Rise of Populism a Long-Term Economic Risk

Populism has a negative impact on the long term economic outlook of Europe and Central Asia but short term growth is expected to accelerate in the region–according to a new report from the World Bank.

It says although new jobs have been created, incomes are stagnating and there is rising inequality, Euronews reported.

This increases social fears as reflected by the Brexit vote and reactions to Europe’s refugee crisis. A perfect situation for populism to grow.

Societies can handle one-time shocks but continuing bad economic news contribute to negative expectations, and therefore to a lack of confidence in mainstream parties.

Voters move away from centrist positions and as the report shows, there is even a correlation between under-performing GDP growth and the rise of populism.

World Bank’s chief economist for Europe and Central Asia region, Hans Timmer, in an interview with Euronews said: “The anxiety that is reflected in the voting for more populist parties is rooted in anxiety about the changes in labor markets, the lack of job security. And the risk is going forward, that the problems that these people encounter is not being solved. There are dramatic changes, both because of globalization and because of new technologies that are very difficult for people to absorb, and societies probably need a new social contract; a new way of dealing with the new labor market.”

Job insecurity means all the new jobs that are being created are either part-time jobs or they are temporary jobs and the kind of full-time, more permanent jobs are becoming more and more scarce. So, what governments can do is help people to adjust to that new situation. That means social protection systems that in the past were strongly linked to big companies where people would work for a long time now have to be de-linked from those companies and become much more broader and available, he said.

“I think the general experience is that protectionism will reduce growth and will reduce the ability to adjust to new circumstances so that can never be the answer. I think Brexit is a good example. What is happening at the moment is unlikely to solve the problem of the people in the rust belt that lost their jobs, that lost their permanent jobs. I don’t think a solution is in the making. A strategy should be focused on the people that have to get adjusted to new kinds of jobs. You don’t do that by just closing borders,” he concluded.