Populism as the final outcome of liberalism

by Alvaro Gaertner Aranda

In 1917 Lenin published his book Imperialism as the highest stage of capitalism (Lenin 1999), and immediately after he started a revolution in Russia that no Marxist theorist could have foreseen. This conclusion seemed logical on the light of the events he had witnessed in the previous decades. In 1873, Germany and the United States finally entered the gold standard and immediately after the Long Depression began. The costs that the gold standard imposed to nations in crisis, that had to suffer the ills of unemployment and deflation before going back to the economic equilibrium, were unbearable for societies, and societies logically responded (Block 2001, p. 14). This response consisted of a mixture of industrial and agrarian tariffs on the one side and of social legislation to protect the workers on the other. These policies, which aimed to make trade flows, and therefore nations, less sensitive to price changes and also to protect businessman and workers from the effects of the gold standard, were adopted in all major countries, starting from Germany. There, Bismarck popularised the “all round protectionism” concept (Polanyi and MacIver 1944, p. 210). The introduction of these tariffs provoked the need for the different states of continuously expanding their colonies to ensure markets and raw materials for the national companies, and thus transformed colonialism, a formerly decried idea, into a necessity. (Block 2001, p. 15). This expansion filled the world with imperialist rivalries, that were first confined into some colonial wars but later escalated and provoked the First World War. Thus, Lenin´s conclusion seemed logical given that the tensions created by the Gold Standard had mainly expressed themselves in the form of imperialist rivalries, where countries sought to alleviate the tensions in their societies by externalizing them to other regions of the world (Polanyi and MacIver 1944, p. 211), but this was not the only way in which the strain manifested. The other possible outcome was best exemplified by William Jennings Bryan, the candidate of the Democratic Party in the 1896 election. Following a period of economic struggle in the US after 1893, Bryan won the nomination by defending that “you shall not press down upon the brow of labour this crown of thorns; you shall not crucify mankind upon a cross of gold.” (quoted in Kazin 2007) and thus advocating the exit of the US of the Gold Standard. In his speech, Bryan showed how the strain in the north American society would be alleviated in the internal politics by defending the interests of the farmers, the workers and the people in general against the interests of the bankers of the East Coast, and if he would have won and implemented this vision we would have seen the end of the dream of a self-regulating market. His speech got him also the support of the People’s Party, a populist party of the US, and showed that populism is the other possible final outcome of liberalism.
To further argument this thesis, that is, that populism is the other possible outcome of liberalism, we will start by reviewing the modern origin of this concept, and to do so, we have to go back again to Marxism and the October Revolution. Orthodox Marxists theory predicted that the revolution would occur in the most developed countries based upon several quotes of Marx. One example of such a quote was the one indicating that the essence of the bourgeoisie class made them push involuntarily for the advance of industry and therefore for the substitution of individualized workers through an organised working class, that ultimately would be their grave-diggers (Marx and Engels 1967, p. 8). Another example would be the one pointing that “no social order ever disappears before all the productive forces, for which there is room in it, have been developed” (Marx 2010). This didn’t finally occur, and the revolution was made in one of the least developed European countries, Russia. This contradiction led Gramsci, the founder of the Italian Communist Party, to question himself why that did happened, and one of the results of this and other questions was his theory of hegemony. There Gramsci suggested that the bourgeois class was the dominant class not only due to their ability to maintain the grip of society through coercion, but also due to their ability to obtain consent for their actions thanks to the transformation of their ideas in the common sense of society and their ability to co-opt and integrate other classes in a subaltern position (Katz 2010). If a class achieved such a dominant position then it would be hegemonic, and the challenge for the subaltern classes such as the working class would be to create their own working class culture that would allow them to liberate themselves from the dominance of the bourgeois class and to wage the fight for hegemony (Katz 2010). Also, it is important to point out that while developing his theory of hegemony, Gramsci was thinking that the social groups fighting for it were the bourgeois and the working class (Katz 2010), thus following Marxism in that point. That assumption was challenged later by Chantal Mouffe and Ernesto Laclau, a couple of populist theorists who realised, in different ways, that “there are different forms of subordination that might give rise to a variety of antagonisms, and that all these struggles cannot be viewed simply as the expression of capitalist exploitation” (quoted in John B. Judis 2016). Therefore, they though that, given that the political antagonism was not predefined by some objective theory, that is, that the political conflict in the society need not be between two classes objectively defined by their position with respect to the ownership of the means of production, then the political antagonism had to be defined in the political fight. For Laclau, that meant that this political antagonism is defined by a sort of political discourse, populism, that tries to establish a conflict between an underdog group and the elites (John B. Judis 2016). This underdog group bases its challenge against the established power among a set of demands that establish a political frontier between both groups. This challenge may then succeed and create a new hegemony if a plurality of unsatisfied demands in the society coexist with an increasing inability of the institutional system to absorb them (John B. Judis 2016). In conclusion,
populism as a political theory tries to describe how the change from the hegemony of a particular group to the hegemony of another group happens.
Populism explains how those changes of hegemonies happen, but it does not explain how the fundamental condition for the populist ruptures appears. Therefore, we will now try to explain the way in which different unsatisfied demands and an inability of the existing institutional system to absorb them coexist in the long run when implementing a market economy. Such a system of self-regulating markets requires markets for all products to be efficient. Also, it needs that all products are commodities, that is, “objects produced for sale on the market” (Polanyi and MacIver 1944). That all means that the production of all commodities should be subject to the law of supply and demand, that will determine the prices of those commodities and therefore the income of their suppliers (Polanyi and MacIver 1944). That may not be a problem when selling nails, a very homogenous product particularly suited to be produced to be sold in a competitive market, but it is a problem when we talk about what Polanyi called “fictitious commodities”. These commodities, such as labour, money and land, are not originally produced to be sold in the market and their inclusion can threaten the substance of society. For example, “labour is simply the activity of human beings” (Block 2001) and our way of surviving, and leaving its organization to the market would mean that the supply of labour may have to adjust to the demand for it at a given price. In situations of unemployment this adjustment would be made through the disappearance of the owners of that labour power from the market, that is, through their death. Also, leaving the organization of land, which is only subdivided nature (Block 2001), to the market may produce externalities such as a declining quality of the soil, insufficient food security or climate change that threaten the substance of society. Finally, leaving the organization of the monetary system to the market alone may impose unbearable costs to societies in several ways. One way in which it occurs is through the deflationary pressures and the periods of unemployment when the currencies are fixed between each other, as happened with the gold standard. The other way in which it happens is through accelerated devaluations that increase the price of imports, inflation and the costs of paying external debt, as it occurs in countries with floating currencies and as it is happening in Turkey and Argentina.
Naturally, if a society feels any of these threats, it will try to protect itself from them. Therefore, when liberals introduce their reforms to organize these three “fictitious commodities” according to the logic of the self-regulating market, there will be an immediate reaction of society seeking to protect itself and therefore a set of demands will be generated. Then society would have two possible options to alleviate the strain. As described at the beginning of this essay, the first one would be externalizing the strain by imposing the costs of these policies on other societies. Practically, for labour that would mean alleviating unemployment by shifting it to the colonies or any
other weak country, either through emigration or through increased exports from the powerful country. An example of the second type of policy can be found now in the trade war the US is waging against its trade partners to reduce its trade deficit and increase employment at home. For nature, that would mean shifting the overexploitation of it from the powerful country to the powerless, for example by decreasing mining at home and increasing it abroad. A current example of this can be found in the Global South, which has to cope with most of the environmental degradation produced by the consumption of the Global North. Finally, in the case of money, displacing the strain would mean shifting the deficit in the current account from the powerful country to the powerless, for example by forcing the weaker country to have a superavit in its budget and to transfer it to the strong country. An actual example of this can be found in Greece. On the other hand, if the affected society is not powerful enough to impose the costs on other societies, then there will be a political fight in the country in order to decide how the costs will be allocated between the different groups of that society. The hegemonic group will try to impose the costs on the subaltern classes, and by doing so it will create a set of unsatisfied demands that the existing institutional system will not be able to absorb, thus creating the conditions for a populist rupture. In that moment, there will be a window of opportunity for a populist party that, making use of a populist discourse and possibly counting with a strong unifying leader (John B. Judis 2016), tries to represent all those unsatisfied demands and to replace the old hegemonic group by a new one. When that happens, there will be several possibilities. The first one is that the underdog coalition succeeds, transforms its ideology in the common sense of society and either implements its program by itself or forces the old elites to do it. The second one is that the hegemonic group sees off the challenge to their hegemony, but in that case, the strain in society will stay and therefore the populist rupture will be merely postponed. In any case, populism will have been the final outcome of liberalism.
All of the facts exposed in the previous paragraphs are relevant for the times we are living. After the Second World War, Keynesianism had sent the utopia of the self-regulating market into the exile. Social democratic parties succeeded in making big parts of their programs hegemonic, as can be seen in the example of Great Britain, where, for example, in 13 years of government the Conservatives could not make significant attacks to the Welfare State created by the Labour Party due to its popularity (Bochel 2010). During that time, also called the “Thirty Glorious Years”, unemployment was the result of insufficient aggregate demand, and the solutions for it were active fiscal and monetary policies that would restore it (Palley 2005). But during the seventies, the utopia of the self-regulating market came back from its exile. After the victory of Thatcher and Reagan, unemployment was the result of the lack of flexibility in the labour market, and the solution for it was the effective dismantling of the institutions that were distorting the labour market, such as the trade unions or the minimum wage (Palley 2005). After the air traffic controllers of the US and the coal miners of the UK
were defeated, workers lost a lot of the elements protecting them from the action of the self-regulating market. The result of that loss of power were stagnating incomes for workers (Joseph A. McCartin 2011), and the stagnation of wages led to an increase in inequality and household debt (Wisman 2013). Increasing debt worked then as a substitute for increasing income for a lot of families seeking to maintain their status and their way of life (Wisman 2013). That worked for some time, and during that time economists such as Robert E.Lucas congratulated their profession for having solved the central problem of depression prevention (Lucas Jr 2003). The problem was and is that bubbles always burst, and when the housing bubble finally burst it was clear that the strain caused by stagnating wages had only been deferred but it had not disappeared. This strain came then back augmented thanks to the implementation of the self-regulating market logic in the financial sector, and again society had to decide how to allocate the costs of the economic adjustment between the different groups present in it. The neoliberals were back then the hegemonic group, and they decided that the middle class and the working class would pay the costs of the crisis and banks would be saved. This decision naturally created some unsatisfied demands in society. Additionally, the Eurozone had to face another challenge while dealing with the crisis because of its monetary system. Back in 1992, the countries of the Eurozone had entered a monetary union without including in its design some of the necessary elements to make it work properly in the event of a crisis, such as a banking union or a set of European automatic stabilizers as, for example, a European unemployment insurance program (Stiglitz 2016). Therefore, its functioning during the crisis has resembled the behaviour of a system of fixed currencies such as the gold standard. Ultimately, that has meant that countries that used to have a current account deficit before the crisis have had to go through a process equal to the one the gold standard would have imposed in such a situation, that is, a process of adjustment consisting of deflation and high unemployment that makes them recover their competitiveness and re-establish the equilibrium. That has caused the appearance of an even greater set of unsatisfied demands in those countries that their institutional system has not been able to absorb. All of these facts together explain the situation that we are living in Europe right now, because the implementation of liberal policies has again lead to a populist moment, which will either be solved through a left wing populism that pitches the losers of the crisis against the powerful and that seeks to protect society from the action of the self-regulating market while reinforcing democracy or through a right wing populism that pitches the losers of the crisis against immigrants. The lesson of the thirties with this respect cannot be clearer, as Gramsci said, when “the old world is dying, and the new world is slow to appear, in that chiaroscuro surge monsters” (quoted in Meneses 2013). For us, but also for the members of the current hegemonic group that want to hinder a takeover by right wing populists, that means that this time we should
learn from Polanyi, Mouffe, and Laclau; and use their knowledge to make the new world appear a little faster.