Populist lesson for Aussie economy

By Jack Derwin

January 20 2017
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With Brexit and the election of Donald Trump both riding the growing wave of populism around the world, an economist has warned Australian politicians to take note.

Economist and senior fellow of think tank Per Capita Stephen Koukoulas says the populist victories of 2016 demonstrate the dangers inherent in globalisation without compensation.

“There is a net benefit of global trade [but] it’s pretty clear what happened with globalisation is that the economic theory didn’t turn out in practice because the benefits of trade were accruing very strongly to the top end of town,” Mr Koukoulas told nestegg.com.au.

“The theory is that you specialise, compensate the losers and the economy is net better off, but the problem was that while our economies were better off, [the benefits] didn’t get to the people who were hurting.”

In the aftermath of the Brexit result, a breakdown of the vote showed that the ‘Remain’ and ‘Leave’ votes were largely cast along socio-economic lines, with those left behind in working class areas more likely to vote to leave the EU.

Source: BBC, Brexit vote by area

Meanwhile in the US presidential elections, Trump’s victory was partly attributed to his appeal in ‘Rust Belt states’, with his anti-trade rhetoric striking a chord with those hardest hit by the loss of manufacturing jobs.

“It reveals a lot of inequality and redistribution issues, and it shows that the people who do lose from globalisation [need to be] compensated through spending, tax cuts and these sorts of things that will stop them being so pissed off that they’ll vote for someone like Trump,” Mr Koukoulas said.

“If some of that wealth creation from globalisation had, through government policy, health, education, and tax policy, been allocated towards lower income earners or those particularly suffering the fallout from their industries shutting down in the US, the UK and Australia even, then we wouldn’t have this groundswell of support for these fringe players.”

With 2016 demonstrating the heavy political cost of a disenfranchised working class, Australian politicians may have to re-evaluate their economic policies.

“I think Australian politicians have taken note of all this and are trying to work out what it means. Both parties want to win the next election and they’re working out they can avoid a Trump or Pauline Hanson undercutting them one way or another,” Mr Koukoulas said.

“Maybe we’re going to have more progressivity in the tax system as a means of dealing with this problem from the major mainstream political parties in Australia. Maybe that is the solution.”

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