In democracies, whether liberal or illiberal, economic populism is usually practiced at the time of elections. In fact, in Turkey, it is called ‘election economics’ (seçim ekonomisi). Typically, government expenditures, especially transfers to middle and lower income groups, are increased and/or taxes are reduced before the election. Then, to avoid the inflationary effects of these, restrictive monetary and fiscal policies are applied once the election is over. This generates ‘political business cycles’.

Election economics

Two things make election economics profitable for those who use it. First, there are far more middle and lower income people than the rich. So transferring wealth from the latter to the former brings more votes to incumbent parties than it takes away.

Second, in assessing the performances of governments, voters give much more weight to the recent past than the distant past, and to growth than inflation. Thus, good effects of populist policies are felt before the election. The bad effects come afterwards and are forgotten by the time of the next election.

Election economics is not practiced in every election, but only when the incumbent’s re-election is at risk. For example, in Turkey, the Justice and Development Party (AKP), which did not indulge in such policies between 2002 and 2014, began doing so afterwards when its support declined to a critical level, and the presidential system instituted in 2018 required, for success, at least a 50% vote share.

More often, populist economic policies are seen under coalition governments, in particular those involving ideologically incompatible parties, and during the later terms of long-lasting governments. What caused single party governments in Turkey, all of which have lasted two or more terms, eventually to resort to economic populism was the depreciation in their political capital and the drastic drop in the growth rate of the economy in their later terms.

This has occurred, without exception, under every multi-term government in Turkey. The growth rate of per capita real GDP, which was in the 4.4-6.9% range during the first terms of the Menderes, Demirel, Özal and Erdoğan governments, dropped considerably to the 0.9–2.4% range in their later terms.

Use of populist economic policies by coalition governments has to do with their expected lives and the incentives given to them by the electorate. Under such governments, especially under those too fragmented numerically and ideologically, it becomes difficult for voters to assign responsibility and sanction incumbent parties for economic performance. Consequently, voters reduce the weight they give to the economy. In other words, the price paid for sacrificing economic performance for other considerations is lower under coalition governments.

Furthermore, voters hold the minor members of the government less responsible or not responsible at all for economic conditions than the primary incumbent party. Then the junior partners of the government, which cannot get votes through good economic performance, try to get it through populist means, such as distributing jobs, free goods and cheap credit.

Multi-party governments tend to have very short lives and thus shorter time horizons and lower discount factors. For example, the coalitions of the 1970s and the 1990s in Turkey rarely lasted even one term. Governments changed hands each time votes swung a few points. So, they did not mind spending a lot of money in the short run to appease their supporters and shifting its burden to future governments.

Usually, populist economic policies are implemented for a short period. But sometimes governments are forced to apply them for a sustained period. For example, as mentioned, coalitions face dissolution and snap elections at a moment’s notice. So, they always have to act as if the election is around the corner.

Governments are forced to step on the gas pedal continuously also when several elections follow each other with very short time in between. Then, inflation gets out of hand and growth rate suffers. The correction needed gets bigger with the passage of time, and when it is made, it creates a crisis and lowers the vote share of the incumbent party.

During the last eight years, seven elections and one referendum have taken place in Turkey. That probably played a more important role in the creation of the current economic crisis than Covid-19.

Economic populism is also practiced continuously under authoritarian regimes. They act that way to remain in power. But it is impossible to implement such policies for an extended period, without messing up the economy.

Such policies can be used permanently only in countries that have abundant natural resources relative to their populations. But in order to continue financing their populist expenditures, the resource-rich countries need to conduct a foreign policy that is not antagonistic towards the countries that buy their exports, that give them the technology and capital to extract their resources and which are capable of disturbing their production. Otherwise, as in the cases of Iran and Venezuela, they will face serious political problems besides economic ones, when embargoes and sanctions are imposed against them.

Such regimes can get into trouble also when market conditions lower the prices of their natural resources, as has happened in the case of oil, to the Gulf states and Russia, when shale gas production and the pandemic lowered demand.

Political populism

Populists view institutions as barriers between the people and their leader, constraining the power of the legitimate leader, and working for the elites and the bureaucrats. What gives some credibility to this view is the fact that institutions are often imposed on the majority by the elites.

Two-thirds of the countries that became democratic after the Second World War did so under constitutions prepared by previous authoritarian regimes. These constitutions were designed to protect the previous rulers from lawsuits, to continue their economic and political privileges, to hinder the new governments from changing the official ideology, and to create electoral advantages for the political parties close to them.

To rule, democratically elected governments had to oppose the established order and to try to capture or weaken its institutions. Naturally, such behaviour was supported and viewed by great majority of people as legitimate efforts to lift the obstacles placed in front of them.

But each time elected governments were successful in eroding the guardianship system imposed on them, even a little, they were toppled by military coups, as has happened recently in Myanmar.

During the second half of twentieth century, this occurred four times in Turkey. After making constitutional changes to re-establish and legalise their power, juntas returned to another guided democracy. This undermined the parliament and shifted political competition from gaining seats in the parliament to controlling the state institutions directly. Marginal groups, with no hopes of achieving power through elections, tried to obtain it by infiltrating the armed forces, the courts and other key state institutions.

Frequent party closures, bans on political leaders and rearrangement of the state bureaucracy hindered political parties from acquiring inter-party and intra-party democratic traditions and accumulating valuable experience on good governance. Institutions that create checks and balances could not develop, and their absence caused democratically elected governments to become increasingly authoritarian over time.

In older democracies with stronger institutions, populists are checked, at least to some extent. For example, in the United States, many of Donald Trump’s populist decisions and attempt to remain in power after losing the election were pushed back by the courts, the Congress and local authorities. But as events culminating in the 6 January 2021 insurrection have shown, populists can overwhelm the system even in a country considered to be a bastion of democracy. It is doubtful that many of the US institutions could have survived another term of Trump presidency.