Knowledge-intensive intangibles, spatial transaction costs, and the rise of populism

The destinies of nations are elaborated at present in the heart of the masses, and no longer in the councils of princes. – Gustave Le Bon, 1896, p. xvii

Abstract

Populism is rising in many parts of the world and appears from both ends of the political spectrum. I identify two distinct global trends that underlie its rise. First, the rising knowledge-intensity of world output has turned the terms of trade against primary activities like agriculture and mining. Countries that have remained dependent on these activities have seen their economies stall. Second, falling spatial transaction costs have resulted in the rise of disaggregated global value chains, wherein low-knowledge activities have migrated away from high-income countries. This has led to a secular decline the standards of living of low-knowledge workers in these countries. The first trend is most pronounced in Latin America; here class-based leftist populist ire targets domestic elites that have insulated themselves, often through capital flight. The second trend is most visible in North America and Europe; here rightist populist anger is aimed at workers in (and immigrants from) poorer countries, who are seen as “stealing” low-knowledge jobs. Finally, I note that these economic explanations of rising populism are incomplete. In many quarters, the current form of globalization is seen as threatening national identity and this may be an even more powerful source of populism.