Politics on the beach

Two ice cream sellers plan to set up on a crowded beach. Where do they end up standing? Back-to-back in the middle of the beach. That way they each appeal to half the customers without needing to keep an eye on their competitor.

Compare today’s political marketplace. On both sides of the Atlantic, populists on both sides of the political spectrum seem to be pulling the hustings to the far ends of the beach, leaving centrist sunseekers underserved.

In the US, the Democrats are responding to Trump’s populist pitch with one of their own. Non-establishment, “progressive” candidates have been doing well in recent primaries. The party of the arch-triangulator – Bill Clinton – has seemingly forgotten its history.

In France, Marine le Pen will after all be running in 2027’s presidential election, and is topping polls in a political scene which looks even more fragmented than usual. A “stop le Pen” candidate may emerge in the second round, but like le Pen herself, will be less centrist than the outgoing Macron.

In Germany, the mainstream parties are also trying to keep a populist party (AfD) at bay as it seems poised to win a state election and representation in the Bundesrat, the upper house. The governing coalition of conservatives (CDU/CSU) and social democrats (SPD) is unpopular, however, and progressive populists (Greens and The Left) are gaining support alongside the AfD.

Italy, arguably the first big country in recent times to elect a non-establishment administration (the Five Star government in 2018), already has a populist leader, Giorgia Meloni. She has so far governed in a more centrist style than had been expected – splitting her own party in the process.

Meanwhile, the UK today has its seventh Prime Minister in little over a decade. Mr Burnham’s administration will reportedly move towards the populist Greens, while opinion polls show an even more popular populist party firmly encamped at the other end of the beach.

What’s going on? In the ice cream world, a clear gap in the market would be quickly filled by new entrants. Is the political market failing?

Given the nuances of voting systems and representative government, and the need for political parties and manifestos in the first place, should we even talk about a political “market” to begin with?

We can and do. If the programmes voters care about range along a scale, then it will make sense to talk of a centre of sorts. Human nature being what it is, there will be more people there than at the ends of the beach, and a successful supplier will target it.

Clinton’s triangulation, or competitive political marketing, was indeed a thing, after all. So why isn’t it working now?

To be fair, it is still political business as usual in some places. Canada has elected a distinctly centrist PM. Switzerland continues enviably to do without Big Politics at all. Meanwhile, we shouldn’t forget that much of the world still suffers a more basic democratic shortfall: ours are first world problems indeed.

But why aren’t the US Republicans and Democrats moving towards each other? Where are Europe’s successful centre parties?

Barriers to entry in the political market may be high. Political tribalism has deep roots. If you believe in “my party right or wrong”, you may tolerate it moving away from the centre. But then how do we explain the success of the populist insurgents? They are new entrants, after all.

Perhaps something else has changed.

When we talk about politics, we focus mostly on one dimension – typically, the “left-right” or “collectivist-individualist” one – and we look for the centre in those terms. But what if another dimension is in play, and our scale is outmoded?

When it first arrived, we suggested that populism – Trump, Italy’s M5S, Brexit – may reflect not a sudden shift in a nice/nasty dimension, but rather a protest, an instinctive wish to “stick it to The Man”, whomever they might be. On this reading, the “centre” which matters may not be defined relative to left or right.

What matters instead may be the extent to which a political party is associated with the perceived establishment – “The Man” – or not.

That might include Washington’s “Beltway”, the “swamp” which needs to be “drained”, and the liberal/progressive views associated with it, and the European Union. More generally, it may mean an overconfident chattering class which takes it for granted that clever people do politics best (there is a UK lobby group promoting exactly this idea).

Having seen received wisdom fail in several key areas of late, voters may implicitly have decided that there may in fact be little room for “experts” in political economy. Many of them have rejected the conventional political parties – and mainstream media – which the experts inhabit. So there was a gap of sorts – but populism is filling it.

What might anti-establishment politics mean for investors? It provides (yet) another reason for not rushing to premature conclusions when Things Happen. Meanwhile, we remember that there has been no change in the dimension which matters most to portfolios, which remains that of discounted present value.

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