Populist policies are leading to a global slump
Nine years ago, beginning in Tunisia, a series of street protests across the Middle East turned the region upside down and became known as the Arab Spring. At times in these last few weeks, it has seemed as if something similar was unfolding across the world. From Chile to Lebanon, Iraq to India, we are seeing strikes, marches and riots. Is there a common element to this autumn of protest?
At first glance, the politics of each of these movements seems quite distinct. But they are all occurring against a worrisome backdrop - a collapse of economic growth. Over the last year, the IMF has sharply cut its estimate for 2019, warning that "the global economy is in a synchronized slowdown," growing at "its slowest pace since the [2008] global financial crisis."
When growth collapses, anxieties rise, especially among the middle class who feel squeezed, get enraged by corruption and inequality, and have the capacity to voice their anger. Consider Chile, where a subway fare hike has led to the worst street violence in decades. The unrest is happening, however, in an atmosphere of diminished expectations. Not long ago, Chile was the star economy of Latin America, growing at 6% in the 1990s and 4% in the 2000s. Over the last five years, growth has averaged 2%. The IMF cut its estimate for Latin America as a whole from 2% to 0.2% in the last year.
The slump extends well beyond Latin America. Lebanon, another site of protests, has seen growth fall to 0%. Even the world's richest countries are affected. Jose Luis Daza, a fund manager in New York, notes that G-7 nations have grown at half the rate this past decade as they did over the previous 20 years. And this despite the fact that many central banks have cut interest rates to historic lows. Germany, Europe's economic engine, may have entered a recession, according to its central bank.
Why is this happening? There are many causes, and circumstances vary from place to place. But over the past few years, we have seen the rise of populism and nationalism around the world - and with it have come shortsighted policies that are stunting long-term growth.
It's not just a problem in democracies. China has been the world's second-best source of economic vitality, behind America. But ever since Xi Jinping ascended to the presidency in 2013, the country has shifted away from key market reforms. Nicholas Lardy of the Peterson Institute has shown that in recent years, Beijing has lavished credit and support to state-owned enterprises and starved the private sector of resources.
The result, Lardy concludes, has been a significant slowdown in Chinese growth, which is only getting worse. And China is so large now that its slowdown has ripple effects far from its borders. A chief reason for Germany's woes is falling Chinese demand for its goods.
Or take India, where protesters are upset over the price of onions, which is just the tip of an economy that is underperforming massively. Prime Minister Narendra Modi campaigned as a market reformer, but has governed as more of a statist, doubling down on handouts to farmers and rejecting serious reform of India's monstrously inefficient state-owned financial sector. Growth in India has slowed to 6%, or probably even lower because the government appears to be using inflated statistics.
In Mexico, the left-wing populist President Andrés Manuel López Obrador's anti-business agenda has brought the economy to a grinding halt. Fitch has rated the state-owned oil company's debt as junk bonds, and economic growth is now at 0%.
While some of these trends have been gathering steam for the last few years, one policy above all, from the world's economic leader, has pushed things over the edge. Donald Trump's protectionism has rattled governments, businesses and investors around the globe. The IMF explains, "the weakness in growth is driven by a sharp deterioration in manufacturing activity and global trade, with higher tariffs and prolonged trade policy uncertainty damaging investment and demand for capital goods."
The United States is still in good economic health, but one wonders how long it can remain an island. The world is rife with uncertainty, with Brexit likely to happen, an impeachment looming in Washington, and tensions between China and the U.S. continuing. And if things go further south, governments have little ammunition left - having run up large debts and already offering very low interest rates.
Political protests are caused by a strange combination of factors - dashed expectations, rising inequality, persistent corruption and a deep sense of frustration. But they always become more likely when growth sputters.
Fareed Zakaria's email address is comments@fareedzakaria.com.
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