THE LEGATUM PROSPERITY INDEX™ 2016

Bringing Prosperity to Life

Why is populism stirring beneath the surface of Europe’s growing prosperity?

Rapid economic and social change breeds uncertainty and fear that populists can exploit.

The political theorist Margaret Canovan argued that populism would “accompany democracy like a shadow”. In Europe today, it is clear that populism is no longer a mere shadow but an increasingly ominous force. Whether it stems from the radical left or from the radical right, the rise of populism threatens to destabilise a region that has long been one of the world’s most prosperous.


While European prosperity has continued to rise over the past decade, particularly in Eastern Europe, many people feel angry, betrayed, and unrepresented. Change, even positive change, can be unsettling, and post-war Europe has undergone particularly rapid political, economic, and social change – a transformation that has become even more pronounced since 1989.

Europe's Prosperity Rises, but Economic Quality falls

While globalisation has brought economic growth to the region, many Europeans have not shared in its benefits. Income inequality is on the rise, and many working-class people see their jobs being moved abroad or, worse, “taken from them” by cheaper foreign labour.

It is unsurprising that the greatest support for populist parties comes from these particular groups – the poor, the elderly, and workers who feel let down by the “system”: the “losers of globalisation”.

Rapid technological change has also seen industries eliminated or changed to the extent that workers and the elderly no longer have the necessary skills or knowledge to compete. The global financial crisis of 2008 exacerbated these issues as economies contracted, unemployment increased, and poverty, which had declined across Europe, crept back up.

It is unsurprising that the greatest support for populist parties comes from these particular groups – the poor, the elderly, and workers who feel let down by the “system”: the “losers of globalisation”.

Prosperity has gone up overall in Europe over the past decade, but economic quality has not: this is what is felt most acutely. France, Denmark, the UK, Austria, and Sweden – all countries that “over-deliver” prosperity and are some of the most prosperous in the world – have seen their prosperity surplus in Economic Quality fall while witnessing a surge in popularity for populist parties: from France’s Le Front National to Austria’s Freedom Party and the Danish People’s Party. Even economic powerhouse Germany is not immune: the economy has slowed and the populist Alternative für Deutschland (AfD) has gained popularity, but, notably, Germany’s performance in Economic Quality has not dropped as much as that of its regional peers, buoyed by falling unemployment and its high-quality exports. The AfD appeared on the political scene much later than other populist parties in the region and still has less support. Greece’s prosperity has declined overall, particularly because of poor Economic Quality following its debt crisis, and the radical left-wing party Syriza (Coalition of the Radical Left) soared to electoral victory in 2015.

While populists often run on platforms which promise greater prosperity, populism can, in fact, threaten economic prosperity with its protectionist tendencies that seek to weaken the liberal capitalism and free markets found in Europe.

While populists often run on platforms which promise greater prosperity, populism can, in fact, threaten economic prosperity with its protectionist tendencies that seek to weaken the liberal capitalism and free markets found in Europe. Limiting the influx of foreign workers, for example, could dampen a country’s growth prospects, while over-regulation of private enterprises could make a country’s business climate less competitive.

Globalisation has changed economies as well as societies. Europe has become more culturally diverse, more secular, and more tolerant of differences in culture, religion, or sexual orientation. This is reflected in rising Personal Freedom scores across Europe over the past decade, particularly in Western Europe.

Not everyone views this as a positive development: right-wing populists have exploited feelings of fear and uncertainty over these changes in social norms. The rise of far-right populism can be viewed as a backlash against what is perceived as “too much personal freedom”, which could lead (in the AfD’s words) to the “slow cultural extinction” of national identity. Recent terrorism in Europe and the ongoing refugee crisis have only added fuel to this fire.

Liberalism's Discontent: More Personal Freedom, more anti-liberal populism?

Just as “too much personal freedom” might explain a rise in right-wing populism, so too can “too little”. Eastern Europeans lag behind their Western peers in Personal Freedom: tolerance of immigrants and minorities is low to begin with, making the region susceptible to right-wing populism. Although Eastern Europe has not yet experienced the same widespread multiculturalism as Western Europe, leaders in Hungary and Poland have already exploited fears over potential changes and won on populist platforms.

While Personal Freedom has improved, Social Capital has stagnated or declined in much of Western Europe, further opening the door for populism. Community life is paying the price for this increased freedom and tolerance, populists argue. They see multiculturalism as eroding civil society and have thrived in countries like France and Austria, where Social Capital has considerably declined since 2007. In both countries, integration of non-nationals into the labour market and local communities has not been achieved effectively.

Social Capital stagnates and declines across Western Europe as societies become more fluid

Notably, France’s performance has declined to the point that it now has a prosperity deficit in Social Capital – the second-largest Social Capital deficit in Western Europe. France’s integration record is fairly dismal, so the surge in popularity for Le Front National is perhaps not surprising. By contrast, Social Capital went up in Germany, whose experience with integration has been relatively positive. The AfD’s popularity might have gone up since the refugee crisis, but it enjoys far less support than Le Front National, whose leader Marine Le Pen is a presidential contender. The generally positive socioeconomic conditions in Germany still limit the AfD’s ambitions: integration is certainly challenging, but it is confidence in Germany’s strong civil society that let Angela Merkel claim, “We can do this.”

As the Index shows, prosperity has been rising steadily in Europe, but changes in Economic Quality, Personal Freedom, and Social Capital, amplified by the refugee crisis, have given rise to populism. Populism threatens future prosperity with its rejection of the reality of European society, which is changing and opening up. But it is important to remember that, while populist parties are enjoying “a moment”, they are rarely winning outright majorities – yet. Mainstream parties must address people’s concerns over rapid economic and social change, while restoring faith in the benefits of globalisation and open, liberal societies.