Latin American Populism in the Twenty-First Century.

• Author: Cachanosky, Nicolas

The beginning of the twenty-first century has been characterized by a renaissance of populist governments in Latin America and Europe. Like its predecessors, Latin American populism has resulted in both economic failure and institutional deterioration. The recent rise of populist governments has received some attention from political scientists, but not as much from economists. Sebastian Edwards (2010), Jose Ocampo (2010), Kevin Grier and Norman Maynard (2016), and Dani Rodrik (2018a, 2018b) offer some of the few studies analyzing populism from an economic viewpoint. (1) These authors study Latin America in general, Venezuela, and Argentina. Even though it is expected that populist governments produce economic and institutional deterioration, this paper explores the extent of such effects and how the observed countries perform compared to the region. We analyze five countries representative of populist governments in the early twenty-first century: Argentina, Bolivia, Ecuador, Nicaragua, and Venezuela. Even though there is no formal measure of populism, and defining populism is a difficult task, these five countries represent a consensus of what populism looks like in Latin America. (2)

Our analysis has two limits. First, these Latin American countries can be described as living under various degrees of populism. Therefore, contrasting one populist government with another more-or-less populist government does not always offer clear results. Second, this study remains preliminary because most of the populist governments we examine are either still in office or have been replaced quite recently. However, there are two reasons why populism should receive renewed attention. First, given the number of years populist governments have been in office in these countries, a preliminary analysis is warranted, even if we cannot yet observe some of the final effects of this type of government. Future research will have to be done to analyze in more detail the ex post economic and institutional performance of populist countries. Second, some populist governments are starting to lose votes as economic problems become patent. Mauricio Macri's defeat of Cristina Krichner in Argentina in 2015 is the most outstanding case.

The next section reviews recent literature on populism. Then we specify our sample and selection of countries representative of populism, explore the institutional effects of populism on these countries' economic performance, and conclude that populism produces a marked deterioration of political and economic institutions.

The Nature of Populism

Although we can usually recognize populism when we see it, it is often challenging to precisely define it. From a political point of view, the challenge is to avoid a definition that rests on exaggerated features that are also found in nonpopulist governments, such as political mobilization, propaganda, and a charismatic leader. All of these characteristics are recognizable under populist governments but are not unique to them. Defined this way, any democratic government could be considered populist.

In economic terms, populism is usually described as a set of unsustainable policies that set undeliverable expectations about the future of the economy (Dornbusch and Edwards 1990; Kaufman and Stallings 1991; Rodriguez Braun 2012). However, although pushing aggregate demand beyond the limits imposed by aggregate supply may be an exaggerated characteristic of populism, it is not necessarily a unique feature of this type of government. For instance, the fact that populist governments in Latin America tend to produce inflation does not mean that a policy that produces inflation must come from a populist government. And although populist governments may embrace Keynesian-inspired policies, Keynesian policies are not necessarily a populist recipe (Bresser Pereria and Dell'Acqua 1991).

We can illustrate a typical unsustainable economic policy of a populist government using a simple analogy'. Consider a scenario where a charismatic head of household (government leader) takes his family on an expensive luxury vacation around the world (a government policy that incentivizes consumption at the expense of investment). He finances this luxurious trip by maxing out the family's credit card (government debt) and depleting their savings account (capital and infrastructure). When the family returns home, they realize that they have depleted their savings and that the credit card payments are exorbitant. The head of the family finds a convenient scapegoat--international corporations, creditors, and so on--to blame for their new financial situation. However, reality is unavoidable, and to dodge default the family needs to make a significant adjustment to its spending (austerity policy).

This family enjoyed a short-run benefit at the expense of reducing future consumption. The head of this family embarked on a populist program and while on vacation told his family members their economic situation was improving due to his management skills. He supported his claim by showing the increase in current spending but concealed the impact that his decision would have on tomorrow's consumption. Only a partial look at this situation would support the idea that the family embarked on the right economic path. The misperception relies on confusing an increase in consumption with an increase in income. Caution should be present when observing an improvement in economic indicators under a populist government.

The twenty-first-century populist governments of Latin America follow a similar pattern to the one described by Rudiger Dornbusch and Sebastian Edwards (1990). Especially when populist governments take office after an economic crisis, they can pass off economic recovery as if it were growth in economic productivity. The inconsistencies of macroeconomic policy remain concealed until the output gap is closed, and inconsistencies start to show as inflation, bottleneck constraints, and capital outflows.

Kurt Weyland (2001) as well as Koen Abts and Stefan Rummens (2007) take an institutional approach to defining a populist system as a government for which the locus of power is not under the anonymous rule of law (as it would be under a republic) but centered in the vague expression "the people." This way, populism maintains the democratic vote as a means to elect government officials but changes the source of the government's legitimacy from the rule of law to a direct mandate emanating from a group with undefined members. This is a reason why Emilio Ocampo (2015b, 99) and Carlos de la Torre (2016) find parallels between Latin American populism and authoritarian systems such as fascism.

This political definition of populism sheds light on a few of its distinctive features. For instance, the political construct of "the people" allows the leader to divide the electorate between "us" (the majority) and "them" (the minority). The group "us" represents the exploited victims whom the leader is protecting and saving. The group "them" can be any category that serves the leader's political objective. It might be the oligarchy, international corporations, a powerful country (the United States), or the wealthy, for example. The use of rhetoric and semantic innuendos (for instance, to blur the difference between the terms democracy and republic) is important to achieve this goal. The ideology that the source of government's power and legitimacy comes directly from the people rather than indirectly from the rule of law explains why populist governments have the common thread of being antirepublican. A republican institution, such as a constitution, is not a device to protect the people from the government, but an obstacle in the way of fulfilling the people's rights. From a political-philosophy perspective, populism can be described as a political movement that keeps the republican form, but not its spirit. Judges and congressional representatives cease to be part of the checks and balances of power and instead become instruments of the leader's political goals. Note that under this conception, because populism's definition rests on institutional qualities, it can be compatible with governments located on either the traditional left or the traditional right of the political and social spectrum.

Following this analytical framework, Rodrik (2018a) distinguishes four types of governments: those that have political constraints, those that have economic constraints, those that have both, and those that have neither. A political populist government may not be populist in its economic policy and vice versa. Although not necessarily as explicit on this categorization as Rodrik, Weyland (1999, 2003) argues that Latin American neoliberalism is compatible with populism. However, some pushback can be presented to Weyland's neoliberal populism. At least in economics, neoliberalism is an elusive expression rather than a precisely defined term. Other research (Edwards 2010, chap. 4; Cachanosky 2017, chap. 4.2, for example) demonstrates that neoliberal reforms in Latin America were incomplete and inconsistently applied to the point that the neoliberal label does not properly fit. To the extent that neoliberalism is defined as the ten points in the Washington Consensus, it is clear that most Latin American countries were, in fact, not neoliberal.

The political strategies in the rise of populism in Latin America in the early twenty-first century have been the focus of recent research (Hawkins 2003; Cameron 2009; Weyland 2009; Weyland, de...