The current rise of populism challenges the way we think about people’s relationship to the economy.

We seem to be entering an era of populism, in which leadership in a democracy is based on preferences of the population which do not seem entirely rational nor serving their longer interests. The re-election of Donald Trump is just the latest example

Professionally, I found the British people’s voting for Brexit the most disturbing (52 percent voted to leave, 48 percent to remain, on a 72 percent turnout). There was a compelling case that the British economy would be damaged by Britain leaving the European Union (although not as quickly as some claimed). One might favour ‘Leave’ because it would give Britain more control over itself, for international economic intercourse compromises national sovereignty. But the tradeoff is that cutting back trade reduces economic prosperity. Much of the public chose to ignore the tradeoff when they voted. Subsequently they found that the sovereignty gains were small, while the British economy has performed badly. An increasing proportion of ‘leavers’ regret the decision to leave. The economic analysis proved correct.

Populism is sometimes characterised as ‘the people’ rejecting the ‘Establishment’. During the Brexit campaign there was a strong undercurrent that since the Establishment supported ‘Remain’, the policy must serve them to the detriment of ‘us’. They now know that closer British involvement with the European Union was beneficial to many of them too.

It is easy at this stage to dismiss people taking a strong line against the Establishment as ignorant or worse. Recall Hillary Clinton muttering that many of the Trump supporters were ‘deplorables’ and there will be equally dismissive explanations of those who voted for Trump’s second victory – ‘racists’, ‘sexists’, ‘fascists’ ...

It might be wiser to recognise that these people have concerns which they may badly express, which they may badly diagnose, and for which they may have badly thought-through policy responses. But even so, those underlying concerns are real enough. There is no point in ignoring them and then being shocked at the following election when the holders again vote against the Establishment and even against their best long-term interests.

How often does one hear preaching rather than engaging with the audience? How often does one find that the preacher’s argument is self-serving? That does not mean that the argument is always wrong, the preacher is just not connecting. The case against Brexit was not wrong as we (almost) all know with hindsight; it was badly presented.

I’ll leave others to tell us about the populist vote which has returned Trump to power, and I’ll leave you to decide whether the opinions are self-serving or based on too narrow a perspective and information. Instead, here is a New Zealand example about how a government was not listening to even its own people.

In August 2023 Talbot Mills Research surveyed voters on their views on some non-economic issues. Four responses are revealing. The scores here are the percentage favourable less the percentage unfavourable by party voting intentions. The focus is on those intending to vote Labour but the equivalents for Green and All voting intenders are included for comparison.

• Labour Greens All

• Bilingual Road Signs 13% 56% 11%

• Māori Health Authority 16% 58% 1%

• Co-governance   10% 49% -5%

• Māori Wards in Local Govt  -13% 25% -26%

There was not a lot of enthusiasm among Labour voters for their party’s policies, especially when you compare the Green responses. The survey took place a few months before the 2023 election, where the party ad lost half of its 2020 support. Presumably the majority of the Labour leavers had views more like the last column of all voters, who were even less enthusiastic.

One must conclude that the Labour Government seemed hardly to be listening to its own supporters – let alone the nation as a whole. One is reminded of a parallel instance under the Lange-Douglas Government, when a small group of senior cabinet ministers pursued (neoliberal) policies which were an anathema to the party supporters. A Talbot-Mills survey in August 1990 which asked questions about Labour’s economic policy is likely to have shown a similar lack of enthusiasm.

It was a time in which half the population had no increase in their real incomes between 1986 and 1998, twelve years later. Around a third had to wait twenty-odd years before they got an income boost. But there was nary a mention of their struggles by the experts and acolytes of the Establishment, whose incomes continued to rise under the neoliberal policies of the time. I leave it to the elite to reflect whether they should feel guilty about their neglect; the point here is that they were not listening.

What would we hear from the non-establishment were we to listen? I am hesitant to answer that question. It is just too easy for the opinionated to pretend to listen and report their personal prejudices. However, allow me to raise the possibility that rising material GDP does not always make consumers feel better off, despite our having been indoctrinated into assuming it does. GDP measures output, whether the output be goods or bads.

For example, when Europeans first arrived in New Zealand, they wanted produce like flax, timber and food. Maori increased their production in order to acquire guns and other European goods in exchange. GDP increased but the guns led to the chaos of the Musket Wars which devastated the Maori population. This extreme example reminds us that increased material possessions need not lift wellbeing.

It may be that increased material consumption and possessions in the first half of the post-war era was associated with people feeling better off. But that may be less true in the second half. Hence the turning to populist demagogues who promise better outcomes (even if the promises do not get fulfilled as in the case of Brexit and, as seems likely, with some of Trump’s promised policies).

It is possible that once consumers have met reasonable material needs – not all have – additional consumption is more concerned with esteem needs so that there are few realised gains from just keeping up with Jones. (The implication is that traditional theory which equates consumption with wellbeing no longer applies.)

The populist phenomenon may not be only economic. The Talbot-Mills survey explored cultural responses. Another possibility is that many people are finding the rate of change is accelerating and they are finding it increasingly difficult to cope. That may explain why populism is currently dominated by conservative parties in affluent economies – Boris Johnson’s Conservatives in Britain, Trump’s Republicans in the US, New Zealand’s most populist part in NZF led by Winston Peters. (MMP may disperse the populist capture of a single dominating party; I resist going down some interesting consequential paths.)

Whatever the reasons for the rise in populism – there are more – it presents a challenge to liberal democracy. The challenge will not be resolved by ignoring the underlying concerns until the run-up to the next election and calling their holders ‘deplorables’ when they vote against the Establishment.