Monday, December 21, 2009

Why is there so much less populism in economic policymaking?

FT's Martin Wolf argues in his December 15 op-ed on "Cold war victory was a start and an end" that "transition countries have made few reversals of reforms. As the EBRD report notes, "government changes since early 2008 have either led to no change with respect to the reform stance, or indeed favoured pro-reform parties". This is quite consistent with what is happening in the emerging world, more broadly."

He explains that decline in economic populism is due to the fact that "the absence of a credible alternative economic model is evident. Populist adventurism also seems unattractive".

A big question, which I have raised in my paper on "The Coming Golden Age of New Europe", is what explains such relative lack of economic populism. Is lack of an economic alternative a sufficient explanation? This smacks of Fukuyama's end of history, which didn't happen. And why is populist adventurism suddenly unattractive? it is because of intellectual trends, globalization, the power of global financial markets which force countries to "behave"? Is it really different this time?

Another important question is whether such economic nirvana will last. I have serious doubts. Human nature doesn't change. Crises will happen, and soon, particularly in emerging markets. Extrapolation of the last decade of superpowered global economic growth into the future may make as much sense as extrapolating the future of the world in 1989. I argue in the Golden Age paper that New Europe will be much more resilient to economic populism than other emerging markets, owing to the EU straitjacket of institutions and the rule of law. Other emerging markets don't have it and have not much to rely on. Yet, I am yet to prove it, but can feel it in my gut that good times in the emerging markets, including BRICs, will not last...

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