Right-Wing Populists Are Just as Bad for Business as Left-Wing Ones

They distort normal market processes to reward friends and punish enemies and undermine economic growth

L-R: Jair Bolsonaro, Viktor Orbán, Donald Trump, Narendra Modi (The UnPopulist illustration).

In the 20th century, economic and political systems could be situated on a simple 2x2 grid. Economic policies ran from left to right, while political systems could be arrayed from authoritarian to democratic.

Most U.S. business pegged themselves easily on this spectrum: they wanted favorable regulation and management-friendly policies of the sort generally pursued by the right. And while a few opened up shop behind the Iron Curtain, CEOs knew business prospered most under classically liberal democratic systems that upheld the rule of law and inalienable rights—including property rights.

The rise of populism in the 21st century has overturned this game board. Today, even supposedly right-wing populists exploit distrust, pessimism, and anger to make the case that government should wield a heavy—and often retaliatory—hand in markets. But while such interference by authoritarian leaders could once be portrayed as undemocratic, modern populists often bask in electoral support. Voters cheer as their elected leaders undermine rights and the rule of law.

Populism, in other words, has shaken the kaleidoscope of 20th century political and economic identities—and acting as if those labels still apply could be catastrophic for market economies. Modern populists from the right use right-wing rhetoric to sell what used to be left-wing economic ideas. And many marry the electoral aspects of democracy with authoritarian tactics to undermine the rights, institutions, and norms that create a stable business environment.

Economic and historical studies show that even supposedly pro-business populism is bad for business; countries that elect one populist tend to elect others, its effects creep well past a single election cycle.

This matters because populists are getting elected at a rate last seen in the 1930s. In 2018, they presided over nearly a third of global GDP, including mega-countries like India. Next year, with 40 countries (accounting for 44% of global GDP) going to the polls, they could control even more. Some come from the left, particularly in Latin America. But as in the turbid 1930s, many populist leaders like Jair Bolsonaro in Brazil, Narendra Modi in India, and Donald Trump in the United States hail from the right—deploying a trio of political strategies that characterize populists regardless of their avowed ideology.

First, populists win elections by deepening existing social divisions. By turning nearly every political question into a fight between a virtuous “us” and a deceitful, dangerous, disloyal “them” they create an intense base that is personally loyal to the leader and not any particular ideology. That base lets populists maintain strong voter support even as they centralize and personalize power, their second go-to tactic. Finally, by redefining democracy as majority rule, they can claim that anything that stands against their desires (as the embodiment of the majority) is anti-democratic. This rhetorical jujitsu lets them undermine checks and balances, once-independent institutions from judiciaries to statistical bodies, and the rule of law itself, depicting them as obstacles to taking radical steps to implement the majority’s wishes.

Right-Wing or Left-Wing Populists, the Same Economic Script

The dire economic effects of left-wing populism are well-researched. Leaders from Argentina’s Juan Perón to Mexico’s Andrés Manuel López Obrador nationalize businesses, politicize their management, and fill their ranks with supportive political appointees. They shower voters with government money come election time and overheat their economies. The result is often a short-term economic boom followed by a long, inflationary bust. It’s a form of economic meddling long derided by business leaders.

Yet Viktor Orbán, the Hungarian Prime Minister celebrated by Tucker Carlson, studied by Steve Bannon, and invited to Texas to keynote CPAC’s annual jamboree in 2022, undertook precisely the same policies.

Orbán first rose to power as a pro-business classical liberal, offering corporations the lowest flat taxes in Europe. But Hungarians voted him out. After reinventing himself as a populist, he regained power. Among his first moves was to force banks to redenominate home mortgages (often held in foreign currencies that had appreciated) at favorable rates, then to hit the same banks and a host of other firms with a new “crisis tax.”

While Orbán increased taxes on a variety of sectors, he also manipulated regulatory policy, such as capping the profits of utilities. The moves were supported by consumers—but they forced business owners into a position where they could no longer make a profit and were forced to sell to the government, at times under market value. Businesses that complained faced propaganda against “excess profits” and worse. “Banks and big companies enjoying a monopoly in Hungary must get used to the new situation,” Orbán postured. “The era of colonisation is over. Utility price cuts, the elimination of the foreign currency loan regime, and rescuing families and their homes are national causes for us.” The scheme let him nationalize half the banking sector, as well as sectors from energy and waste collection to telecommunications, media, and schoolbook publishing. Like his Latin American counterparts, he raised government subsidies before elections, increased deficit spending, and undertook ego-boosting prestige projects. The result was an early boom that allowed Orbán to quickly pay back IMF loans, followed by inflation that is now the highest in Europe, triple the EU average.

Orbán’s policies are not unusual among right-wing populists. When economists Manuel Funke, Moritz Schularick, and Christoph Trebesch studied populist leaders from 1900 to 2020, they found that these leaders would achieve economic growth for about three years. But that honeymoon would be followed by a long drag that pulled their economies down by 1% per year, regardless of their proclaimed ideology. After 15 years, a country led by a populist would have a GDP 10% lower than one governed by a non-populist leader.

One reason ideology doesn’t greatly affect economic outcomes is that once in power, populists from the left and right converge in their economic policies because their overwhelming concern is to maintain their power. As non-ideological politicians, they do what will get them short-term voter support. They know that popularity will let them change the rules to keep their power once the good times stop rolling. Both sides embrace tariffs and other forms of economic nationalism, give away substantial government funds to build support, and ignore the resulting costs in debt and inflation. Orbán, for instance, promised to reduce the size of government—but ended up putting 5% of all Hungarian workers on the government payroll to gain their goodwill and influence their votes. India and Brazil are developing countries that can arguably use social spending, but both Modi and Bolsonaro initiated government giveaways with personalized branding rather than providing general public goods that would boost economic activity.

The Personal Style of Populist Politics

Businesses are not only harmed by populist policies, but by the way these leaders govern. Populists personalize politics and centralize power, allowing them to implement policies based on whim without running them through normal policy processes. These tendencies make populist-led economies more volatile and unpredictable. Democracy scholar Roberto Foa found in a private investment analysis for XAI Capital (shared with me) that the first few years of populist rule generated a boom of rising stock prices and investor confidence. Yet within five to 10 years, populist-led countries were more likely to experience serious financial crises, stock-market freefall, high inflation, and increased uncertainty and risk.

These risks fall unevenly and unpredictably on different businesses. Small business and agribusiness in Brazil thrived under Bolsonaro. But export-oriented business and banking faced threats and economic harm. In India, conversely, small businesses were devastated by a series of decisions made by Prime Minister Modi, such as his demonetization scheme that removed the most common currencies from the market overnight. His snap decisions during the Covid pandemic caused such an economic downturn that at least some of India’s much-hyped current growth is just a recovery from that fall.

Personalization of politics, centralization, and undermining independent institutions creates other business risks. For instance, populist leaders politicize independent statistical bodies and undermine government watchdogs in order to hide unfavorable data. In India, Modi withheld unemployment statistics and delayed reports on unfavorable consumption and consumer spending data and has even goosed the methodology to estimate GDP growth. Trump denigrated unfavorable statistics, tried to politicize the constitutionally-mandated decennial census to advantage himself electorally, and fired watchdogs meant to ferret out wrongdoing and corruption within the government. In Brazil, Bolsonaro fired the head of the statistical body in charge of monitoring deforestation. If statistics can’t be trusted, it’s harder for businesses to make accurate decisions.

Manipulating Businesses

Corruption has a nasty habit of rising when the rule of law is damaged and politics becomes personal. Countries like India and Brazil, of course, have long wrestled with corruption. But populism increases the risk in less corrupt countries. The finding is not surprising. Populist leaders tend to use market regulation to reward friends and punish enemies. They are aided by their centralization of power and their ability to erode checks and balances. In Hungary, between 2011 and 2021, companies close to Orbán were found to be six times more likely to win public tenders than they would have been in a competitive market.

Business leaders are tempted to think they can win in such an environment by courting the populist leader. After all, it’s easier to get on the good side of one megalomaniac than hundreds of legislators. But cozying up is also a dangerous strategy, because what the leader gives, the leader can take. In India, the chairman of HDFC, a leading bank, was cast out of the inner circle after commenting that Modi should focus on business instead of polarization. In Hungary, friends of Orbán became the wealthiest people in the country. But proximity to power also brought a sense of threat, and Orbán did not want any rivals. Multiple business leaders who considered themselves to be government allies were cut to size when they fell out of favor, being forced to sell or close companies to ensure that Orbán remained in firm control.

Orbán: No Free Market Conservative

Hungary, in particular, eloquently shows how the populist playbook harms markets and individual businesses. Nationalizing banks gave Orbán control over much of the credit market. His Fidesz Party used credit, tax regulation, health and safety requirements, and government procurement to elevate some businesses and punish others. News reports have shown how market after market—from streetlights to gun sales —became skewed after an ally or family member entered the sector. Businesses that bucked the government line were forced to sell to party-connected owners. A Hungarian business consultant explained, “The government decides who wins and loses.”

The economy created by Orbán’s Fidesz Party in Hungary is something new. Orbán positions himself on the right, but his nationalization, high levels of government employment, and profit caps on corporations are not part of any normal conservative playbook. Meanwhile, the government sits uneasily on a democratic to authoritarian spectrum. Communist regimes purged the private sector out of existence. Hungarian populism allows markets to exist, but enables the state to tilt them to such an extent that neither business skill nor the normal process of creative destruction determines winners and losers.

But Hungary has perfected populist control of the market—a fact that bodes ill for the United States, given how closely the MAGA-faction in the U.S. has studied Orbán’s strategy.

The U.S. Right’s Orbán Lust: Bad for the Economy

The U.S. is a vastly larger and more complex economy than tiny Hungary. But it is not immune from these trends. State governments have already experimented with punishing corporations to score political points. Uncle Sam has equally potent tools that populists can deploy to target critics and political opponents. For example, the federal government hands nearly $700 billion worth of contracts annually to private individuals or firms that can potentially be withheld from enemies or handed to friends

U.S. politics are in the midst of the sixth political realignment since its founding. The Grand Old Party has been supportive of U.S. business since its inception under Lincoln, whose policies built the transcontinental railroad system and the modern U.S. economy. But in recent years, the party has sought to cement a coalition of the working-class. These voters feel that both big government and big corporations ignore their interests.

Ronald Reagan perfected a Republican Party that benefited from the cultural anger of these voters while continuing pro-business policies to help the corporations that formed a solid portion of their donor base. But that coalition isn’t inevitable. If a trusted leader like Trump goes after big business, these voters are hardly going to rise to their defense.

But in the age of MAGA, pro-business organizations and think tanks have struggled with language to explain the threat posed by supposedly right-wing populism. The elections that bring populists to power globally are often free, fair, and democratic. But populist political strategies no longer support the institutions, norms, and culture of socially stable, rule of law-supporting liberal democracy that enabled the economic flourishing of the second half of the 20th century.

The Fraser Institute’s Economic Freedom in the World report perhaps said it best. “Unchecked majoritarian democracy may do as much damage to economic freedom and wealth creation as many repressive autocratic regimes,” it wrote last year.

Populist leaders want power. Their early economic policies are not based on principles but on gaining popularity with the masses. They then use regulation, tax policy, and coercive tools of the state to reward friends and punish enemies—though no friends are permanent. What matters is political loyalty, and they use executive and regulatory powers to go after businesses that refuse to bow down. Instead of generating value, the business sector is expected to cater to the whims of a strongman. As the economic costs roll in, they clamp down on free speech, manipulate statistics, and even rig elections to ensure they don’t pay a political price.

Not only the American polity but also the American economy will be in trouble if MAGA populism remains unvanquished.

© The UnPopulist 2024