Economic Growth

Here are 3 facts you need to know about inequality and populism

A police officer and a street cleaner walk past 10 Downing Street, in central London, Britain June 15, 2017. REUTERS/Phil Noble - RC1EC1ECD900

A tale of two cities: A street cleaner walks past No 10 Downing Street in London Image: REUTERS/Phil Noble

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Why are democracies around the world failing to curb rising inequality? What explains the ascent of populist parties and politicians? In a recent paper, French economist Thomas Piketty argues not only that inequality and populism are linked – but that both can be explained by dramatic shifts in the traditional two-party system that favour different elites.

Citing historical data from France, Britain and the US, Piketty suggests that left-wing parties, which used to attract and represent less educated voters, are now more associated with highly educated voters. Right-wing parties, on the other hand, have consistently attracted and represented wealthy voters. As a consequence, “low education, low income voters might feel abandoned.” In short, the rise of populism is related to what Piketty calls “the rise of elitism”.

The author of the bestselling Capital in the Twenty-First Century analysed post-electoral surveys from 1948-2017 from the three countries, which have very different political systems. Strikingly, he found the same major trends affecting all three. The increased influence of educational and economic elites over the party system, he argues, “can contribute to explain rising inequality and the lack of democratic response to it, as well as the rise of ‘populism’”.

His argument sheds light one of the most puzzling phenomena in modern politics and economics, namely, that economic growth does not seem to be translating into better living standards for everyone. In fact, as an analysis by the World Economic Forum has shown, stronger growth has not relieved widespread social frustration over inequality and economic insecurity. Piketty's research raises the question of who is representing those at the bottom of the social pyramid.

Here the top three findings from Piketty’s paper, “Brahmin Left vs Merchant Right: Rising Inequality and the Changing Structure of Political Conflict”:

Highly educated voters tended to vote for the right, but now tend to vote for the left. Image: Thomas Piketty

1. The rise of the “Brahmin Left”

Piketty notes that the 1950s-60s were characterised by a class-based system split by wealth and education. Left-wing parties in France, the UK and the US tended to attract voters with lower education and lower income. Right-wing parties tended to attract more educated and wealthier voters. The left therefore promoted the interests of the poor and less educated, for example by calling for redistribution and other measures to improve equality.

But since the 1970s-80s, the left has gradually attracted more educated voters, to the point where what Piketty calls the “intellectual elite” – the “Brahmins”, after the traditionally highly educated category in the Indian caste system – now votes for the left.

In fact, “the higher the education level, the higher the left-wing vote.” In the US, for example, university graduates in the 1950s-60s voted a lot more for Republican candidates; now they vote more for Democratic candidates. This effect intensifies the more educated a voter is. In 2016, 76% of US voters with PhD degrees voted for the Democratic candidate, compared with 44% of high-school graduates.

In Britain, the educational cleavage has been more marked and rigid. It was very rare for educated voters to choose Labour in the 1950s-60s, and it took a very long time for them to shift towards the left. Piketty attributes this to Britain’s more entrenched class divisions.

Why did educated voters change their minds? Piketty says that further research is needed, but one reason may be globalization and migration. Highly educated voters may benefit more from economic and cultural openness, and may vote for the left because of its generally more internationalist outlook.

Highly educated voters tend to choose left-wing parties. Image: Thomas Piketty

2. The persistence of the “Merchant Right”

While the educational left-right split has been reversed, the split along wealth lines has persisted. In all three countries, voters with higher wealth and/or income – the “Merchants”, or business elite - tended to vote for the right in the past, and still do so now. Right-wing parties have generally promoted policies that benefit high earners, such as low taxation. This means that both sides of the political spectrum now represent groups that are already influential, be it in intellectual or economic terms.

In the US, for example, Piketty observes that the educational elite votes for Democrats, while the high earners vote for the Republicans. In Britain, “high education voters now strongly support Labour, while high-income voters strongly support Conservative.” In France, too, high education veers left, while high income veers right.

It is striking that this overall trend holds true for all three countries, despite their profoundly different systems and histories.

High-income voters in the US have tended to vote Republican, until the last election. Image: Thomas Piketty

3. Where does this leave poor and less educated voters?

Piketty believes that the current, elite-dominated system may continue to evolve. One possibility may the emergence of a new split between educated, high-earning, pro-migration “globalists” and less educated, poorer, anti-migration “nativists”. As Piketty says: “Globalization and educational expansion have created new dimensions of inequality and conflict.”

In recent elections in France and the US, for example, high-earning voters were shifting towards the more left-wing Emmanuel Macron and Hillary Clinton respectively, perhaps signalling a globalist-nativist realignment. In Britain, Jeremy Corbyn’s pro-redistribution stance makes this high-income shift to the left less likely, according to Piketty.

Piketty’s analysis may partly explain the rise of the populists. It also shows why economic growth alone has failed to quell social dissatisfaction around the world. In a system of multiple elites, no major party has a strong incentive for ensuring that growth is inclusive. And without political action, inequality is likely to persist or even worsen. Those left behind may find themselves underrepresented by mainstream parties, and are more likely to seek out alternatives.

This chimes with some of the findings of the World Economic Forum’s Inclusive Development Index, which provides evidence that growth alone does not foster socioeconomic progress. According to the Index, growth is in fact rather weakly correlated with indicators of broader social inclusion, such as employment and inequality. Taken together, Piketty’s historical analysis and the Forum’s data highlight inequality as one of the most pressing issues of our time – with the power to dramatically reshape our democracies.

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