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Economy, Ideology, and the Elephant in the Room

A few years ago, in the aftermath of the Lehman Brothers’ collapse and already after two consecutive quarters of negative economic growth in Europe, The Economist asked a few questions about the possible electoral consequences of the economic crisis:

“First, will any overall swing of the pendulum between left and right be clearly detectable? Will, for example, the fall-out from the current financial crisis benefit parties that favour more government involvement in the economy? Second, will voters tend to reject incumbents (perhaps because of the gathering economic troubles), or tend to stick with the leaders they know in uncertain times?”

As far as I can tell, there have been two types of answers to these questions. The first has been to suggest an anti-leftist “swing of the pendulum”, often illustrated with the defeats of Social Democratic parties in countries such as Britain or Spain. This account has even been espoused by some social-democrats themselves (such as David Milliband, cited here), and even the reactions to the recent victories of the Socialists in France – “Is Europe’s left poised for a comeback” – assume the existence of some sort of “anti-leftist wave” that only now may possibly be receding.

The second type of answer has been to suggest that the electoral performance of incumbents in Europe and other industrialized nations has been “business as usual”: retrospective voting, with voters punishing or rewarding incumbents on the basis of economic performance. In a widely circulated paper, summarized here, Larry Bartels looks at incumbent parties’ electoral performance in the OECD from 2007 to 2011, and makes two arguments. First, that “election outcomes over the course of this ‘Great Recession’ have provided little evidence of meaningful judgments on ideology or policy” (Bartels 2012: 44). Second, that economic performance, namely economic growth, accounts well enough for electoral outcomes in this period: “in periods of economic crisis, as in more normal times, voters have a strong tendency to support any policies that seem to work, and to punish leaders regardless of their ideology when economic growth is slow” (Bartels 2012: 50).

In a research note entitled “Economy, Ideology, and the Elephant in the Room,” I look at the electoral performance of incumbents in Europe (the EU27 plus Iceland and Croatia) in recent years, covering the period of the Great Recession (early 2008-mid 2009) and the three years since (mid-2009-mid 2012), with data on the 30 legislative elections that occurred in that period, i.e., from Malta in March 2008 until France in June 2012 (replication data here). My starting point was the notion that economic voting theories do not necessarily pose the irrelevance of “ideology”. One such argument concerns “policy-oriented” voting, originally proposed by Kiewiet (1983): to the extent that leftist parties emphasize the creation of employment and that increases in unemployment are likely to make voters more concerned with the problem, a worsening of the unemployment situation may actually result in better performance for parties on the left, even if they are the incumbents. A symmetric argument applies for inflation and rightist incumbents (see also Carlsen 2000). Another argument is the “luxury parties” hypothesis: Durr (1993) hypothesized that, while increases in “collective wealth” made citizens more likely to accept policies involving taxation and redistribution, in “times of economic uncertainty or insecurity, citizens will be less supportive of the liberal domestic policy agenda” (p.159). He found that economic downturns in the United States did shift citizens’ policy preferences towards conservatism, while periods of economic expansion drove preferences to the left. Stevenson (2001), Markussen (2008), Kayser (2009), and De Neve (2010) reach similar conclusions: lower economic growth shifts policy preferences away from the left and voting intentions away from “luxury” parties, i.e., those who support generous social programs. What these approaches have in common is the fact that although they see economy decidedly mattering for electoral outcomes, they also suggest that voters make meaningful distinctions between parties in terms of their ideology.

So what did I find? The dependent variable is the change, in percentage points, in the share of the vote for the Prime Minister’s party in each election in relation to the preceding one. I regress this on GDP growth in the four quarters before the election’s, the change in the unemployment rate in the preceding year, and inflation in the preceding year. Two controls: Time in office (the number of years the same PM party had been continuously in power at time of election) and Previous election result (taking into account the fact that, keeping other things equal, parties that have obtained larger shares of the vote in previous elections are liable to lose more in subsequent elections). Finally, I regress incumbents’ electoral performance on dummies capturing party ideology, measured either in terms of expert placements of parties on the left-right scale (Left, source: Parlgov) or in terms of the party families to which they belong (LeftFamily,1 for Social-Democrats and Communists).

The results are disappointing, to say the least. Most variables have the expected direction, including all the economic variables and previous vote share. However, all are far from conventional statistical significance. In what concerns the possibility of an “anti-leftist wave,” above and beyond what might be dictated by economic performance, the results are not supportive either: the coefficient for Left is positive while the coefficient for LeftFamily is negative, both also far from significant.

What if, however, we consider the possibility that different parties may have performed differently under the same economic conditions? Or to put it in another way, the possibility that the same economic developments affected parties differently? If we add interaction terms between incumbent party ideology and the economic indicators, what do the new results tell us?

Basically, they tell us that under conditions of low growth, leftist incumbents did significantly worse than rightist, and the the opposite happens in conditions of high growth (results are similar if LeftFamily is used). We can also take a look at the results from a different perspective: did economic developments affect all parties in the same way? The answer is no:

Leftist governments’ electoral performance was sensitive to GDP growth, rightist governments’ were not.

In sum, the answer to the question of whether there was a “anti-leftist wave” during the Great Depression can therefore be stated in a different way: instead of a simple “No,” what the results tell us is that, indeed, conditions such as the ones that prevailed in 2008-2009 in Europe – economic recession – seem to have resulted in particularly worse performances for leftist incumbents. However, those worse performances should probably not be mistaken by any fundamental change in ideological preferences in Europe irrespective of economic developments: in those countries that experienced economic recoveries in the last few years and where elections were preceded by solid growth, leftist parties ended up doing significantly betterthan rightist ones. Thus, the data supports the “luxury parties” conjecture, not a mere “retrospective voting” hypothesis. In both figures, the remaining results are also suggestive of “policy-oriented” voting, but the estimates are too imprecise.

Is this all? There is an “elephant in the room.” Take a look at incumbent performance since early 2008:

What is striking about this is the fact that, even after the “end” of the Great Recession (mid-2009), incumbent performance continued, on average, to decline, and variations between two different “groups” of countries are clearly visible. I speculate that, in the face of a protracted and yet unresolved financial, currency, and political crisis in the Eurozone, voters may be turning their dissatisfaction with the European crisis to the most obvious and accessible target: domestic governments. The final model tests the hypothesis that part of the divergence in the electoral fate of incumbent parties we see in the figure above is attributable to the governments of Eurozone countries suffering increasing electoral punishments as the crisis remains unresolved, above and beyond the (conditional) effects of the economy. The figure below shows the effects of “time” (Years since January 2008) in the performance of incumbents, depending on whether elections took place in Eurozone countries or not.

By each year elapsed since the beginning of 2008, incumbents in the Eurozone countries have lost 3.3 additional percentage points in the comparison with previous election results (p-value=0.027). For the other countries, the point estimate of the marginal effect is -1.7 and is very far from statistical significance. In other words, there has been a decline in incumbent performance experienced since the beginning of the Great Recession, above and beyond what could be expected on the basis of other factors, and that decline seems to be most clearly a phenomenon that has taken place in the countries of the Eurozone.

That the national governments of the Eurozone seem to be bearing the electoral brunt of what can only be seen as a much broader and systemic failure may be seen as a fundamental problem of democratic accountabily, given the highly complex network of economic factors and political actors at play. However, we should also not forget that European voters and governments have been playing this flawed accountability game for a very long time now. In a sense, there is even a sort of poetic justice in these developments. National goverments have been notorious for engaging in extensive blame-shifting to the EU level when faced with negative domestic outcomes and in credit-taking for the sucesses and benefits of integration. Now that the failure is, perhaps for the first time, a truly “European” one, the chickens are coming home to roost.

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