Searching for the kryptonite against populist superpowers

Anyone just about recovered from the Brexit shock should spare a thought for Italy. About a decade ago, many middle-class Italians considered Silvio Berlusconi, a populist billionaire convicted of bribery and tax fraud, and known globally for his “Bunga Bunga” parties, to be the worst-case scenario for their nation. After the March 4th election, many middle-class Italians now find themselves rooting for Berlusconi, given that two even more populist parties, the leftist Five Star movement and the far-right League, appear likely to become the largest parties in parliament. The lesson from Italy’s troubles? Under the right circumstances, populists have political superpowers. Once populists start winning, it is very hard to get rid of them. The definition of a “populist” is a politician who campaigns on behalf of the people against a corrupt elite. To quote President Trump’s classically populist formulation: “On every major issue affecting this country, the people are right and the governing elite are wrong.” That approach tends to dictate tactics for populist candidates. In a democracy, if the (numerous) people are right and the (narrow) elite are wrong, the people ought, by rights, to get their way. If they cannot, there is something wrong with the system. And so, in most cases, populists end up claiming that the political system is broken. Again, quoting Donald Trump: “I have joined the political arena so that the powerful can no longer beat up on people that cannot defend themselves. Nobody knows the system better than me, which is why I alone can fix it.” Of course, the Brexit campaign was, in a rather literal sense, about fixing a...

Political risk has come home, and we must combat it

The past decade has upended my profession almost entirely. I work in political risk, and my job is to advise companies how to manage political and economic instability. A coup in Turkey, sanctions against Russia, unrest in Venezuela, debt default in Argentina – such risk events are the bread and butter of political risk analysts such as myself, and of political risk underwriters who offer insurance policies against such perils. Until recently, these risks occurred almost exclusively in emerging markets such as Turkey and Russia. No one ever asked us to analyze the politics of the Netherlands. No one ever tried to buy political risk insurance against civil war in Canada. To have done so would have been preposterous. Indeed, the absence of political risks from the “advanced economies” of North America, Western Europe and Japan was almost definitional. The certainty that politics would not impact business operations was what made these countries safe havens for investment; it was part of the formula that enabled these countries to become, and remain, rich. The Eurozone crisis changed all that. Greece’s sovereign default in 2012 was the first default by a rich, industrialized country since World War II. (And even during World War II, defaults were rare.) It was an event that most people had considered inconceivable. For Greece, the economic costs of political uncertainty turned out to be enormous. Perhaps hoping to stave off cognitive dissonance, in 2013 Morgan Stanley Capital International duly reclassified Greece as an “emerging market.” Such risks are not limited to Europe. In 2011, the US lost its AAA debt rating from Standard & Poor’s, in...

The cost of Brexit

Sam explains why Brexit will be costly for the UK economy, regardless of the modelling assumptions used. (Sorry about the low talking: the day before I had given five hours of back-to-back media interviews to promote the Dutch edition of my book, and managed to lose my...