The rise of political populism in recent years has been explained by many as an irrational backlash against globalization. People who voted for US President Donald Trump or for Britain to leave the European Union were misled by Russian hackers and deceptive campaigns, according to some officials.

But populism is not necessarily irrational, argue Chicago Booth’s Lubos Pastor and Pietro Veronesi. A backlash against globalization “emerges as the optimal response of rational voters to rising inequality, which in turn is a natural consequence of economic growth,” they write.

To explain what leads to populist uprisings, Pastor and Veronesi created a model, defining populism as the belief that a homogenous group of people living in a single country are being victimized by an elite minority. The elite tend to be economic globalists who support free trade and similar positions, the researchers write.

In their model, globalization leads to economic growth, but this growth is disproportionately shared across a country’s population, mostly benefiting the elite. Rising economic inequality can lead to health-threatening levels of stress and crime caused by economic desperation. When inequality reaches a point where society is sufficiently strained, a populist backlash takes hold. The populist response is to turn a society inward by cutting back on foreign borrowing, immigration, and trade.

Their model predicts that countries with higher inequality, more financial development, and a higher current account deficit should experience stronger support for populism. Evidence from 29 developed countries backs these predictions. The researchers say their model helps us understand the result of the Brexit vote and the 2016 election victory of US President Donald Trump, two of the most prominent current populist outbursts, which they used to test their model.

The populist backlash may mean we are in for a long pause in globalization’s progress.

In the US in particular, when people are at the ballot box, they have to make a trade-off between consumption and equality, suggests the research. The model assumes that people generally like being consumers, but they also like equality. Populist regimes hurt consumption but also lead to more equality. Equality, the researchers posit, is in a sense a luxury good, increasingly wanted as a society gets wealthier.

Countries that follow the populist path see lower economic inequality driven by lower overall growth. Populist voters are willing to endure lower growth and consumption so long as the elite are similarly hobbled, the research suggests. While overall growth is lower, local stock prices may actually rise as the economy turns inward, and bond yields may fall. And richer countries with more-developed economies are more-likely settings for populist revolt because ordinary people there can afford to live with the consequences of less consumption in order to lessen inequality.

Recommended Reading

The populist backlash may mean we are in for a long pause in globalization’s progress, the researchers say. In the decades leading up to 1914, the pace of globalization was faster than today, they note. World War I halted that pace, which did not resume until years after World War II, driven by considerable effort on the part of the Allied victors.

Pastor and Veronesi suggest that because globalization produces winners and losers, policy makers looking to avoid populist revolution should tread more cautiously while integrating disparate markets amid rising inequality. If voters in a rich country are willing to sacrifice their own consumption to bring down economic elites, as the model suggests, a globalized world is not guaranteed. “Globalization,” write Pastor and Veronesi, “carries the seeds of its own destruction.”

More from Chicago Booth Review

More from Chicago Booth

Your Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.