What’s Driving US, European Voter Resentment?

by Cindy Sweeting of Franklin Templeton Investments, 11/1/16

Across the world, there has been a surge in support for populist causes and politicians, from the rise of Syriza in Greece and the vote for Brexit in the United Kingdom to the nomination of Donald Trump as the Republican presidential candidate in the United States. But this disillusionment with the staus quo was not fomented in a vacuum. Cindy Sweeting, director of portfolio management, Templeton Global Equity Group, says many of these voters have legitimate reasons for feeling disaffected, including the loss of middle-class jobs to overseas workers. As the United States goes to the polls on November 8—and many countries around the world prepare themselves for a spate of general elections in 2017—Sweeting discusses what she believes are the root causes for the recent resentment and the potential consequences if policies creating barriers to trade or worker movement are eventually enacted.

The global political landscape has become progressively more uncertain over the last year or so—particularly in the Western world—and the United Kingdom’s vote to leave the European Union (EU), nicknamed “Brexit,” clearly highlighted the smoldering resentment among many in the mainstream electorate who have been negatively affected by a variety of issues since the global financial crisis unfolded eight years ago.

These issues range from slow economic growth and low-wage growth to unemployment and job displacement to financial repression hurting pensioners and savers to the disconnect overall of financial markets from the struggles of working people in the real economy. Increased resentment toward the non-elected EU technocrats in Brussels, concern over the migrant crisis in Europe—and indeed immigration in general—as well as rising terrorism worries have all led to voter polarization and discontent on both sides of the Atlantic. Financial markets find political uncertainty difficult to process, as it doesn’t fit with normal fundamental analysis or standard risk models, and so markets usually react by assigning a higher risk premium when political instability is present.

The drift that we have seen in Europe and the United States toward what we would term nativism and protectionism is one of the common threads uniting the “protest” or the “anti-establishment” political movements in both regions. While we would argue that globalization has vastly improved overall living standards in aggregate, there have been losers as well as winners. Among those in the disenfranchised group are the working and the middle classes in developed markets who have seen their jobs shipped offshore or otherwise competed away by mobile and inexpensive labor. Compounding the loss of economic security is the perceived erosion of sovereignty and cultural identity as internationalism and globalization forces have gathered pace.

It’s not only US voters who will be given a chance to express their frustration at the ballot box over the coming months. Voters in countries that amount to a significant percentage of the EU economy will go to the polls over the next year, including France, Germany and the Netherlands. More recently, in defiance of Brussels, Hungary voted overwhelmingly to reject EU migrant quotas in a referendum held in the first few days of the fourth quarter of this year. The Italian government’s call for a constitutional referendum in early December, ostensibly on parliamentary reform measures, is being viewed by many as a proxy for the country’s commitment to Europe. A “no” vote in Italy for parliamentary reform would only add to the high level of political uncertainty that Europe is facing.