I recently met a well-known American economist and trade expert at a gathering. In the conversation, we mentioned the North American Free Trade Agreement (NAFTA) and how Donald Trump wants to renew negotiations on that agreement, because he blames it for the problems of American workers. "I never thought NAFTA was anything special," that expert told me.
I was stunned. My interlocutor was one of the most prominent and vocal supporters of the NAFTA agreement when it was concluded almost a quarter of a century ago. Together with some other economists, he played a crucial role in winning over the American public for the formation of this trilateral trade bloc (Canada, Mexico and the USA). "I supported the agreement because I believed it paved the way for future trade agreements," my interlocutor explained to me.
A few weeks later, I found myself in Europe at a dinner where a former finance minister of one of the Eurozone countries was speaking. The topic was the rise of populism. The former minister left politics and now spoke bluntly about the mistakes that, in his opinion, were made by the European political elite. "We accuse the populists of promising what they are unable to fulfill. We should look at ourselves first," he told us.
Earlier that evening, I discussed something I call the trilemma, or rather the impossibility of national sovereignty, democracy, and hyperglobalization coexisting. I think you should choose two of those three goals. The former politician went on to say: "At least the populists are honest." They know what they want: a nation-state, not hyper-globalization or a single European market. The problem is that we have told our supporters that they can have all three benefits at the same time. We made a promise that we can't keep."
We can't know if more honesty on the part of mainstream politicians and technocrats would have spared us the rise of nativist demagogues like Trump or Marine Le Pen. But it is clear that this insincerity came at a price. It cost centrist movements their credibility. This makes it even more difficult for the elites today to bridge the gap that separates them from citizens who feel that the establishment has failed them.
Many people don't understand why poor citizens or members of the working class would vote for someone like Trump. The economic policies advocated by Hillary Clinton would probably benefit them more. To explain this alleged paradox, analysts refer to the rigidness, irrationality and racism of that part of the voting body.
But there is another explanation. It is in accordance with the rationality and personal interests of voters. Once mainstream politicians lose credibility, it's natural that voters will take their promises with a grain of salt. They are more likely to be attracted to candidates who have profiled themselves as anti-establishment fighters and who can be reliably expected to distance themselves from prevailing policies.
Translated into the language of economists, the politicians of the center have a problem of asymmetric information. They claim to be reformists, but why should voters believe them when they do not act any differently from those before them, who pushed globalization to the same voters, and then contemptuously dismissed their complaints about it.
In the case of Hillary Clinton, her close ties to the globalist mainstream of the Democratic Party, as well as the financial sector, only exacerbated the problem. Her campaign promised fair trade deals and ending support for the Trans-Pacific Trade Agreement (TTP), but did she believe it herself? While she was the US Secretary of State, she strongly supported the TTP.
Economists call this phenomenon pooling equilibrium - when all senders send the same message without revealing their true identity. Conventional and reformist politicians resemble each other and therefore arouse suspicion among the majority of the electorate. The votes they lose by sending the same message go to populists and demagogues, whose promises about how they will shake up the system seem more convincing to voters.
Defining the problem using asymmetric information points to a possible solution. The principle of message equalization can be overcome if a reformist politician manages to signal to voters his true views.
Signaling has a specific meaning in this context. It implies that a reformist politician has adopted behavior that is extreme for a conventional politician, but not so extreme as to turn a reformist into a populist. Assuming her conversion was real, Hillary Clinton should have sent a message that if elected she would never again take a dime from Wall Street or sign a single trade deal.
In other words, the politicians of the center who want to overshadow the demagogues have to balance on a thin wire. The difficulty of this task indicates the great challenge these politicians are facing. It requires new faces and younger politicians, uncorrupted by the globalist views of their predecessors on market fundamentalism.
In this sense, it should be openly acknowledged that politicians are elected for the realization of national interests. This implies a willingness to attack many of the sacred cows of the establishment - especially the freedom of financial institutions to do whatever they want, a penchant for austerity measures, a hostile attitude towards the role of the state in the economy, the unhindered movement of capital and the fetishization of international trade.
The rhetoric of the new politicians will sound incongruous and exaggerated to the average voter. This is necessary in order to protect voters from populist demagogues. New politicians should offer an inclusive, not nativist, conception of national identity, while their policies should remain within liberal democratic norms.
Everything else is up for debate.
(Project Syndicate; Pšečanik.net; translation: N. Radulović-Viswanatha)
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