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Centrist political parties are losing ground at an unprecedented rate, as voters across advanced economies turn from the traditional left/right political axis to more extreme populist or liberal ideologies – from Brexit in the UK to Donald Trump’s election in the US to the rise of nationalist parties across Europe. Here we assess the causes of this unparalleled shift – and the implications for the global economy and financial markets if the Policies of Rage begin to be enacted.

Driven to extremes: Plotting the fall of centrist politics

The first signs of voter rejection of centre-left and centre-right parties emerged in the early to mid-2000s but have only become clear following the 2008/09 global credit crisis as the move away from the centre accelerated. The centre vote share has collapsed across advanced economies by an average of 12% since the 1990s and by more than 50% in Austria and Greece – a trend that is unprecedented, even during the Great Depression years.

Amongst advanced economies, only Japan and commodity-exporting countries (Australia, Norway, Canada and New Zealand) have so far avoided a sharp drop in the centre vote share. But this could quickly change if commodity prices fail to recover.

Combined vote share of centre-right and centre-left political parties in advanced economies

Source: Barclays Research

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The Six Policies of Rage

The alternative parties and candidates riding the wave of voter anger, from whose platforms we draw the six Policies of Rage, defy easy characterisation on the usual left-right political spectrum. Some have arisen only in the past few years. Others are longstanding fringe parties finding new appeal.

Although their policies are mixed, common themes emerge. In order of importance from left to right, these are Sovereignty, Representative Reform, Immigration, Trade, Redistribution of Income and Anti-Corporatism.

Based on assessment of 17 parties across 14 countries.
Source: Barclays Research

 

Flipping the political axes

Political centre: the share of voters choosing traditional centre-right or centre-left parties in elections.

Alternative parties: non-centre parties on both the right and left gaining vote share at the expense of centre parties.

Aristokratía: the educational, business or government ‘elites’ within countries.

Dēmos: the ‘ordinary citizens’ not part of the Aristokratía.

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Watch Barclays' Marvin Barth’s explanation of the six Policies of Rage, how the political axes have flipped, and how deglobalisation will lead to redistribution even if policy doesn’t do so directly.

Analyst: Marvin Barth - Head of FX Strategy, Barclays

Sovereignty: The hunger to take back control

As might be expected, there is evidence that falling support for the political centre is related to stagnant median incomes, and the impact of trade and immigration on middle earners.

Of the 17 alternative parties and candidates that we survey*, operating in advanced economies today, 16 demand greater protection of, or retaking of, national sovereignty.
 

But the deepest cause of voter rage is a sense of political disenfranchisement which has fuelled the almost universal campaign pledge by major alternative parties to reclaim sovereignty – see graph.

This loss of faith in governments and a sense that ordinary citizens have no say has been compounded by the trend towards political globalisation and the delegation of sovereignty to supranational organisations (the EU) and intergovernmental arrangements – both present (World Trade Organisation, North American Free Trade Agreement) and future (Transatlantic Trade Investment Partnership and Trans Pacific Partnership).

Disenfranchisement appears to be more widespread among lower-education citizens who tend to provide the greatest base of support for alternative parties.

*The 17 parties and candidates surveyed are: Austria: Freedom Party (FPÖ), Belgium: Vlaams Belang (VB), Denmark: Danish People’s Party (DF), Finland: Finns Party, France: Front National (FN), Germany: Alternative für Deutschland (AfD), Greece: Coalition of the Radical Left (Syriza), Italy: Five Star Movement (5SM), Lega Nord (LN), Netherlands: Party for Freedom (PVV), Spain: Podemos, Sweden: Swedish Democrats (SD), Switzerland: Swiss People’s Party (SVP), UK: UK Independence Party (UKIP), Jeremy Corbyn, US: Donald Trump, Bernie Sanders.

Change in centre vote share (1990s-2016) vs belief people have a say in what government does

Notes: Average response from 0 (‘Not at all’) to 10 (‘Completely’) to question: ‘Political system allows people to have a say in what government does’ post-stratification weights used for country-level responses.
Source: European Social Survey Round 7 Data, Norwegian Centre for Research Data, Barclays Research

Globalisation: Trade and immigration drive voter rage

Globalisation and, in particular, its effects on trade and immigration, is a fundamental cause of voter discontent. Among the countries we studied:

  • There is a negative relationship between overseas trade as a percentage of GDP and support for centrist parties.
  • The degree to which residents of a country believe immigrants are taking more than they put in corresponds with the degree of deterioration of the political centre.
  • Whereas low levels of immigration are complementary to median earners, too much immigration appears to hurt median incomes – suggesting that the angry are not necessarily irrational.

An implication of the Policies of Rage is a reversal of the process of globalisation that has occurred since World War II. Anti-trade and anti-immigration policies explicitly aim to reduce globalisation by making it more costly. The pursuit of sovereignty may also indirectly deglobalise by making it more difficult to reach accord on international trade agreements and regulation.

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Income inequality: Important – but not instrumental

A common stance by G20 countries is that the Politics of Rage are driven by income inequality and can be addressed through fiscal policy (i.e. tax and spending).

  •  Economists point to the stagnation of incomes among median earners in advanced economies during the 20 years of intense globalisation from 1988-2008 – see graph, right.
  • But there is little evidence to suggest income inequality is driving the move from the centre. Fewer than half of alternative parties advocate redistribution of income or anti-corporatism.
  • We find little evidence to suggest that fiscal expansion helps to fend off voter anger, and indeed we find some evidence that it may worsen it.
1988-2008 change in real income by income percentile of population

Source: LM-WPID, Barclays Research

US productivity and employment by educational attainment

Source: US Bureau of Labor Statistics

Technology: Job destruction nourishes the roots of rage

Alongside globalisation, technological progress is likely to continue to exacerbate the causes of voter discontent, as labour demand is tilted away from low-education workers.

Automation has historically created more jobs than it has destroyed. Now, economists argue, it is destroying jobs faster than it creates them. This is contributing along with globalisation to a flatlining of employment among the least educated – see graph.

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The macro implications - What economies and markets can expect if the Politics of Rage are enacted

The global economy

Less harmonisation of trade would mean slower pace of trend economic growth, most heavily affecting emerging markets.

Restrictions on movement of labour and goods would drive up labour costs and prices and therefore increase ‘cost-push’ inflation. However, export-dependent emerging markets could see inflationary pressures fall as overseas demand for goods declines.

Fiscal policy would be mixed for advanced economies, but would need to be more expansionary for emerging markets to compensate for trade losses.

Global savings should fall as income is shifted to those most likely to spend it, putting further pressure on interest rates to rise. But the pattern should shift, ironically, to decrease advanced economy current account balances relative to emerging markets.

Financial markets

Interest rates - Global nominal interest rates should rise, more so in major economies; differences in rates should increase.

Currencies - Currencies in the G10 would generally outperform as emerging markets suffer the impact of de-globalisation. Individual currency performance is also likely to diverge far more.

Commodities - Reduced global demand would dominate the outlook for commodity prices and have serious economic consequences for commodity-producing economies.

Capital markets - Equities and corporate bonds would face a poorer outlook as revenue growth slows and corporate margins are squeezed. But performance by country and sector may vary greatly as deglobalisation – like globalisation – creates its own winners and losers. 

Volatility - More extreme deviations in returns are likely as markets react to the Politics of Rage, but a long-term increase in volatility is unlikely.

Under the Policies of Rage, capital market performance by country and sector would vary greatly as de-globalisation – like globalisation – creates its own winners and losers

Where do we go from here?

The Politics of Rage are playing out over a multi-decade horizon. Elections in 2017 in the Netherlands, France and Germany offer numerous opportunities for non-centrist politics to build momentum. Although the Policies of Rage have not yet been enacted in many countries, many of their de facto effects are already being felt:

  • Multi-lateral trade pacts, TTIP and TPP, are gravely wounded
  • Basel IV negotiations have stalled
  • Global trade growth has been in decline since 2008
  • The Schengen area of labour mobility has seen several borders indefinitely closed.

The Politics of Rage is not a passing phase. Even if non-centrist parties fail in their electoral bids in the next year or so, they are likely to remain a powerful political force. This will remain the case until the sense of disenfranchisement among voters and the negative impacts of globalisation are addressed. 

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Read the full report

Authorised clients of Barclays Investment Bank can log in to read more in the Equity Gilt Study 2017, FX Views For The Year Ahead and Thinking Macro: The Politics of Rage, and subscribe to #europeanelections on Barclays Live.

For further information about Barclays Research offering, please contact: barclayslive@barclays.com.

About the analyst

Marvin Barth is a Managing Director and Head of FX Strategy, leading the firm’s global FX research product from London. Prior to joining Barclays in January 2014, Marvin spent five years as a strategist and as a portfolio manager in the US for Covariance Capital Management and Tennenbaum Capital Partners, spanning multiple liquid and illiquid assets. Previously, he spent three years at Citigroup in London and was responsible for the firm’s fundamental economic views on the G10 FX markets.

Marvin also has extensive policymaking experience as the former Chief Economist for International Affairs at the US Treasury Department, as well as an international economist at the Federal Reserve Board and at the Bank of International Settlements.

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