Liberalism and the Populist Dilemma

Outline of the problem

Revelation (R)

Recent elections in the Western world enlightened the brightest minds with a revelation. The middle class has a problem and is revolting in, among others, France, the United States, the UK and Italy. What do these countries have in common? Not the role of the State and not the structure of the economy. One thing only: at least twenty years of globalization.

Our brightest minds argue that these people are right to vote for populist parties because mainstream politics is not able to address their issues and concerns.

Constraint 1: Fact (C1)

Every economic policy has winners and losers. Few exceptions. Liberalization of internal and external markets is a pro-growth policy that displaces workers in some industries and favors others. Theory suggests they should be reallocated to other well-performing sectors. In practice, they end up with crappy jobs and they vote for populist leaders, such as Trump or Le Pen.

Constraint 2: Ideological principle (C2)

Liberalism is against State interventionism. We should let markets adjust freely and favor structural transformations reshaping the economy towards more productive sectors. Any interference reduces competitiveness and the wealth of the nation.

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Puzzle

How is it possible to overcome problem R by not breaking the other two constraints C1 and C2?

At the moment the most popular solution is to become skizofrenic liberals and limit the application of principle C2 to the national borders. Despite the fact that tariffs make as much damage as a cartel or excessive wage rigidity and they can be compared to any other kind of state interventionism.

I am afraid that the process of crushing the ideological principle C2 has a long way to go before we fix problem R under the constraint C1. For a given institutional framework, to help people suffering from the effect of constraint C1 the only option is to roll back to the initial position. Any different scenario requires alternative types of State intervention.

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