Why is this time Different? Political Implications of prolonged Economic Downturns

Historians place a disproportionate emphasis on the 1930s when teaching European History. The decade looms large in our courses with discussions of economic depressions, the rise of far-right political parties and the onset of the Second World War. We generally try to instill greater complexity to our lectures but a fairly straight-forward narrative emerges: Economic collapse and high unemployment contribute to the election of far-right political parties, war and 6 million dead Jews. Interestingly, the Eurozone’s economic trajectory since the financial collapse of 2008 has been similar to that of the 1930s but political spectrums have barely changed. Why?

A number of economists and economic historians have noted that the overall European economy performed similarly between 2007 and 2014 as it had done between 1929 and 1936. Both continent-wide comparisons mask major regional hardships, since Britain in the 1930s or Germany and France in the 2010s have fared relatively well. The circumstances in a number of Eurozone countries are staggeringly bad. After 2008, Latvia lost a quarter of its economy within a year and 10% had emigrated within two years. The Greek economy contracted by 13.5% between 2007 and 2012 and continues to shrink with over a quarter of the adult workforce unemployed. Meanwhile, in both Greece and Spain over half of the workforce under the age of 25 is unemployed. The lack of employment for those entering the workforce will limit their skill development, while the general hesitancy of employers to hire the long-term unemployed will hurt this cohort going forward. The current generation of 20-25 year olds in Spain and Greece might have the worst long-term employment prospects of any cohort ever. Economic conditions have also noticeably deteriorated in Britain, Ireland, the Netherlands and Denmark over the last six years.

It is generally understood that economic depression contributed to political extremism in the early 1930s. Within six years of the financial collapse of 1929, politics had changed radically. Parties proposing fundamentally new economic paradigms were either in government or popular in many places. The most pronounced of these were the communist and far-right parties in Italy, Germany, Spain, Portugal, Austria, Russia and Poland. In the early 1930s, both the Kommunistiche Partei von Deutschland (KPD) and the Nationalsozialistische Deutsches Arbeiter Partei (NSDAP) had organized paramilitary wings that fought in the streets of Berlin and Munich. The NSDAP formed a government in 1933 and abolished elections. Spanish and French far-right parties were gaining in popularity and in 1934 popular front coalitions of liberals, socialists and communists were formed to oppose them. By 1935, there was limited support for economic liberalism and most European countries were no longer democracies.

We are now at a similar point in the recession that began in late 2007 to where Europeans were in 1935. Yet, outside of Iceland and Greece there has been remarkably little political change. The same parties with the same leaders are in power in many countries, notably Germany. Meanwhile, in other countries the current governments were in opposition in 2008 but have implemented similar policies to what they were proposing at the time. The most radical change has been fiscal austerity and that largely follows the pre-crash economic orthodoxy. Very few people are voting for parties that propose radical shifts in the economic organization of society. The indignado movement gets a fair amount of media coverage but it is still remarkably small and ineffectual for a generation facing the difficulties of young Spaniards. As a thought experiment, I suggest that readers try to imagine the political development of European countries (or North American ones) since 2008 in a situation where the economy grew steadily at 1% rather than the financial crash that resulted. Can you think of any situations where the parties in power or the policies being implemented would be different? The difficulty in thinking of these reinforces how little politics has changed in the last 6 years despite a prolonged economic downturn.

The experience of the last six years shows that the relationship between economic depression and extreme politics is not automatic. A more complex causal explanation is needed for the rise of far-left and far-right parties in the 1930s. A key difference between the 1930s and now is the existence of the Soviet Union and the credibility of communism. The far-left politics of 1930s were encouraged by the perception of Soviet economic growth and the widespread belief in an alternative to the Depression. In Germany, the KPD was particularly popular among the unemployed. Meanwhile, it was the threat of communism that drove the popularity of far-right political parties. Many people saw the far-right parties as authoritarian anti-communists who were best able to prevent revolution. Currently, there is no credible threat of communist revolution and limited far right support. Unemployment encouraged far-right politics to the extent that unemployed people were perceived as potentially overturning the entire political spectrum. Without that threat, unemployment may not affect the voting habits of employed and retired people. The Soviet Union is only one difference between 1930s and 2010s politics, but reminds us that there is not a simple connection between economic downturn and political change.


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