology – that has now emerged in many countries is also a boon for illiberal demagogues.

If economic malaise becomes chronic and jobs and wages do not rise anytime soon, populist parties could come closer to power in more European countries. Worse, the euro zone could again be at risk, an exit from Greece ultimately causing a domino effect which will eventually lead to the break-up of the euro zone. Or a British exit from the EU can trigger European disintegration, with the added risks posed by the fact that some countries (the UK, Spain and Belgium) may go their separate ways.

In the 1930s, the Great Depression brought authoritarian regimes to power in Europe and even Asia, ultimately leading to World War II. The current resurgence of illiberal state capitalist regimes and rulers is far from inciting war, as center-right and center-left governments are still committed to liberal democracy, enlightened economic policies and systems of government. Strong social protection still reigns over most of Europe. But the toxic mix of populism that is now gaining strength could yet open a Pandora’s box, unleashing unforeseeable consequences.

This rising tide of illiberalism makes it even more vital to prevent the break-up of the eurozone or the EU. But, to ensure this, macroeconomic and structural economic policies that stimulate aggregate demand, job creation and growth, reduce income and wealth inequalities, provide economic opportunities for young people, and integrate rather than reject refugees and economic migrants. Only bold policies can stop Europe’s slide into secular stagnation and nationalist populism. Shyness of the type seen over the past five years will only increase the risk.

Failure to act decisively now will lead to the eventual failure of the peaceful, integrated, globalized and supranational state of the EU, and the rise of dystopian nationalist regimes. The outlines of these places have been reflected in literary works such as George Orwell 1984, Aldous Huxley Brave New World, and the latest novel by Michel Houellebecq Submission. Hopefully they remain confined to the printed page.

Nouriel Roubini is a professor at the Stern School of Business at NYU. He was a senior economist for international affairs in the Clinton administration and worked for the IMF, the Federal Reserve and the World Bank.

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