According to many, today's referendum on constitutional reform in Italy has turned into a vote of confidence for Renzi's government, with strong support for extremist populist parties like Lega Nord and the Five Star Movement advocating a "no".
More generally, Figure 1 illustrates the ongoing rise of extremist populist right-wing parties in some Western-European countries. The bars in the figure give the annualized percentage change in the vote share between the latest election and the latest available poll. For example, in the Netherlands Geert Wilders' PVV got 10% of votes during the latest election in 2012, and this number would rise to 19% if elections were held today. This gives an almost 100% increase in the vote share over a period of 4 years, or almost 25% per year. Moreover, countries are ranked by date of the next general elections in March 2017 in the Netherlands, April 2017 in France, September 2017 in Germany,.... What is striking from Figure 1 is the rise of extremist populist right-wing parties in many countries, especially in those countries that will hold elections relatively soon.
Percentage of votes gained since the latest election by populist right-wing parties in Europe (in annualized %, countries ranked by date of next general election)
What do economists have to say about this rise of extremist populist parties? Intriguing ongoing research by David Autor, David Dorn, Gordon Hansen and Kaveh Majlesi provides some answers. Their research argues that anxious voters change their voting behavior, and that this could go some distance towards explaining Figure 1. Their research makes at least three important contributions:
1. The turn towards extremist populist politics will not go away in a hurry. Autor et al. show that voting behavior by elected politicians on proposed bills in US Congress has become increasingly polarized towards more extreme liberal-Democrat and especially more extreme conservative-Republican ideologies (at the expense of more moderate views) since many decades. Also in Europe, extremists populist ideologies are not new. The French Front National was founded in 1972, and Italy's Lega Nord in 1991. And some of the other parties mentioned in Figure 1 were founded much more recently, but mostly as spin-offs from centre-right parties by politicians with more extreme-right ideologies.
2. The kind of anxiety that affects voter behavior is (in part) related to voters' adverse economic outcomes. For example, it might well be that the imminent threat of a terrorist attack makes voters more anxious, and that this affects their voting behavior. But what Autor et al. show is that also economic shocks that badly affect an individual's economic status are important drivers of voting behavior. For example, they show that those US regions that are more exposed to import competition from China are more likely to vote for a conservative Republican. In general, what this suggests is that economics matters for understanding voting behavior. That is, what matters for understanding the numbers in Figure 1 is the way in which markets work (with their frictions and institutions) in response to shocks, and the way in which this affects the different factors of production (i.e. different types of labor and capital). An example is the recent economic crisis, leading to an increase in unemployment rates in Europe. At the same time, the perception has grown that markets have not been distributing the burden of this crisis equally among workers of different age or education, across wages and profits,.... And this has lead to an increase in anti-market and anti-establishment sentiments that have been exploited mainly by extremist populist parties as Figure 1 illustrates.
3. Autor et al. also provide evidence that anxious voters change their voting behavior in a very specific way. Namely towards more extreme ideologies both at the left and right but especially at the right, leading to a J-shaped pattern of political polarization. This is an important finding because it goes against the intuition that, say, unemployed workers are always more likely to vote for a left-wing party that supports higher benefits. Political polarization also goes against the idea that there is a monotonic shift to the right in face of adverse economic shocks. Of course, one would like to know what exactly explains this pattern of J-shaped political polarization, and also here Autor et al. provide some guidance by discussing a number of possible hypotheses. One hypothesis is that political polarization results from increased competition for scarcer resources among anxious voters, and that this increased competition at a political level plays out along ethnic or religious lines (rather than income). Another hypothesis is that politicians are opportunistic and strategically advocate populist (e.g. anti-establishment, against the status-quo) ideologies to rally support among voters that are distressed and are therefore hold more extreme views. No matter what the precise channels are through which extremist populist right-wing politicians are best able to exploit voter anxiety, the results in Autor et al. imply that it will be difficult for moderate and even more leftist parties to call a halt to Europe's right turn.
To conclude, questions about the interplay between market economies and political outcomes in democratic societies have stood at the core of economic science since the works by Adam Smith and Karl Marx 150 years ago. Today, these questions seem more relevant than ever, and luckily we have some research that helps in finding some answers.