A nativist tide is increasingly rising across the developed world. Until recently, it was a phenomenon that was limited to nations across Western Europe. But it has arrived with great force during the 2016 U.S. presidential election. This isolationist wave is only likely to build in the years ahead, which will likely have meaningful implications for global economic growth going forward.
The Rise Of Nativism Worldwide
Nativism is a policy where the interests of existing citizens in a country are protected against those of outside immigrants. This political philosophy has been increasingly on the rise since the outbreak of the financial crisis. Sluggish economic growth, declining real incomes and rising debt burdens have left the general population unsettled about their current economic state and discouraged about their future prospects. In such an environment, many are feeling increasingly frustrated at the prospects of someone entering their country and potentially taking away their job or free riding on the social benefits that existing residents have paid for and may need for themselves. Moreover, many in the general public are also feeling angst at the prospect of more existing jobs going overseas as part of global free trade, as they perceive that the benefits are going to the elite while the rest are simply left behind without employment and a local community that is worse off in the end. And as an added element, the rising terrorist threat believed to be resulting from the influx of immigrants and refugees from regions like the Middle East have only added fuel to the growing nativist fire.
Such mounting frustrations are difficult for policy makers to constructively address in an environment of perpetually sluggish economic growth. For many, prospects remain relatively poor so many years after the financial crisis. And the frustration is building to the point where a growing percentage of the voting population feels inclined to do something about it. For many, this has come down to supporting political candidates from the far right wing of the political spectrum where anti-immigration sentiment burns bright. Or it may involve inserting a change candidate into office that many believe will simply blow the existing political system up and start everything over. Needless to say, what was once "hope and change" for many nearly a decade ago has evolved into "change no matter what the cost" today.
The Economic Implications Of Nativist Policies
A more isolationist, anti-immigration approach may seem for many like a natural solution on the surface. If someone from outside the country is coming in to take my job or undermine my community, don't let them in. If people of a certain religious group pose a terrorist threat, keep them all out. If a free trade agreement is sending jobs in my town overseas, kill the deal. And if cheaper goods coming in from abroad are making it harder for domestic producers to compete, tax those imports to make them more expensive if not just keep them out altogether.
But history has repeatedly shown over the centuries that shifting from an open economy to a closed economy is not an effective way to stimulate economic growth and improve the standard of living for a society. Instead, such isolationist policies have often proven to stunt economic growth and cause countries to fall behind in terms of their standard of living relative to the rest of the world over time.
Maintaining an open economy can be beneficial to a country in a variety of ways over time. By engaging in free trade with other economies, a country can focus their resources toward producing the goods and services at which they are best while allowing other countries to do the same. This way, countries can produce more and engage in trade so that both sides are better off. Free trade also facilitates the sharing of technological knowledge that can feed upon itself for everyone involved over time. Such global interaction also encourages investment from abroad, which helps increase the domestic stock of capital resulting in higher productivity and wages over time. And welcoming immigration also supports population growth within a country, which helps increase the labor force and promotes the production of more goods and services.
Of course, simply keeping your economy open does not mean that your country will necessarily derive these benefits. Free trade deals are beneficial, but only if the arrangement is mutually beneficial and the conditions are enforced. The sharing of technological knowledge is positive, assuming it's not one side that is stealing this information from another. The inflows of investment from abroad are constructive only if they are carried out prudently and do not foster conditions that feed speculative bubbles. And receiving an influx of new residents from abroad can be counterproductive if those entering the country are not helping to produce as much as they are consuming and diluting the capital stock in areas such as social services and the education system among others.
In short, maintaining an effective open economy requires constant work and maintenance. But just because it may have its flaws across many economies in the developed world, thanks to ineffective policy makers, does not mean that turning to nativism is the solution. Participating in globalization and free trade should be highly beneficial for an economy over time. It just needs to be implemented right.
But with all of this being said, many countries around the world are increasingly shifting toward nativism and isolation. And if this sentiment results in new political leadership that is ready to follow through on such policies, it not only implies the potential for slower economic growth within these countries over time, but also for the world economy as a whole.
Nativist Power Players Worldwide
With these long-term risks to economic growth in mind, it is worthwhile to take a trip around the developed world to identify where nativism is on the rise and where new leadership intent on carrying out this mandate are working their way toward gaining power.
The National Front led by Marine Le Pen is a far right party that has existed in France (NYSEARCA:EWQ) for more than four decades but has been gaining increasing support in the midst of the anti-immigration protectionist wave sweeping the developed world. The next presidential election is scheduled for next year on April 23 and May 7, and Le Pen currently has 30% of the first round voting in the most recent opinion polls versus 18% for the Republicans led by the likes of former President Nicolas Sarkozy and 18% for the Socialists led by incumbent President Francois Hollande. Despite this apparent strength for Le Pen, it is worth noting that recent polls also show her losing by a considerable margin to all Republican and Socialist candidates in the second round of voting with the exception of Francois Hollande, where the race at least at this moment would be too close to call.
Bottom Line: While Le Pen looks likely to advance to the second round of voting, it appears unlikely that she will win come this time next year based on current polling. But much could change over the next 12 months, making this polling data worth watching in the months ahead.
Geert Wilders and his Party for Freedom are staunchly anti-immigration and advocate breaking from the euro currency and leaving the European Union. Wilders is also strongly anti-Islam. In the most recent Dutch (NYSEARCA:EWN) elections back in 2012, the Party for Freedom finished a distant third with just over 10% of the vote. But with the next election scheduled for no later than March 15, 2017, which is less than 10 months away, the Party for Freedom has surged into first place in four out of the last six polls conducted since last October. In the most recent poll from May 8, Wilders and the Party for Freedom registering 25% of the projected vote versus just 15% for the ruling People's Party for Freedom and Democracy in distant second.
Bottom Line: This will be an election worth watching closely in the coming months, as the Party for Freedom is an unequivocally far right wing party that appears poised to make a strong step forward in its upcoming election.
In 2014, Jimmie Akesson and his far right wing Sweden Democrats party scored 13% of the vote in the Swedish (NYSEARCA:EWD) general election, which was good enough for a distant third place and more than doubled their vote total from the 2010 election. And looking ahead to the next general election scheduled for September 9, 2018, the Sweden Democrats has been polling strongly, periodically landing in first place in polls dating back to August 15 with totals as high as 29% of the vote. This includes the most recent poll conducted on May 19-23, where the party edged out its two primary competitors in the Social Democrats and the Moderates with 22.9% of the projected vote. The Sweden Democrats was originally founded in the 1980s as a fascist white supremacy organization with Nazi influences. Over the years, the party has moderated its views, but the group remains strongly anti-immigration and anti-Islam.
Bottom Line: Another election that warrants close attention, although it is a bit further off into the distant future at just over two years away.
Austria (NYSEARCA:EWO) just completed its latest presidential elections. Coming out of the first round on April 24, the two governing parties in the Social Democratic and Austrian People's parties finished in fourth and fifth place. Instead, it was Alexander Van der Bellen, an independent candidate and member of the Greens, squaring off against Norbert Hofer, member of the right wing anti-immigration Freedom Party in the second round. And when the final voting was in on May 22, Van der Bellen prevailed by the narrowest of margins with 50.35% of the vote versus 49.65% for Hofer, a difference of just 30,000 votes out of the nearly 4.5 million votes cast.
Bottom Line: Austria narrowly skirted becoming the first developed European country to install a far right wing anti-immigration government. This recent development suggests it may only be a matter of time before this barrier is broken across the continent.
The Danish People's Party has been a fixture in politics for Denmark (BATS:EDEN) for more than two decades. The party, which is strictly anti-immigration and also supports an exit from the European Union, has been a regular third place finisher in elections with vote totals consistently scoring in the 12% to 14% range. During the most recent parliamentary elections in 2015, the DPP boosted its tally to 21%. And in the most recent polls from last week for the next election no later than June 17, 2019, the DPP currently holds second place at 19% of the vote, six percentage points behind the Social Democrats at 25%.
Bottom Line: The DPP has not led in a general election poll since January, but is very much in the running depending on how conditions evolve over the next few years. Regardless, the DPP is already a meaningful player on the Danish political scene.
While much of the attention has been focused on the rise of far left wing Syriza in recent years, a far right wing party in Golden Dawn has been gaining prominence in its own right. The neo-Nazi nationalist party was a nominal player in Greece (NYSEARCA:GREK) with less than 0.3% of the vote as recently as 2009, but has since risen to solid third place finisher with 7% of the vote in the most recent election in September 2015. Looking ahead to the next election to be held no later than October 20, 2019, Golden Dawn reached a new high with 13.5% of the vote in the most recent poll from May 16.
Bottom Line: While still a distant third in the polls, the extreme right wing Golden Dawn continues to build momentum. It should be noted that it was as recently as seven years ago that current left wing Prime Minister Alexis Tsipras and his Syriza party were polling as low as below 5%, and today they are in power for a year and a half.
A number of other countries across Europe have far right wing parties either already playing an active role in government or rising in prominence. These include Norway (NYSEARCA:NORW), Finland (BATS:EFNL), Switzerland (NYSEARCA:EWL), Belgium (NYSEARCA:EWK) and Hungary. And then, of course, there is the United Kingdom (NYSEARCA:EWU) that will be headed to the polls next month to vote on whether to exit the European Union (BATS:EZU).
All of this leads us to our last country worth mentioning.
The Republican party has been seized by businessman and reality star Donald Trump for the U.S. 2016 presidential election. Trump has run his campaign on nativist, anti-immigration policies like building a wall and making Mexico (NYSEARCA:EWW) pay for it, talk of banning Muslims from entering the country and tearing up existing trade deals with other countries. After officially securing the GOP nomination on Thursday, Trump now moves on to what appears to be at least to this point a one-on-one match up with Democratic candidate Hillary Clinton, who is a candidate that has struggled to put away her Democratic Socialist rival in Bernie Sanders and is dealing with the ongoing overhang of an e-mail scandal associated with her time as Secretary of State. Trump has led against Clinton in three out of the last five national polls and they are currently running in a dead heat versus each other to date, although the electoral map still marginally leans in Clinton's favor.
Bottom Line: For all of the talk about far right wing parties taking over in various countries across Europe, a candidate in Donald Trump who promotes many of these same nativist, anti-immigration themes has already won the nomination of one of the two major political parties in the world's largest economy and holder of the global reserve currency. And he is currently running at even odds against his presumed Democratic rival in the upcoming general election in November. In short, far right wing political transformation may see its first push into outright leadership by stealth in the country that is the leader of the free world in the United States (NYSEARCA:SPY).
The Overall Bottom Line
Nativism is on the rise throughout the developed world. Unless economic conditions improve dramatically, which is considered unlikely, this anti-immigration and isolationist view is only likely to gain further in prominence in the months and years ahead, with a growing number of countries potentially turning over power to leaders with a mandate to implement such policies.
We have seen such isolationist policies before during the Great Depression, and they did not lead anywhere productive. And if the developed world is inclined to turn back toward these nativist and protectionist leanings again in the future, a different outcome should not be expected this time around.
Closing off an economy is counterproductive for economic growth and improving living standards. Moreover, such policies certainly do not bode well for higher asset prices including stocks, particularly given the fact that those that gain power under such a mandate are likely to be far less concerned whether or why their stock markets may be falling on any given day, week, month or year.
As a result, it is worth monitoring the rise of nativism across the developed world including how many of these key upcoming elections play themselves out.
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