Has Covid-19 overwhelmed populist governments?

Populism has suffered a set of defeats at the hands of Covid-19 as it showed its weaknesses. Is the ‘Establishment’ now back in charge, asks John Redwood.

Before the coronavirus hit, I asked if populists could govern as populists? At the time, markets were worried by the rise of anti-uro populism in the European Union, and by some of the views of Donald Trump in the US and Jair Bolsonaro in Brazil. Some investors were troubled by their attacks on parts of the established world and governmental order based on treaties and world institutions. They saw the populists trying to subvert or evade the guidance and rules of the UN, the World Bank, the climate change conferences, the World Trade Organisation and the EU.

My answer then was that I doubted the populists would both seize control and then govern as populists in the euro-area. Syriza had swept to power to demand a change of euro policy in Greece, only to buckle when the EU said “no”. The AfD, adding anti-migrant policies to scepticism about the euro in Germany, has never reached a level of polling where they could win a majority, and have always been kept out of ever wider governing coalitions.

Lega and Five Star in Italy produced an unlikely radical coalition to force change in austerity policies visited on their country by the euro controls, only to see Five Star change its mind and go into coalition with the old centre-left establishment party instead. Lega left the government to try to force an election, but so far has not succeeded.

I thought populists had more chance of wrestling their agenda through non-EU states. It was not going to be easy, as they would have to work with parts of the global establishment in their own countries that wished to uphold the international treaty-based systems. They would face political opponents whose main purpose would be to expose their divergence from global rules and try to force them back on to them. There was plenty of noise when Mr Trump took the US out of the climate change agreements, and even more when he started to use tariffs based on a doctrine of national interest to change the balance of power in global trade.

Power struggles won

The early months of the Trump presidency were gripped by a struggle for power within the administration. Some of the senior people appointed to run the big departments and sit round the Cabinet table thought that they could just humour or ignore the president when he sent out tweets that were irreverent to the world order. Mr Trump himself did not see that as mere entertainment, but as instructions to the government he wished to lead. Various sackings had to follow. The president eventually established a team of people who were prepared to work with him, as well as for him. More of the tweets led the actions of the government.

While Mr Trump could blow hot and cold, shift his views, and try out ideas in his social media life, there was an iron strategy underneath all he did. It was based on delivering his key campaign promises on jobs, incomes, borders and trade. If climate change conferences and treaties got in the way of building self-sufficiency in oil and gas they were cancelled. If trade rules got in the way of tackling China on technology theft, he went ahead and tackled them. If the Pentagon wanted him to intervene militarily in the Middle East, worrying about loss of influence and military position, he would decline to send in troops or even the bombers if he could see no advantage for his domestic economic strategy. Mr Trump was proving that you can govern as a populist. Around half his country liked it and half condemned it.

Playing politics with health

When Covid-19 arrived, his first instinct was to downplay the impact. It did not fit in with the central strategy of speeding growth, getting even more people into work and driving up wages. The president had no wish to transfer government of the US to the WTO and its policies. He saw that much of the domestic advice in favour of lockdown was strongly supported by Democrat-inclined experts, of the kind he had sought to replace in government. His instinct as it spread was to take command and lean on the side of looking after and protecting the economy, only to discover state governors could order and maintain their own lockdowns whatever he thought.

He decided to politicise the virus and rally his Republicans to the cause of the economy. The truth is he lost his battle to keep control of policy. Events, the power of the virus and the division of powers within the US Constitution meant the US did have to bow to much of the WTO’s approach, despite the critical comments of Mr Trump. The man who had left the Paris Treaty, ridden over the WTO, argued the Fed into agreeing with his wish to have lower rates and looser policy, and bamboozled Republicans into a populist mix of both lower taxes and higher state spending, had met his match with the WTO. Few would have predicted that a year ago.

No carnival for Bolsanaro

The president of Brazil has encountered even worse difficulties. Shrugging the virus off as a bad cold, he wanted to power on with his economic revival policies. State governments, political opponents and the surge of infection, plunged parts of Brazil into lockdown against his wishes. He now faces the twin problems of a virus still not under control and a badly damaged economy. He has been flirting with people who fancy a return to military rule, which has added to negative comments and fears about his rule.

Populism has suffered a big set of defeats at the hands of the virus. It has also intensified the views of conspiracy theorists among their supporters that the Establishment has just found a new way to stop them having what they want. They see the lockdowns as the ultimate triumph of an Establishment that never liked them. Expect more social media attacks on the WTO from those who have lost their jobs and think that the virus threat has been exaggerated.

Populism is no longer a worry for markets. The policies of the global Establishment are now centre stage. The Establishment has taken very visible control and now argues with itself over when and how to relax the policy to control the virus in order to rescue more of the economy. If it sticks to the idea that normal life cannot be restored until there is a worldwide vaccine, the economic damage will be large.

All incumbent governments are at risk of voter revenge if the economic damage is too big and lasts for too long. The new battles may entail the Establishment taking on a few of the more national features of populist policy, as people demand more local resilience in supply chains and object to the way some multinational companies and their state sponsors behave.

John Redwood is chief global strategist for Charles Stanley.