In 2017, the Cambridge Dictionary proclaimed “populism” the word of the year. There are many definitions of the term,  still, it always evokes strong emotions. One of the definitions of populism in politics was proposed by the Swedish think tank Timbro.

In the 2019 edition of the Authoritarian Populism Index, which has just been published, populist parties are characterized by, among others, the creation of conflicts between “people” and “elites”, strong nationalism, tendencies to remove institutional restrictions on power, and anti-capitalism. Although not all of these characteristic features need to be shared, the combination of several of them, according to Timbro, poses a threat to the model of liberal democracy in Europe.

Should businesses, entrepreneurs, and other taxpayers be afraid of such populism? The dangers of anti-capitalism are obvious. In the European Union, we see differences in the level of economic freedom between countries, but all economies are still based on the capitalist model.

The situation in Venezuela reminds us today of the real costs of anti-capitalism.

May this serve as a warning against the implementation of some of the demands of groups considered to be radical left-wing parties?

Strong nationalism can also be a threat, as it is rapidly turning into protectionism in the economic dimension. Although, in the short run, it may seem attractive to a narrow group that politicians decide to “protect” particular interests, the dispersed costs of protectionism are borne by almost everyone.

Most economists agree that free trade means mutual benefits for sellers and buyers. In economics, in this case, we are talking about a positive sum game, which can be threatened by the protectionist actions of populist parties.

From the perspective of Poland and other CEE countries, it is particularly dangerous to remove institutional restrictions on power. The authors of the populism index, in which Hungary ranked first and Poland fourth, show that populist parties often have a narrow understanding of democracy (as the will of the majority), without attaching importance to democratic institutions such as the separation and limitation of power or other principles of the rule of law.

The index also highlights a particularly dangerous trait of populists, namely the phenomenon of the majority rule without speed-bumps, which can be particularly harmful for entrepreneurs.

One of such speed-bumps constitutes, for example, a sound legislative process with real regulatory impact assessment and public consultation, which can and often should be time-consuming.

In Poland, common and administrative courts, the constitutional court, the central bank, the Ombudsman, as well as other institutions important for the economy, isolated from the current party politics, such as the UOKiK (Office of Competition and Consumer Protection), URE (Energy Regulatory Office) or GUS (Central Statistical Office) act precisely as such speed-bumps.

Studies on barriers to business development in Poland highlight legal instability and the poor quality of law making and law enforcement as the primary obstacles to growth. The dismantling of various speed-bumps by populists who want rapid change is a real threat to entrepreneurs who need stability in the legal and institutional environment.

The last convention of Law and Justice, the ruling party in Poland, was a festival of many expensive promises, which is not a coincidence in an election year. It is in the interest of all entrepreneurs and taxpayers to avoid falling into the trap of the populist bidding of politicians.

An advantageous economic situation will not last forever, and the reality caused by the irresponsibility of a narrow group of politicians will eventually catch up with all voters.

The article was originally published in Polish by Rzeczpospolita