Economic Insecurity and the Demand of Populism in Europe*
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Economic Insecurity and the Demand of Populism in Europe* L. Guiso† H. Herrera ‡ M. Morelli§ T. Sonno ¶ May 2020 Abstract This paper documents the spiral of populism in Europe and the direct and indirect role of economic insecurity shocks. Using survey data on individual voting and data on politi- cal parties manifestos in European countries, we make two contributions to the literature, namely: (1) Economic insecurity shocks had a signicant impact on the demand of pop- ulism as a direct protection demand eect and also through the induced changes in trust and attitudes; (2) A key consequence of a negative shock to economic security is a drop in turnout. The impact of this previously neglected eect is substantial: when economic inse- curity increases, almost 40% of the induced change in the propensity to vote for a populist party conditional on voting comes from the turnout incentives channel. Keywords: turnout, trust, attitudes, populism JEL: D72, F68 *Luigi Guiso and Massimo Morelli wish to thank the Italian Ministry of Research (MIUR) for the PRIN fund- ing; Massimo Morelli also wishes to thank the Dondena and Igier research centers and the European Research Council, advanced grant 694583. We thank Luca Brugnara and Nina Fluegel for excellent research assistance. The usual disclaimer applies. †Einaudi Institute for Economics and Finance, and CEPR ‡Warwick University, and CEPR §Bocconi University, IGIER, and CEPR ¶University of Bologna, and CEP 1 Introduction What determined the populism wave in Europe in the 21st century? Are the common sources related to economic crises or stagnation and, if so, through what channels? This paper provides an empirical analysis of the channels through which economic insecurity aected the “demand” of populism. The focus on the common features of populist parties (left and right together rather than separate) and the focus on a broad notion of economic insecurity (rather than just globalization shocks) are necessary for a deep understanding of the phenomenon. The 21st-century external threats of globalization and migration, as well as the nancial crisis, undermined citizens’ condence in both leftist (government-based) policies and rightist (market-based) policies that respect the institutional constraints and functioning of politics.1 Global market competition, immigration and robotization are making some believers in free markets shake. At the same time, the ability of governments to keep welfare state policies is re- duced due to supranational constraints. At a time in which the crisis is two-sided, there is room for new movements and transformation of existing opposition movements in the direction of urging removal of constraining institutions.2 We argue that a negative economic security shock that aects a citizen at a time when both left and right traditional recipes are perceived as in- eective, depresses the motivation to vote for traditional parties of both left and right; the dis- appointment generates an abstention-based space for populist platforms who thus experience a massive increase in support. Figure1 lends support to this sequence. It shows a pattern familiar to several European countries: economic crisis followed by voter apathy and disaection with traditional parties, which in turn opened the space for entry of new populist parties or greatly magnied the vote share of existing ones. In the paper we oer evidence that is consistent with this chain: economic insecurity causes faith in traditional parties to diminish, inducing disillu- sioned voters to abstain; in turn, economic insecurity, disillusion and the consequent trust drop attract support for populist platforms. [FIGURE1 HERE] 1For a discussion of the specic features of the great recession, see e.g. Judis (2016). 2Various forms of exit, rejection of international treaties previously subscribed, construction of walls, and so on, are just examples of simple protection proposals that have traction today but would not have attracted votes in other decades. The simple model in section2 will clarify how the typical populist policies can appeal to disillusioned voters in our context. 1 Tosubstantiate the claim of generality of the proposed sequential argument, we rst propose a very simple theory that elucidates the channels through which a signicant economic insecu- rity shock can trigger abstention and drop in trust and then populist voting. We then show that endogenous turnout eects are key for an evaluation of the relevance of economic insecu- rity, because economic insecurity shocks aect at the same time the willingness to participate in elections as well as the willingness to switch to a populist party conditional on having decided to participate. The full extent of the impact of economic insecurity trends becomes apparent when we show that even other key drivers of populist voting - namely trust in political parties and attitudes towards immigrants - are in fact substantially inuenced by economic insecurity. For the empirical analysis we will use the PopuList created by Rooduijn et al. (2019) to iden- tify populist parties. Underlying the PopuList is the denition of populism proposed by Mudde (2004). This is widely accepted in the recent political science literature; it characterizes pop- ulism as “a political narrative that antagonizes the people and the corrupt elite, and that aims for policies that reect the will and are understood by the people” (Mudde, 2004).3 We study the determinants of the demand for populist platforms in the countries covered by the Euro- pean Social Survey. Our empirical analysis accounts for selection into electoral participation. We show that adverse shocks to economic security and trust in political parties induce people not to vote and, if they do, to choose a populist party. Ignoring the voter participation margin would bias the estimates of the drivers of the vote underestimating the underlying demand for populist parties, but also would obscure the mechanism by which the disappointment induced by the crisis favours populists. A simultaneous Heckprobit estimation of the chance of partici- pation and of a populist vote shows that economic insecurity has statistically and economically signicant direct eects on both margins: it lowers the chances of turning out, but when a vote is cast it raises the chances of voting populist. Trust in political parties and attitudes toward immigrants matter as well. The worsening of either of these sentiments both discourage participation and encourage voting for populists. Im- portantly, negative shocks to economic security and trust increase the vote share of populist par- ties among the participants because they strongly discourage supporters of mainstream parties to participate in elections. More immigrant-averse attitudes have a milder eect through reduced 3In Guiso et al. (2017) one can nd robustness results to using a dierent continuous measure of populism. 2 participation, as the eect is overwhelmingly via switching voters preference from traditional to populist parties. Building a pseudo-panel from the individual data allows us to show that trust in politics and immigrant attitudes variables are, in fact, aected causally by changes to economic insecurity.4 Thus, we can document a large total eect (direct and indirect) of economic insecurity on the demand for populism. Weconrm the relevant causal eects of economic insecurity on trust and attitudes towards immigrants also on an Italian panel of individual respondents from 2008 to 2013. Importantly, this panel allows us to conrm the timing of our mechanism, highlighting that what matters for the choice of voting populist is the feeling of economic insecurity just before elections. Overall, our evidence suggests that cultural factors such as trust and attitudes sentiments are an important channel driving the populist support, but also probably that they are not independent factors as they are driven by economic insecurity. In a nutshell, our empirical analysis makes two important contributions to the literature: (1) Economic insecurity shocks have a signicant impact on the demand of populism not only as a direct protection demand eect but also through the induced changes in trust and attitudes; (2) A key previously neglected eect of a economic insecurity is a drop in turnout incentives – more than one third of the induced increase in the propensity to vote for a populist party rela- tive to other parties comes from a turnout eect. Ignoring the turnout (crucial) channel, one could reach the wrong conclusion (see e.g. Inglehart and Norris, 2016) that economic variables do not matter much in the decision to vote for a populist party. Indeed, failure to consider that economic security shocks signicantly aects the decision to abstain makes inconsistent any es- timate of the eects of economic insecurity on the propensity to vote populist. Some literature also emphasized indirect eects of economic insecurity on certain cultural traits or attitudes/sentiments, who thus cannot be deemed independent drivers.5 Indeed, eco- nomic insecurity may aect the populist vote in several indirect ways, as for instance fostering a 4Our nding that an economic insecurity shock signicantly aects the attitudes towards immigrants may be due to any mix of rational updating (i.e., some people may rationally expect a higher risk of substitution) and behavioural external-blaming reactions. 5Lucassen and Lubbers (2012) give evidence – for 8 of the 11 European countries they consider – that shifts towards far-right populism stemmed