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The 2008 Global Financial crisis not only had effects on the economy but also in the political sphere. It was also followed by the Eurozone crisis, which worsened the recovery of the world economy. Although the recovery was aided by the monetary push by the Central Banks across the world, it has been subdued and protracted stretching over a more extended period. Over these years, the political development in the world has moved to the extreme right of the spectrum. This can be seen from the rise of Donald Trump in the USA, Malcolm Turnbull in Australia and Narendra Modi in India. Brexit can also be seen as the culmination of these conservative ideas influencing the electorate. All these countries voted for such extremist politics around the same time and hence pointing to political fallouts from the economic crisis.

The far-right of the political spectrum is characterised by “emphasis on a cultural cleavage, the national, ethnic, religious, or cultural identity of the “people” against outside groups who allegedly pose a threat to the popular will” (Rodrik 2017). These outsider groups vary from country to country. In the USA, it is the immigrants from Mexico (illegal immigrants) and Asia (China and India which send skilled labour). In India, it is the Muslims who count for the minority and are targeted by the BJP. Moreover, both the leaders (Trump and Modi) are seen as influential and pragmatic leaders. Trump has unilaterally revoked the Paris Climate Agreement, the Trans-Pacific Partnership, the Iran deal while also introducing pro-labour reforms. Similarly, Narendra Modi has taken some tough decision like the GST, Demonetization and Surgical Strikes which are a break from the past. It is clear that the demand by the electorate is for such hard-liners.

The examples are spread across history. The biggest financial crisis, The Great Depression in 1930 saw the rise of Nazism and Fascism. Despite there being other factors, which are associated with the rise, the financial crisis can be the proverbial straw which breaks the camels back. The ‘outsiders’ in this case were the Jews, and the strict policy decision is the unilateral revoking the treaty of Versailles. The rise of Vladamir Putin in Russia post the 1998 Russian financial crisis can also be seen in the similar light.

The factors which explain this linkage between the financial crisis and right-wing politics is defined by Funke et al. (2016). The explanation is that there is a surge of anti-incumbency associated with the crisis. People believe that those in power have caused the economic crisis and hence they should not come back. Financial crises are preceded by reckless lending by banks. Such lending is for risky businesses and to lenders with questionable repayment capacity. This leads to asset bubbles being created due to excessive lending in specific sectors. For example, the 2008 crisis was preceded by the real estate bubble. When the asset bubble crashes, the borrowers make heavy losses since the value of the asset is lower than the loan payment. This creates an anti-incumbency wave amongst the borrowers. They are looking for some radical alternative and therefore vote for the extreme right. The analysis of Funke et al. (2016) also shows that this move towards extremism doesn’t move to the extreme left of the political spectrum (Marxist parties) but the right. Marxist parties see a stagnation of their vote share post-recession while the right-wing parties show a rise. Moreover, the right parties with their xenophobic views blamed the crisis on the outside groups. The campaigns are based striking fear among the majority of the electorate. Another reason for anti-incumbency is the pro-capitalist reforms undertaken by the party in power.  Banks and financial institutions are bailed out using taxpayer’s money. This makes the government appear to work only for the large businesses by extracting resources from the poor and saving those who created these financial crises. This creates even more resentment against the party in power who feel that the taxpayer money is being wastefully spent.

The effect of the radicalisation of the politics can be seen in the violence in the country. A report by the US Commission on International Religious Freedom has said that crimes against Dalits, Muslims along with social boycotts and forced conversions have increased since 2014 (USCIRF 2017). Even America reports higher cases of violence against African Americans and Muslims (Raghunathan, 2018). Along the same lines, some laws are passed in both countries which aim to curb the interest of the minorities. For example, the Triple Talaq Bill in India and an Executive order banning Muslims from entering the USA. Such laws echo religious intolerance and go against the ideas of secular democracy.

The repercussions of such xenophobic tendencies are economic. Such orthodox and religious fundamentalist groups undermine the economic success of the countries (Basu, 2018). Such groups prevent the expenditure in social reforms and upliftment of the poor and increase violence. This prevents a country from reaching its full economic potential. 15th and 16th century Portugal is a case in point. The Portuguese empire was at its zenith during the 15th century, arguably more powerful than even the British empire. However, Christian fanaticism overtook the political atmosphere in Portugal whereas England saw the Protestant reform taking place. This undermined economic growth of Portugal and made way for the rise of the British Empire. Hence, financial crisis leads to extremist right-wing politics which can further derail the long run economic growth.

Funke et al. (2016) show that the political effects fizzle out five years after the end of the crisis. The vote share of far-right parties reduces after five years and comes back to the historical trend by ten years.  The question for the 2019 general elections then is- When did the Indian economy completely recover from the 2008 crisis?


Basu, K. (2018, April 25). Why is Bangladesh’s economy booming?. Live Mint. Retrieved from https://www.livemint.com/Opinion/6avW0qZka0ZT1cVaT0UEPK/Why-is-Bangladeshs-economy-booming.html

Funke, M., Schularick, M., & Trebesch, C. (2016). Going to extremes: Politics after financial crises, 1870–2014. European Economic Review88, 227-260.

Raghunathan, S. (2017, January 27). Trump’s Xenophobic Vision of America Is Inciting Racist Violence. The Nation. Retrieved from https://www.thenation.com/article/trumps-xenophobic-vision-of-america-is-inciting-racist-violence/

Rodrik, D. (2018). Populism and the Economics of Globalization. Journal of International Business Policy, 1(1-2),12-33.

Sufi, A. (2016, June 14). Why You Should Blame the Financial Crisis for Political Polarization and the Rise of Trump. Evonomics. Retrieved from http://evonomics.com/blame-financial-crisis-politics-rise-of-trump/

Image credits- India News


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Written By Pranav Mayekar

Masters in Economics from TERI School of Advanced Studies

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