The Economic Cost of Right-Wing Populism
Aspiring autocrats keep ruining their countries' economies. It’s another reason to fear the MAGA movement.
In the 20th century, economic and political systems could be situated on a simple 2x2 grid. Economic policies ran from left to right, while political systems could be arrayed from authoritarian to democratic.
Most U.S. businesses pegged themselves easily on this spectrum: they wanted favorable regulation and management-friendly policies of the sort generally pursued by the right. And while a few opened up shop behind the Iron Curtain, CEOs knew business prospered most under classically liberal democratic systems that upheld the rule of law and inalienable rights—including property rights.
The rise of populism in the 21st century has overturned this game board. Today, even supposedly right-wing populists exploit distrust, pessimism, and anger to make the case that government should wield a heavy—and often retaliatory—hand in markets. But while such interference by authoritarian leaders could once be portrayed as undemocratic, modern populists often bask in electoral support. Voters cheer as their elected leaders undermine rights and the rule of law.
Populism, in other words, has shaken the kaleidoscope of 20th century political and economic identities—and acting as if those labels still apply could be catastrophic for market economies. Modern populists from the right use right-wing rhetoric to sell what used to be left-wing economic ideas. And many marry the electoral aspects of democracy with authoritarian tactics to undermine the rights, institutions, and norms that create a stable business environment.
Right-Wing or Left-Wing Populists, the Same Economic Script
The dire economic effects of left-wing populism are well-researched. Leaders from Argentina’s Juan Perón to Mexico’s Andrés Manuel López Obrador nationalize businesses, politicize their management, and fill their ranks with supportive political appointees. They shower voters with government money come election time and overheat their economies. The result is often a short-term economic boom followed by a long, inflationary bust. It’s a form of economic meddling long derided by business leaders.
Yet Viktor Orbán, the Hungarian Prime Minister celebrated by Tucker Carlson, studied by Steve Bannon, and invited to Texas to keynote the Conservative Political Action Conference’s annual jamboree in 2022, undertook precisely the same policies.
Orbán first rose to power as a pro-business classical liberal, offering corporations the lowest flat taxes in Europe. But Hungarians voted him out. After reinventing himself as a populist, he regained power in 2010. Among his first moves was to force banks to redenominate home mortgages (often held in foreign currencies that had appreciated) at favorable rates, then to hit the same banks and a host of other firms with a new “crisis tax.” He also manipulated regulatory policy, capping the profits of utilities. The moves were supported by consumers—but they forced business owners into a position where they could no longer make a profit and were forced to sell to the government, at times under market value.
“Banks and big companies enjoying a monopoly in Hungary must get used to the new situation,” Orbán postured. Like his Latin American counterparts, he raised government subsidies before elections, increased deficit spending, and undertook ego-boosting prestige projects. The result was an early boom that allowed Orbán to quickly pay back IMF loans, followed by inflation that is now the highest in Europe, triple the EU average.
Orbán’s policies are not unusual among right-wing populists. When economists studied populist leaders from 1900 to 2020, they found that these leaders would achieve economic growth for about three years. But that honeymoon would be followed by a long drag that pulled their economies down by 1% per year, regardless of their proclaimed ideology. After 15 years, a country led by a populist would have a GDP 10% lower than one governed by a non-populist leader.
One reason ideology doesn’t greatly affect economic outcomes is that once in power, populists from the left and right converge in their economic policies because their overwhelming concern is to maintain their power. As non-ideological politicians, they do what will get them short-term voter support. They know that popularity will let them change the rules to keep their power once the good times stop rolling.
The Personal Style of Populist Politics
Businesses are not only harmed by populist policies, but by the way these leaders govern. Populists personalize politics and centralize power, allowing them to implement policies based on whim without running them through normal policy processes. These tendencies make populist-led economies more volatile and unpredictable. Democracy scholar Roberto Foa found in a private investment analysis (shared with me) that the first few years of populist rule generated a boom of rising stock prices and investor confidence. Yet within five to 10 years, populist-led countries were more likely to experience serious financial crises, stock-market freefall, high inflation, and increased uncertainty and risk.
These risks fall unevenly and unpredictably on different businesses. Small business and agribusiness in Brazil thrived under President Jair Bolsonaro, but export-oriented business and banking faced threats and economic harm. In India, conversely, small businesses were devastated by a series of decisions made by Prime Minister Modi, such as his demonetization scheme that removed the most common currencies from the market overnight.
Populist leaders also tend to use market regulation to reward friends and punish enemies. They are aided by their centralization of power and their ability to erode checks and balances. In Hungary, between 2011 and 2021, companies close to Orbán were found to be six times more likely to win public tenders than they would have been in a competitive market.
Business leaders are tempted to think they can win in such an environment by courting the populist leader. After all, it’s easier to get on the good side of one megalomaniac than hundreds of legislators. But cozying up is also a dangerous strategy, because what the leader gives, the leader can take. In India, the chairman of HDFC, a leading bank, was cast out of the inner circle after commenting that Modi should focus on business instead of Hindutva. In Hungary, friends of Orbán became the wealthiest people in the country. But proximity to power also brought a sense of threat, and Orbán did not want any rivals. Multiple business leaders who considered themselves to be government allies were cut to size when they fell out of favor, being forced to sell or close companies to ensure that Orbán remained in firm control.
The American Right’s Orbán Lust: Bad for the Economy
Hungary has perfected populist control of the market—a fact that bodes ill for the United States, given how closely the MAGA faction has studied Orbán’s strategy. The United States is a vastly larger and more complex economy than tiny Hungary. But it is not immune to these trends. State governments have already experimented with punishing corporations to score political points. Uncle Sam has equally potent tools that populists can deploy to target critics and political opponents. The federal government hands nearly $700 billion worth of contracts annually to private individuals or firms that can potentially be withheld from enemies or handed to friends.
The Grand Old Party has been supportive of U.S. business since its inception under Abraham Lincoln, whose policies built the transcontinental railroad system and the modern U.S. economy. Ronald Reagan perfected a Republican Party that benefited from the cultural anger of voters while continuing pro-business policies to help the corporations that formed a solid portion of its donor base.
But that coalition isn’t inevitable. In recent years, the party has sought to cement a coalition of the working classes. These voters feel that both big government and big corporations ignore their interests. If a trusted leader like Donald Trump goes after big business, these voters are hardly going to rise to its defense.
In the age of MAGA, pro-business organizations and think tanks have struggled with language to explain the threat posed by supposedly right-wing populism. The elections that bring populists to power globally are often free, fair, and democratic. But populist political strategies no longer support the institutions, norms, and culture of socially stable, rule of law-supporting liberal democracy that enabled the economic flourishing of the second half of the 20th century.
The Fraser Institute’s Economic Freedom in the World report perhaps said it best: “Unchecked majoritarian democracy may do as much damage to economic freedom and wealth creation as many repressive autocratic regimes.”
Populist leaders want power. Their early economic policies are not based on principles but on gaining popularity with the masses. They then use regulation, tax policy, and coercive tools of the state to reward friends and punish enemies—though no friends are permanent. What matters is political loyalty, and they use executive and regulatory powers to go after businesses that refuse to bow down. Instead of generating value, the business sector is expected to cater to the whims of a strongman. As the economic costs roll in, they clamp down on free speech, manipulate statistics, and even rig elections to ensure they don’t pay a political price.
Not only the American polity but also the American economy will be in trouble if MAGA populism remains unvanquished.
Dr. Rachel Kleinfeld is a senior fellow at the Carnegie Endowment for International Peace.
A version of this article was originally published by The UnPopulist, our editorial partner.
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We need sensible conservatives to vote Democrat in big numbers in the next election in order to drive a stake through the heart of the ignorant, destructive MAGA movement. I'm a liberal democrat, but I want to see a strong, smart conservative movement again, one that lives in the real world.
There are indeed economic downsides to populism, but economic policy is not only about math. It’s also about morality. The fact that no higher-ups at big banks were punished in 2008 has empowered populists. There may be economic benefits to various deregulations, but it’s fair and reasonable to oppose them if they take power and dignity away from the working classes and give it to CEOs. Biden has done a good job combining left-leaning economics with a commitment to democratic norms. Hopefully it’s enough to defeat Trump again (although I’d feel better if he broke with the cultural left on immigration and trans rights).