Ten years ago, on 3 October 2008, President George W. Bush signed the “Troubled Assets Relief Program” (TARP), promising $700 billion to support banks and companies hit by the global financial crisis. As Congress passed this historic bill, it seemed like liberal democracy was rising to the challenge posed by the global financial crisis. Yes, it would be very expensive for US taxpayers, but the cost seemed justified in the face of the potential collapse of the global economy.
A decade later, the financial crisis is a distant memory, the TARP funds have been repaid with interest, and stock markets are reaching new heights.
Yet switch from the business pages to the front page and a much darker picture appears. While Doug Ford and Donald Trump wreak havoc with our democratic institutions in North America, a particularly virulent strand of right-wing populism is popping up around the world.
It turns out that the greatest cost of the 2008 global financial crisis was not the bailouts, but rather democracy itself.
Conservative populists have been able to exploit a series of weaknesses in liberal democratic society. These weaknesses predate the global financial crisis, but were exacerbated by the failure of our political leaders to respond effectively to it.
In the decades leading up to the 2008 crisis, governments rejected the more cautious approach to economic management that had emerged after the Great Depression and World War II. Those traumatic historical events produced policies that focused on employment and economic stability, decreased inequality, and provided solid economic growth.
Cuts to social spending
In the 1980s and ’90s, governments of all political stripes pushed those concerns aside. They focused on inflation rather than unemployment, and rolled back regulations in the belief that this would produce a more dynamic economy. The results were massive growth in the financial sector and a tolerance for increasingly risky investments with little genuine oversight — a recipe for financial disaster, as we saw unfold a decade ago.
As governments sought to create a leaner government and cut back on social spending, as the Chrétien Liberals did in the 1990s, inequality grew and middle-class incomes stagnated. Many middle-class families adapted by dipping into their house’s equity with a line of credit or simply loading up on credit card debt — another time bomb that exploded in the US, Britain, and throughout Europe in 2008, but has yet to detonate in Canada.
Once the global financial crisis hit, it became much easier to see that the economy wasn’t working for everyone anymore.
In the US, the Federal Reserve Bank of St. Louis estimates that 9 million families lost their homes in that crisis — 10–15% of all homeowners. In the UK, between 2008 and 2009, the sudden drop in housing prices, pension funds, and equities translated into a loss of £31,000 (or almost $50,000 Canadian) for every household.
Drowning in debt
The household debt that had seemed like a clever solution to stagnating wages suddenly became a huge problem for families who found themselves with a house worth much less, one of their household’s jobs gone, and debts still to pay.
Government response to the crisis only made things worse. Sure, in the short-term, they acted to shore up the financial system and used fiscal stimulus to reduce the severity of the recession. But by 2010, just about every Western government, including Canada’s Conservatives, had changed its tune and shifted back to austerity, arguing that we couldn’t afford more fiscal stimulus.
Austerity measures land hardest on those who most need government help — like families who were down one job and had couldn’t make the payments on a mortgage worth more than their house. This rapid shift to austerity also turned out to be counterproductive — damaging the recovery in many countries and actually increasing debt-to-GDP ratios.
Inequality also grew after the crisis. As economist Branco Milanovic’s research shows, the stagnation in Western middle-class wages expanded to include upper-middle class earners. In fact, the only people who really benefitted from this austerity push were the hyper-rich.
Meanwhile governments around the world billed their austerity measures as necessary and inevitable — denying their responsibility for the suffering that these policies caused.
Economics helped fuel populism
Add it all up and you get conditions ripe for the kind of economic insecurity and frustration that creates fertile ground for populist sentiment. Of course, the rise in soft authoritarianism cannot and should not be reduced to economic factors alone. But they do play a role.
After all, if political leaders tell us that they have no choice but to enact these painful economic policies — that these issues are beyond democratic control — why should we be surprised when someone like Donald Trump, Nigel Farage, or Rob Ford comes along and promises to kick out the “elites” and give us back control?
In order to challenge the lies of these authoritarian, conservative populists, we must start by recognizing that the economic experiments of the last few decades have failed the ultimate test — that of building a prosperous and democratic society for all.
Jacqueline Best is a Professor in the School of Political Studies at the University of Ottawa. Her most recent book is Governing Failure: Provisional Expertise and the Transformation of Global Development Finance, published by Cambridge University Press.
A slightly shorter version of this article first appeared in The Conversation on 1 October 2018.