In a couple of recent posts (here and here), I discussed how the rising popularity of right wing nationalism in Europe, the US and Australia could be the final trigger to massive global conflict, much like the 1930s leading up to WWII.
But if worldwide conflict does truly erupt, it may not be between nations, or on traditional battlefields. It may be between civilians on our very streets. Societies in Europe, the US and Australia are becoming increasingly polarised, and these conflicts have already started spilling over into the street. Nationalistic groups across Europe are criticising the EU and demanding a halt to what they see as dangerous mass immigration. And social justice groups such as Occupy Wall Street and Black Lives Matter are opposing what they see as entrenched economic and societal discrimination.
Keep in mind that I am not making any value judgements on the merit any of these groups’ causes – I’m only saying that their grievances have spilled over into active protests, if not actual Parliamentary representation.
And these groups are not entirely separate. In fact, there have been occasions in Australia where so called ‘anti-racism’ groups have clashed with anti-Islam/ anti-immigration groups, one group often protesting in direct response to the other.
I am nervous that a single event, such as a terrorist attack in a Western country, could trigger a series of truly violent and destructive riots between anti-immigration and ‘anti-racism’ groups all over the Western world. And governments will be caught in the middle, unsure as to which side of their polarised society they should be submitting.
And as it turns out, it’s not a coincidence that these events so closely resemble the 1930s.
A recent study (summary and full paper) by Manuel Funke, Moritz Schularick and Christoph Trebesch, assessing 144 years of data in 20 rich countries over more than 800 general elections, more than 100 financial crises and historical data on street protests, discovered that there is a very strong link between financial crises and the subsequent growing popularity of right wing nationalist groups. Specifically, in the five years following a financial crisis, far-right votes grow by about one-third – this means actual Parliamentary representation.
This is unsurprising, as the study explains, given the fact that financial crises, unlike normal recessions or even severe non-financial macroeconomic shocks, negatively impact not just employment, but also asset values (property, stock markets). Consequently, the pain of financial crises tends to be greater, and the recovery weaker and more prolonged. Furthermore, financial crises are often viewed as the direct result of the failure of a specific group – governments, banks, etc., rather than external events such as oil price shocks, natural catastrophes or wars, for which it is harder to attribute blame to a specific group. Financial sector bailouts and disputes between creditors and debtors that are more inherent in financial crises are also likely to cause more widespread social dissatisfaction than non-financial shocks, as well as the potential for rising inequality following a financial crisis.
This causes the disenchanted and disaffected to seek out someone to blame, abandoning the major centre-left and centre-right political parties that they see as having failed them, and jumping on the bandwagon of the attractive easy solutions offered by radical right wing nationalist (and sometimes xenophobic) parties (radical left wing parties also grow in popularity, but to a lesser extent). And not just at the political level – street protests, including general strikes, violent riots and anti-government protests increase in number as well.
This is why now, following the biggest financial crisis since the Great Depression, we see the rise of right wing nationalist parties in Europe blaming the EU for, among other things, perceived excessive immigration. Far right and far left populist parties have doubled their vote shares in Britain, France, Finland, Sweden, Portugal and Japan. On average, the far-right vote share approximately tripled between 2004 and 2014 across Europe (from 5% to 15%). Of particular note in European elections are:
·
Austria’s
Freedom Party at 35.1% of the vote
·
The Swiss
People’s Party at 29%· The UK Independence Party (UKIP) at 28%
· The Danish People’s Party at 27%
· Front National in France at 25%
· Hungary’s Jobbik at 21%
And though several of these shares have declined since 2014, they are still much higher than their pre-crisis levels.
Brexit too was driven by dissatisfaction with the EU and perceived excessive immigration from Poland. In the US, Trump’s success was, at least partially, due to his capitalisation on/ fuelling of anger towards Mexico, China and the establishment’s trade policies. Even in Australia, where the GFC was largely avoided, their two major centre-right and centre-left parties have experienced shrinking majorities following the increasing popularity of Pauline Hanson’s nationalist One Nation party, Nick Xenophon’s populist party, and “more crossbench odds and sods” (The West Australian, Centrists up against history, 12 December 2016).
On average, street protests also more than double following a financial crisis, especially anti-government demonstrations (as opposed to violent riots or general strikes), and recently especially in Greece and Spain.
And this is a pattern consistent over history. The most obvious examples are during the interwar period in Germany and Italy, but also elsewhere around the world:
· Following the post-WWI global recession and the Italian banking crises of the early 1920s, Mussolini gained 19.1% of the vote in 1921 and about 65% in 1925
· Following the breakout of the Great Depression, the Nazis gained 18.3% of the vote in 1930 in Germany, over 30% in 1932 and over 40% in 1933
· Far right parties gained in Belgium in the 1930s, e.g. the Rexists and the Flemish National Union
· Denmark’s National Socialist Workers’ Party in the 1930s
· Finland’s Patriotic People’s Movement
· Spain’s Falange
· Switzerland’s National Front
· The UK’s Independent Labour Party and National Liberal Party which both broke away from the Labour and Liberal parties respectively before the 1931 election
· Australia's New Guard, the Emergency Committee of South Australia in 1931 and other groups, and WA’s vote to secede from the rest of Australia (which obviously didn’t take)
· Canada’s Reconstruction Party and the Social Credit Party, both in 1935
· The US’s Wisconsin Progressive Party.
But there was also similar growth in nationalistic sentiments and government representation following the Scandinavian financial crises of the late 1980s/ early 1990s:
· The right-wing populist Norwegian Progress Party increased their share of the vote from 3.7% in 1985 to 13% in 1989 – two years after the crisis broke out
· The Danish Progress Party grew from 3.6% to 9% over the same period
· Right wing parties in Sweden grew from less than a 1% share before their 1990 crisis to 6.8% in 1991, including the right wing populist party New Democracy
· Italy’s North League won 55 seats in the first election after the outbreak of the 1990 crisis.
These trends tend to last for about a decade from the crisis, which means we may still have a couple of years of right-wing nationalism and street protests left. Furthermore, given this rise in the power and number of other (right wing) parties and decline in centre-left and centre-right parties, governing becomes much more difficult because no one party controls sufficient power to achieve their party’s goals. Consequently, the public becomes even more disenchanted with the establishment, sowing the seeds of potential disastrous international conflicts when governments and the public start looking for international scapegoats for their troubles. So ironically, this disenchantment with the establishment actually has the potential to create more problems than it solves, especially in a post-crisis environment when decisive government actions are required, slowing the recovery even further.
This really does highlight the importance of macroeconomic management, not just in maintaining and furthering economic well-being, but also in maintaining political stability. Delayed and (in the case of their austerity policies) counter-productive economic responses to the GFC and sovereign debt crisis in Europe caused deep economic contractions, price deflation and soaring unemployment, sowing the seeds of significant political tensions, with the rise of right-wing nationalist parties very much threatening to pull the EU apart. In the US however, despite being ground-zero for the GFC, their economy was largely kept afloat with swift and strong monetary responses. Australia too was largely sheltered from the GFC. But for both the US and Australia, inadequate fiscal stimulus has arguably led to a more prolonged and less complete recovery than ideal, as well as their own brands of inward-looking nationalism. And the additional pressure this fiscal impotence has put on monetary policy to keep the economy afloat – and arguably inadequate financial market reforms – could be causing greater problems down the line.
History really does like to repeat itself. Is it too late to nip this in the bud before everyone turns their back on the world?
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