Brexit came as a shock, as did the victory of Donald Trump. Much head-scratching has resulted as leaders seek to work out why large chunks of their electorates are so cross.
Populism is the result of economic failure.
The 10 years since the financial crisis have shown that the system of economic governance which has held sway for the past four decades is broken.
Some call this approach . Perhaps a better description would be unpopulism.
Unpopulism was rigged to ensure that the fruits of growth went to the few not to the many.
Unpopulism decreed that those responsible for the global financial crisis got away with it while those who were innocent bore the brunt of austerity.
The share of national income that went to the bottom 90% of the population held steady at around 66% from 1950 to 1980.
It then began a steep decline, falling to just over 50% when the financial crisis broke in 2007.
Similarly, it is no longer the case that everybody benefits when the US economy is doing well.
During the business cycle upswing between 1961 and 1969, the bottom 90% of Americans took 67% of the income gains.
During the Reagan expansion two decades later they took 20%.
During the Greenspan housing bubble of 2001 to 2007, they got just two cents in every extra dollar of national income generated while the richest 10% took the rest.
Unpopulism was touted as the antidote to the supposedly failed policies of the postwar era.
It promised higher growth rates, higher investment rates, higher productivity rates and a trickle down of income from rich to poor.
It has delivered none of these things. James Montier and Philip Pilkington, of the global investment firm GMO, say that the system which arose in the 1970s was characterised by four significant economic policies: the abandonment of full employment and its replacement with inflation targeting; an increase in the globalisation of the flows of people, capital and trade; a focus on shareholder maximisation rather than reinvestment and growth; and the pursuit of flexible labour markets and the disruption of trade unions and workers’ organisations.
To take just the last of these four pillars, the idea was that trade unions and minimum wages were impediments to an efficient labour market.
Collective bargaining and statutory pay floors would result in workers being paid more than the market rate, with the result that unemployment would inevitably rise.
Unpopulism decreed that the real value of the US minimum wage should be eroded.
But unemployment is higher than it was when the minimum wage was worth more.
Nor is there any correlation between trade union membership and unemployment.
If anything, international comparisons suggest that those countries with higher trade union density have lower jobless rates.
The countries that have higher minimum wages do not have higher unemployment rates.
“Labour market flexibility may sound appealing, but it is based on a theory that runs completely counter to all the evidence we have,” Montier and Pilkington note.
“The alternative theory suggests that labour market flexibility is by no means desirable as it results in an economy with a bias to stagnate that can only maintain high rates of employment and economic growth through debt-fuelled bubbles that inevitably blow up, leading to the economy tipping back into stagnation.”
This quest for ever-greater labour market flexibility has had some unexpected consequences.
The bill in the UK for spiralled quickly once firms realised they could pay poverty wages and let the state pick up the bill.
Access to a global pool of low-cost labour meant there was less of an incentive to invest in productivity-enhancing equipment.
The abysmally low levels of productivity growth since the crisis have encouraged the belief that this is a recent phenomenon, but as , the trend started in most advanced countries in the 1970s.
“Certainly, the productivity puzzle is not something which has emerged since the global financial crisis, though it seems to have amplified pre-existing trends,” Haldane said. Bolshie trade unions certainly can’t be blamed for Britain’s lost productivity decade.
The orthodox view in the 1970s was that attempts to make the UK more efficient were being thwarted by shop stewards who modeled themselves on Fred Kite, the character played by Peter Sellers in I’m All Right Jack.
Haldane puts the blame elsewhere: on poor management, which has left the UK with a big gap between frontier firms and a long tail of laggards.
“Firms which export have systematically higher levels of productivity than domestically oriented firms, on average by around a third.
“The same is true, even more dramatically, for foreign-owned firms. Their average productivity is twice that of domestically oriented firms.”
Populism is seen as irrational and reprehensible. It is neither.
It seems entirely rational for the bottom 90% of the US population to question why they are getting only 2% of income gains.
It hardly seems strange that workers in Britain should complain at the .
It has also become clear that ultra-low interest rates and are merely sticking-plaster solutions.
Populism stems from a sense that the economic system is not working, which it clearly isn’t.
In any other walk of life, a failed experiment results in change.
Drugs that are supposed to provide miracle cures but are proved not to work are quickly abandoned.
Businesses that insist on continuing to produce goods that consumers don’t like go bust.
That’s how progress happens. The good news is that the casting around for new ideas has begun.
Trump has advocated protectionism. Theresa May is consulting on an industrial strategy.
Montier and Pilkington suggest a commitment to full employment, job guarantees, reindustrialisation and a stronger role for trade unions.
The bad news is that time is running short.
More and more people are noticing that the emperor has no clothes.
Even if the polls are right this time and fails to win the French presidency, a full-scale political revolt is only another deep recession away.
And that’s easy enough to envisage.