Europe’s cost-of-living crisis is the crest of a wave of economic discontent going back decades. Many blame that anger on income or wealth inequality, and correspondingly prescribe redistribution as a policy solution. But in fact, low social mobility is far more strongly associated with the geography of European populism. European progressives should refocus their efforts to create a system of equal opportunity and fair reward according to contribution.
A palpable sense of economic injustice prevails in many parts of Europe. Deep frustration was already apparent several years back in populist outbreaks, such as the Gilets Jaunes’ protest of proposed French fuel taxes. Since then the continent has been battered by Covid-19 and borne the brunt of energy shocks resulting from Russia’s invasion of Ukraine. These issues have accumulated to produce a landscape where too many Europeans cannot find good jobs yet must contend with rising prices for basic essentials like food and energy.
The consequences – ranging from insufficient political space for decarbonisation to the outright election of populist governments in some European countries – are clearly dire, yet the underlying mechanisms that generate economic anger are commonly misunderstood. Restoring European citizens’ long-term confidence in their economic lives does not merely depend on cutting down income inequality, or even necessarily on boosting headline GDP growth. As my co-author and I argue in Reclaiming Populism: How Economic Fairness Can Win Back Disenchanted Voters, it is far more important to build equal opportunity and fair reward according to contribution. The countries that succeed on these issues are characterised by best-in-class social mobility and durable resilience to the worst populist disruptions.
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The roots of social immobility and political discontent in Europe
In societies with low social mobility, citizens who are not born into sufficiently wealthy families have slim chances of economic success regardless of their talents. This bellwether of economic unfairness is a powerful predictor of populism, considerably more so than oft-discussed factors like immigration or inequalities of income or wealth. Professor Philip McCann, the British academic who coined the term “geography of discontent”, cited the research behind Reclaiming Populism to write that “social mobility is the crucial indicator of populist voting.” This reflects the reality that countries with low social mobility – such as France, Italy, the UK, and much of Eastern Europe – have proven highly susceptible to populist political disruptions, and left-behind regions such as Northern England and Eastern Germany similarly so.
The recent Covid-19 and the Ukraine crises have undoubtedly contributed to this sense of economic unfairness. Lower-income citizens have been worst-affected by soaring inflation, and this may be seen as especially unfair when energy companies make record profits from high prices. But it is crucial to understand that this disruption represents the crest of a wave of problems that have been growing for several decades. For instance, in countries without adequate policy supports the rise of Chinese trade led to substantial manufacturing job losses from approximately the early 2000s onwards. The 2008-09 Global Financial Crisis (and the subsequent European Debt Crisis) then durably depressed investment and employment while financiers were bailed out at the taxpayers’ expense.
Focusing too much on income inequality ignores the vast majority of complex policy inputs that really drive social mobility.
Uncoincidentally, several academics have pointed out how the rise of populism across Europe can be traced back to a similar timeframe. The UK’s Brexit Party (formerly UKIP) steadily increased its vote share in European Parliament elections from the 1990s onwards (culminating in Brexit itself), for example, and France’s populist National Rally (previously the National Front) first made it to the second round of the French Presidential Election in 2002.
A firewall against populism
But not all European countries have been so harshly affected. Those with high social mobility have proven to possess firewalls against the worst populist excesses, arguably because widespread opportunity serves as a bulwark against economic disruption. The Scandinavian countries fit in this category. While the European Migrant Crisis contributed to tangible support for Nordic populism – the earned 21 per cent of the vote in Sweden’s fall 2022 general election – this is a far cry from rates of support in some other European countries. It must be remembered that a majority of British voters supported Brexit in 2016, 41 per cent of French voters opted for Marine Le Pen in the second round of the spring 2022 French presidential election, and a majority of Italian voters supported populist parties in the fall 2022 Italian elections.
Of course, different European countries use different national electoral systems, and it should be recognised that the proportional representation systems used in Scandinavia give a more pronounced voice to small populist parties than first-past-the-post systems. It is thus also worth noting that in the 2019 European Parliament elections (which operated by the same rules across the EU, facilitating apples-to-apples comparisons) Denmark and Sweden voted for populist parties at rates of 11 and 15 per cent respectively. This was below the EU-wide average of 23 per cent, and far below the rates in the range of 30 to 50 per cent seen in the UK, Italy, and France.
Nordic populism is very real, as such, but it crucially does not operate on a sufficiently large scale to produce mass-supported disruptions like Trump or Brexit. In other European countries refugee flows may have accelerated populist explosions by connecting with the issue of economic unfairness – creating the perception that foreigners were being helped first when natives were struggling. High social mobility among the Nordics meant this potentially-powerful argument for populism could not be truly activated. Immigration thus arguably remained a relatively self-contained issue, leading to constrained vote shares for populism that have not created major institutional disruption akin to that seen elsewhere.
Social mobility versus income inequality
The relationship between contemporary European political anger and social mobility must especially be contrasted with those concerning inequalities of income and wealth. Despite much popular commentary there is scant evidence the latter really drive politics. Professor Dani Rodrik of Harvard University has noted that “conventional indicators of inequality are a poor predictor of economic and political discontent in democracies.” Other academics have shown that “there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness.”
Ultimately, the best evidence indicates that people are not troubled by the economic success of others as long as that success is fair. There is far more public idolatry of talented entertainers and athletes like Elton John or David Beckham than denunciation of the incomes resultant from their talent; neither is there much outcry that doctors, engineers, and other professionals who contribute to society in obvious ways are well-rewarded. Instead, what citizens of modern democracies really cannot stand is an unlevel playing field. When someone (or their child or their neighbor) has no route to middle-class success despite possessing the talent needed for it, they will conclude the system is rigged. This will be especially true if they also observe others getting rich in ways that unfairly undercut the rest of society – such as bankers selling high-risk financial products that trigger an economic crisis.
Those countries with high social mobility have proven to possess firewalls against the worst populist excesses.
Nor is ratcheting down income inequality an effective approach to building social mobility. The best causal evidence demonstrates that while income inequality does affect social mobility, so do numerous other factors through separate channels – including school quality, ethnic segregation, commuting times, and even the prevalence of single parenthood. The consequence is that focusing too much on income inequality ignores the vast majority of complex policy inputs that really drive social mobility. The French state demonstrates how this disconnect plays out in practice: although France’s government is one of the proportionally largest in the world and has brought income inequality down to fairly low levels, the country’s social mobility is very poor compared to other high-income nations. Unsurprisingly, it has experienced fierce support for populism.
Future directions for European policy
So what should European policymakers do instead? For one, the cost-of-living crisis must be pragmatically managed to minimise unfair hardship for citizens. Many European countries are already taking strong action on this front, including through windfall taxes on energy companies to subsidise private citizens’ energy bills and EU-wide regulatory reform to reduce electricity prices. It is a pity that insufficient European political cooperation prevented a large tariff on Russian energy products from taking shape early into its invasion of Ukraine; although the oil price cap that has been realised limits Russian war funds, a tariff would have accomplished the same while bringing in revenues to European countries with which they could have further subsidised citizens’ energy bills.
Policymakers should also seek other arenas in which prices could be somehow brought down through sensible reform. One such area is ; streamlining construction regulations, ensuring that the local governments who approve construction benefit from doing so by receiving property tax revenues, and taking away veto powers from NIMBYs (for example through by-right construction laws) can expand housing supply and thereby bring down prices and rents. While housing cannot be constructed overnight, even having confidence in the future expansion of housing supply can, for example, create more room in citizens’ budgeted savings.
Moreover, European policymakers should seriously think through the constraints that hold back social mobility in their respective countries or regions. The countries that do best on social mobility globally – like the Nordics, Canada, Australia, and New Zealand – twin state support for equal opportunity with competitive markets that translate opportunity to tangible success.
This entails funding policy inputs like affordable tertiary education, reasonably supportive unemployment protection, universal healthcare, public transport, childcare, and childhood nutrition through government. These contribute to equal opportunity by allowing citizens to become productive, travel for school and job openings, and smooth over shocks beyond their control. They should be conceptually distinguished from other forms of government intervention that aim solely to redistribute for redistribution’s sake (such as unemployment protections that are so generous they substantially discourage employment), and thereby tackle income inequality but not social mobility.
Efficient, fair markets are just as important. Economies with constricted private sectors do not create enough high-quality jobs and business opportunities to convert a citizen’s potential productivity to earnings in practice, and social mobility remains a mirage. By the same token, however, activities that extract profits in ways that harm others – such as through anti-competitive practices, undercutting safety, polluting, or creating high-risk financial products – cannot be considered part of a fair market.
The ways in which various European states fall short on these twin pillars of social mobility are country-specific. The UK, for instance, has one of the world’s most competitive cities – London – yet many other regions suffer from inadequate infrastructure and a low supply of housing, leading to stagnant opportunity. A number of southern European countries, including France and Italy, succeed on many government inputs to equal opportunity but are arguably held back by excessive regulation and in some cases taxation, which render their markets uncompetitive.
The EU as a whole is currently rethinking its long-standing rules around public deficits and debt-to-GDP ratios, and if handled intelligently this could enable greater social mobility. On the one hand, an expanded spending capacity could lead to greater investment in the policy inputs needed for equal opportunity. Yet excessively loose rules could also enable an over-large state in areas where the market should play a leading role. Policymakers may want to evaluate domain-specific spending ceilings, and potentially introduce country-specific exceptions to allow investment if and when it is needed.
Any policy agenda for a European country to reduce economic injustice must be carefully studied and designed. But efforts to do so should be squarely aimed at building social mobility, and thereby embracing the roles the state and market each have to play.