The Populist Conjuncture: Legitimation Crisis in the Age of Globalized Capitalism

Introduction

Western political life finds itself at a populist conjuncture with far-reaching political and institutional consequences. The present surge of populism across the West has inspired a thriving literature in political theory and political science on the question of how to conceptualize populism, on the policies and conduct of populist parties, and on the threats or possibilities posed by populism to liberal democracy. Yet scholarly attempts to account for the factors responsible for the rise of populism in contemporary Western politics are still relatively few and far between. This dearth of literature on the conditions of possibility for populism’s present success is curious, since the fact that populists are right now ascendant in practically every Western liberal democracy suggests that these conditions are not merely local, but at least to some extent transnational in nature. The overall aim of this article is to further our understanding of why populism is surging across the West.

In line with an older body of literature on populism (Hawkins et al., 2017), two of the most prominent recent attempts to account for the present surge of populism across the West point either to economic grievances, seeing it primarily as a reaction to economic insecurity issuing from the centrifugal forces of globalization (Rodrik, 2018), or to cultural grievances, equating it with a “cultural backlash” among certain sectors of the electorate to the diffusion of progressive values in Western society over the last 50 years (Inglehart and Norris, 2016). This article argues that both of these rival explanations suffer from their inattention to the normative or ideational content specific to populism, which can be understood as a political reaction or protest against a form of elite political rule perceived as illegitimate (Hawkins et al., 2017; Mudde and Kaltwasser, 2017). Populism’s ideational content suggests that the driving force behind the current surge of populism is not reducible to economic or cultural grievances alone, but that these must be understood as at least conjoined with or filtered through a distinctively political grievance—namely, the widespread experience of a deficit or crisis in the legitimacy of the political order—and that the present of surge of populism must in part be explained with reference to this experience.

Pushing this argument further, the more specific aim of this article is to establish that the theory of legitimation crisis developed by Claus Offe and Jürgen Habermas in the late 1960s and early 1970s offers a highly instructive framework for making sense of the current populist conjuncture. The present surge of populism coincides with a historical decline in political trust across the West, and the article argues that these phenomena are both indicative of the fact that Western welfare states currently find themselves in a profound legitimation crisis in Offe and Habermas’ sense. The article’s central claim is that this legitimation crisis ultimately derives from Western welfare states’ effective loss of control over economic life under conditions of economic and financial globalization: as markets have become evermore globally integrated, welfare states have increasingly lost the ability to submit market forces to political regulation, successfully manage economic crises, and shield citizens from the negative social consequences of globalization—in effect, rendering welfare states structurally incapable of meeting the public demand for legitimation on which the stability of the political order of the welfare state is predicated.

Furthermore, the article argues that this effective loss of state control over economic life was dramatically actualized by the 2008 financial crisis, which is interpreted as an exemplary case of what Habermas calls a “rationality crisis.” At the height of the crisis, welfare states across the West scrambled to save the global economic system by pledging massive quantities of public funds to prop up banks deemed “too big to fail,” thus overburdening public finances and laying the ground for years of public austerity and sclerotic private sector growth. A growing number of citizens have responded to this rationality crisis by losing trust in and withdrawing support from established political institutions, parties and political elites, instead empowering populists whose very raison d’être is a sweeping rejection of the ruling political establishment. The article thus suggests that the populist resurgence across the West is rooted in a fundamental structural transformation of the relationship between the state and the market, which has been affected by the globalization of trade, finance and capital over the last 40 years, and which was at once made manifest and greatly exacerbated by the 2008 financial crisis.

Finally, the theory of legitimation crisis also offers a novel account of the fact that populism has tended to focus on cultural issues and immigration in Northern Europe and on economic issues in Southern Europe, which homes in on the different immediate sources of the welfare states’ loss of control over economic life in these two regions. In the context of Northern Europe, the state’s inability to control economic life has been gradually precipitated by structural constraints imposed by anonymous global market forces, which have affected a gradual cross-political convergence in economic policy and an inconspicuous depoliticization of the economic cleavage. This has cleared a path for the politicization and predominance of the cultural cleavage and the rise of populist parties predominantly focused on issues related to culture and immigration. By contrast, Southern Europe has been much more severely affected by the eurozone debt crisis and subsequent creditor-imposed austerity, in which control over economic life has been directly appropriated by a clearly identifiable group of political agents (creditor states and the “Troika”). This has lead to the rise of populist parties focused on economic issues and distributive justice, while raging against creditors such as Germany and the International Monetary Fund (IMF).

The article is structured as follows. In section “Two Rival Explanations of Populism,” I sketch the two most prominent recent attempts to explain the present rise of populism, offered by Dani Rodrik and by Pippa Norris and Ronald Inglehart respectively, and I offer a critique of both accounts with reference to the ideational conception of populism developed by Cas Mudde and Cristóbal Rovira Kaltwasser. In section “The Theory of Legitimation Crisis,” I lay out the theory of legitimation crisis as originally developed by Offe and Habermas in the context of welfare state capitalism, with particular emphasis on clarifying the notions of a rationality crisis and a legitimation crisis. In section “From Welfare State Capitalism to Globalized Capitalism, ” I chart the historical path from welfare state capitalism to the present regime of “globalized capitalism” through a critical discussion of the recent work of Wolfgang Streeck and Nancy Fraser, who have both set out to revive the theory of legitimation crisis, albeit without establishing the connection to the populist resurgence. In section “Indications of Legitimation Crisis,” I argue that the surge of populism and decline in political trust in Western political institutions and elites should be interpreted as indications that Western welfare states presently find themselves in a profound legitimation crisis, due ultimately to their effective loss of political control over a globalized economic system. Finally, I argue that the theory of legitimation crisis also offers an innovative account of why populism has tended to focus on immigration in Northern Europe and economic issues in Southern Europe.

An important caveat before we begin. The aim of this article is to expound and restate the theory of legitimation crisis for the purpose of developing a candidate explanation for the current surge of populism across the West. However, the article does not attempt to corroborate this explanation empirically, and it is important to stress that the claims advanced in the following pages ultimately have the status of theoretical hypotheses. Naturally, my hope is that the theoretical account of the populist conjuncture, which this article develops on the basis of an exposition and restatement of Offe and Habermas’ work in social and political theory from half a century ago, may serve as a stimulus for future empirical work. Indeed, if this article succeeds in rendering this account sufficiently plausible to warrant further study, it will have achieved its purpose.

Two Rival Explanations of Populism

The two perhaps most prominent explanations of the present success of populist parties and movements across the West in the recent literature come down on different sides of a classic divide, with one emphasizing economic grievances and the other cultural grievances as the decisive element driving the populist resurgence. In Dani Rodrik’s (2018) account, the present surge of Western populism is understood as a backlash against globalization driven by citizens experiencing economic insecurity—the “losers of economic globalization,” as it were—while the political orientation of this “populist backlash” is seen as dependent on the local salience of the economic vis-à-vis the cultural cleavage. By contrast, Pippa Norris and Ronald Inglehart argue that the present surge of populism should in the first instance be understood as a political reaction of certain sectors in society to decades of progressive value change: a cultural backlash against multiculturalism, feminism and cosmopolitanism, involving hostility toward immigrants and a return to more traditionalist value orientations (Inglehart and Norris, 2016).

Both Rodrik and Norris and Inglehart acknowledge that different factors may impact on the supply side of populism (the narrative and policies offered by populist parties) than on the demand side (the underlying public grievances that prepare the ground for electoral support for populist parties). Rodrik argues that factors such as economic insecurity operates as a fundamental background influence paving the way for the populist backlash, and that even in the case of the vast increase in support for right-wing populism across Northern Europe, experience with economic insecurity significantly increases the likelihood that voters will support right-wing populist parties running on anti-immigration platforms (Guiso et al., 2017; Rodrik, 2018). Thus, “even when the underlying shock is fundamentally economic the political manifestations can be cultural and nativist. What may look like a racist or xenophobic backlash may have its roots in economic anxieties and dislocations” (Rodrik, 2018). By contrast, Norris and Inglehart find that cultural factors are at work both on the demand and the supply side of populism, arguing that “the rise of populist parties reflects, above all, a reaction against a wide range of rapid cultural changes that seem to be eroding the basic values and customs of Western societies,” such as the influx of immigrants from non-Western countries over the last four decades (Inglehart and Norris, 2016: 30). While these two rival accounts both seem to capture important aspects of the current populist conjuncture, I will argue that both in fact suffer from their inattention to the specifically populist aspect of the different kinds of backlash that they identify.

Much of the contemporary literature on populism converges on identifying as a defining property of populism the opposition to “elites” and the “political establishment.” Cas Mudde and Cristóbal Rovira Kaltwasser (2017: 6) have offered a highly influential definition of populism as:

a thin-centered ideology that considers society to be ultimately separated into two homogeneous and antagonistic camps, “the pure people” versus “the corrupt elite,” and which argues that politics should be an expression of the volonté générale (general will) of the people.

This “ideational” account of populism construes the latter as a “thin-centered ideology”: ¹ a malleable and adaptive “mental map through which individuals analyze and comprehend political reality,” which always depends on a “host ideology,” such as nationalism, socialism, or liberalism for its further political orientation (Mudde and Kaltwasser, 2017: 6). Depending on the host ideology, populism might take on a left-wing guise (focused on economic issues and distributive justice) or right-wing form (focused on cultural issues and immigration).

As Kirk Hawkins et al. (2017) have recently argued, traditional explanations for the success of populist parties and movements are marred precisely by “their failure to grapple with populism’s ideas”. This seems to me true of Rodrik’s and Norris and Inglehart’s respective accounts of the current populist conjuncture as well: neither account seems able to explain why voters turn to populists and their Manichean discourse of the common people versus the political elite, instead of more traditional mass parties with similar policies. As Hawkins et al. (2017) argue, populism is always also a “normative response” to a distinctively political grievance: namely, to “perceived crises of democratic legitimacy,” and we have no reason to assume that this should not be true for both the supply and the demand side of populism.

The challenge, then, is to explain the present rise of populism across the West in a way that takes its specific ideational and normative content seriously, and which is able to take account of the crisis of legitimacy that citizens, who flock to populist parties and movements across the West, seem to respond to. Such an explanation must thus offer an account of the present surge of populism, which takes the reasons that these citizens increasingly experience their political order as illegitimate into account. The rest of this article is devoted to advancing the argument that we find a highly instructive framework for developing just such a candidate explanation in Offe and Habermas’ work on the theory of legitimation crisis from half a century ago. ²

The Theory of Legitimation Crisis

In the late 1960s and early 1970s, Claus Offe and Jürgen Habermas undertook the project of “updating” Marx’s critique of capitalist society in order to reflect the structural changes that capitalism had in their view undergone from the “liberal capitalism” of Marx’s day to the Keynesian “welfare state capitalism” of their own. Offe and Habermas share Marx’s view of the capitalist mode of production as inescapably beset by a number of inherent contradictions. Marx had described these contradictions as pushing toward the self-destruction of the capitalist mode of production, executed by the proletariat against the capitalist class at the culmination of an ever more-volatile class struggle. According to Offe and Habermas, however, under conditions of welfare state capitalism this immanent tendency toward self-destruction has been tamed or postponed by adaptive tendencies in the structural framework of capitalist society, which have at the same time displaced the class struggle into a set of functional contradictions between societal subsystems that the capitalist welfare state is tasked with reconciling.

Specifically, Offe claims that although liberal capitalism was always dependent on the state to secure classical-liberal rights, the maintenance of social order and the rule of law, it was also unable to sustain certain necessary conditions of the increasingly complex capitalist production process. Since capital owners found themselves in the entrenched collective action problem of a permanent competitive standoff, they were unable to provide what Offe (2006: 87) calls “indispensable but unprofitable” public goods and services, such as public infrastructure, public administration, health care, and the public education and research necessary for the continued development of the technologically advanced and increasingly sophisticated productive forces. Moreover, they were helpless to fend off economic crises, resulting in the recurrent annihilation of capital and widespread social destitution, which in turn intensified the class struggle that threated capitalist society as a whole.

Notwithstanding Marx’s expectations, however, this existential threat to the capitalist mode of production was gradually accommodated by a continued growth in the tasks, expenditures, tax revenue and steering capacity of the state. The outcome of this adaptive process was the postwar welfare state, which not only provided indispensable but unprofitable public goods and services, but which also submitted the previously “autonomous” process of production and exchange to evermore ambitious forms of political intervention. State intervention into the economy in turn politicized economic life to such an extent that it gradually lost its ideological veil as a natural, spontaneous and normatively self-sufficient order—which the economic sphere had in Marx’s view enjoyed under liberal capitalism—and the terms and outcomes of economic life came increasingly to be seen as subject to political influence, as evident, for example, in the Keynesian welfare state’s political commitment to full employment. Indeed, as a consequence of this structural transformation of the relationship between the market and the state, the public came to see its continued support for the welfare state as conditional on a continued flow of legitimation, and this flow in turn became a necessary condition for the stability of the political order of welfare state capitalism (Offe, 2006). ³

The postwar Keynesian welfare state thus at once became the guarantor of legitimation for the capitalist social order as a whole, channeled through the institutions of mass democracy, and the guarantor of an adequate return on private investment, secured through its successful management of economic life—without, however, challenging the capitalist sine qua non of private ownership of the means of production (Habermas, 1988: 43). The birth of this novel political-economic framework transformed the contradictions of liberal capitalism into a complex set of countervailing functional demands on the postwar welfare state: on the one hand, the welfare state faced a demand to discharge the systemic requirements of the capitalist economy in order to maintain growth and returns on private investment acceptable to the owners of capital, and, on the other, it faced the public’s demand for legitimation. The welfare state’s ability to meet both of these demands was necessary and sufficient for the stability of the political order of welfare state capitalism. Caught in the middle of these opposing forces, the welfare state was forced to regulate and intervene ever deeper into economic affairs—which, however, begot systemic threats of a wholly new kind.

It is here that Habermas introduces the crucial notion of a legitimation crisis. Habermas (1988: 6) refines Offe’s distinction between three different systems constitutive of welfare state capitalism: namely, the economic system, the political-administrative system, and the sociocultural system—where the latter is concerned with the reproduction of norms, values and social institutions, and thus with public legitimation. Moreover, Habermas argues that the latent functional contradictions of welfare state capitalism occasionally break to the fore in the form of crises, conditioned by the three constitutive subsystems and the functional relations between them. Most important for our purposes, Habermas distinguishes between rationality crises and legitimation crises.

Rationality crises arise in the relationship between the economic and the political-administrative system, when the latter system is able to intervene in the former in order to avoid economic crisis only at the cost of displacing economic crises into the political-administrative system as a deficiency in state management of the economy. Habermas (1988: 47) speaks of a rationality crisis here because it takes the form of a crisis in the performance of administrative rationality: where political-administrative decisions fail to achieve their stated objectives or have substantial negative adverse effects, such as overburdening state finances.

Legitimation crises, on the other hand, arise in the relationship between the political-administrative system and the socio-cultural system in the form of citizens’ “withdrawal of legitimation” from the political-administrative system. The distinction between rationality crises and legitimation crises is introduced by Habermas in order to highlight the distinctive origins and implications of different crisis tendencies in welfare state capitalism. In the case of a rationality crisis, the origin of the crisis lies in disequilibria in the economic system, which is transferred into the political-administrative system through state intervention. In the case of legitimation crises, the origin might lie in endogenous structural developments in the socio-cultural system (such as a qualitative change in the public demand for legitimation), but also in the social-cultural system’s reaction to rationality crises. In other words, a rationality crisis might be “converted into the withdrawal of legitimation by way of a disorganization of the state apparatus” (Habermas, 1988: 46)—that is, into a legitimation crisis.

A rationality crisis corresponds to a critical deficit in what Fritz Scharpf (1999: 6) has called the output-legitimation of the political system, according to which “political choices are legitimate if and because they effectively promote the common welfare of the constituency in question.” A legitimation crisis, on the other hand, represents a critical deficit in what Scharpf (1999: 6) calls the input-legitimation of the political system, according to which political “choices are legitimate if and because they reflect the ‘will of the people.’” If a rationality crisis results in a withdrawal of public legitimation from the political-administrative system, it is because citizens will not support a political-administrative system that is experienced as either grossly ineffective or unjust (and thus as output-illegitimate) or as chronically unresponsive to their demands (and thus as input-illegitimate).

Habermas does not offer much by way of criteria for determining whether a legitimation crisis is at hand, but it is clear that he expects a legitimation crisis to involve a more or less extensive withdrawal of public support from the political-administrative system, with potentially dramatic implications for the stability of the political order as a whole. Neither does he tell us much in terms of the likely political implications of a legitimation crisis. However, it seems plausible to assume that we are dealing with a continuum ranging from robust legitimation on the one end to a full-blown legitimation crisis on the other, with more or less severe deficits of legitimation within those extremes. Within that continuum, we might imagine more or less severe legitimation crises to precipitate everything from a full-blown social revolution in Theda Skocpol’s (1979) sense over extra-parliamentary social movements and various kinds of electoral revolts and protest movements to widespread political apathy and resignation. One might reasonably assume that the likely political implications of a given legitimation crisis depend both on its depth and pervasiveness as well as on local political factors, which cannot be accounted for at this level of theoretical abstraction.

From Welfare State Capitalism to Globalized Capitalism

We now have the theory of legitimation crisis before us that Offe and Habermas developed to make sense of the structural transformations that capitalism had undergone from Marx’s to their own day. However, in order to make the case that the welfare state currently finds itself in the grip of a profound legitimation crisis, we must first chart the historical path from the postwar Keynesian regime of welfare state capitalism to our present day. In his book, Buying Time: The Delayed Crisis of Democratic Capitalism from 2013, Wolfgang Streeck takes the theory of legitimation crisis as his starting point for a diagnosis of the 2008 financial crisis, beginning with the forces that overturned welfare state capitalism from the 1970s onward.

According to Streeck, we can only understand the breakdown of the postwar “class compromise” undergirding the Keynesian regime of welfare state capitalism, if we are willing to conceive of capital as a social actor with the strategic capacity of collective action. This implies that the socio-cultural system no longer enjoys a monopoly on legitimation, but that a certain kind of legitimation crisis can arise on the side of capital’s relation to the political-administrative system: “Contrary to neo-Marxist theories, a legitimation crisis may therefore also grow out discontent on the part of ‘capital’ with democracy and its associated obligations” (Streeck, 2014: 52). From this point of view, “growth and full employment depend on the willingness of capital owners to invest, and that in turn depends on their aspirations for an ‘adequate’ rate of return.” Accordingly, the “absence of economic crisis means that capital is content, while crises signal its discontent” (Streeck, 2014: 53–54).

As a strategic social actor, capital commands the ability to initiate an “investment strike”—i.e. to “deny [democratic capitalism] its ‘confidence’ together with the investment necessary for it to function” (Streeck, 2014: 59), if individual capitalists come to view the political conditions of private investment as intolerable. According to Streeck, it was precisely the weapon of the investment strike that was deployed to such great effect during the “roaring seventies,” paving the way for a reorganization of the capitalist economy that freed capital from its Keynesian straight-jacket and enabled a return to pre-war profit levels in globalized markets and chains of production. More specifically, when the first and second oil shocks spelled the end of three decades of postwar economic growth in the West—which were simultaneously the heyday of welfare state capitalism—capital became unwilling to accept the terms of the class compromise embodied in the Keynesian welfare state and initiated an escape from its regulatory confines, which ushered in a new era or regime of capitalist development: namely, what we might call globalized capitalism. With this term, I refer not only to the global integration of markets, finance and chains of production, but also to the distinctive political-economic configuration of a globally integrated market economy and territorially fragmented welfare states, which is characteristic of the structural relationship between state and market in our present age (Habermas, 2015).

According to Streeck (2014: 59), the central means by which capital succeeded in “overcoming its passivity, restoring its capacity for action and organization, and extricating itself from democratic political efforts to plan its activity and use it for other objectives than its own” were precisely through “economic globalization”—that is, through the political deregulation of markets for labor, goods, services and capital, and the technological innovations that enabled capital to spatially reorganize across state borders. This market escape from political-administrative control gradually instigated a reversal of the balance of power between capital and the political-administrative system, freeing the former from the power of politics to dictate the conditions of production and exchange, instead subjecting democratic politics and organized labor to the structurally empowered demands of individual capitalists and the systemic imperatives of globally integrated markets.

However, the globalization of finance, trade and capital did not simply happen on its own accord; capital was set free by policy makers, who scrambled to plug the holes in the economy left by the investment strike of the 1970s. Democratically elected politicians were thus forced to “buy time” and shore up state finances through various monetary quick fixes, which soon begot their own problems: first by means of inflation; then, when inflation became insufferable for the wealthy, through public debt; and, finally, when soaring public debt threatened the creditworthiness of sovereign debtors, through the consolidation of public finances and transition to what Colin Crouch has called the “privatized Keynesianism” of deregulated private credit markets and credit-based consumerism (Crouch, 2009; Streeck, 2014). In 2008, the resulting debt pyramid collapsed, forcing welfare states to intervene and nationalize private debt in order to avoid another Great Depression. However, this rushed intervention, along with the subsequent recession and plummeting tax revenue also burdened taxpayers with a mountain of often irredeemable debt that again called the creditworthiness of sovereign debtors into question, and the potentially catastrophic systemic implications of this prolonged sovereign debt crisis have only been forestalled through a vastly increased role for democratically unaccountable central banks (Streeck, 2016).

According to Streeck, the relationship between democracy and capitalism today finds itself at an impasse. The latent functional contradictions that Offe and Habermas diagnosed in welfare state capitalism have broken to the fore in globalized capitalism. However, this great unraveling of welfare state capitalism has taken a form that Offe and Habermas did not expect: namely, of capital breaking through its political-administrative confines and regaining the kind of supremacy vis-à-vis the political-administrative and socio-cultural systems that the economic system enjoyed under liberal capitalism. Having escaped the “social-democratic prison” in which they were confined during the three postwar decades, finance and capital have, according to Streeck, proceeded to recast the whole world in their image, first converting the old “tax state” into a “debt state” and subsequently into a “consolidation state” fully subservient to financial markets—with imperatives of austerity and structural adjustment enshrined in transnational constitutions such as the European Monetary Union far beyond the reach of effectively disenfranchised democratic constituencies (Streeck, 2014).

Unfortunately, Streeck does not offer any attempt to connect this historically informed diagnosis with Habermas’ original sense of legitimation crisis. In fact, Streeck’s expansion of the notion of legitimation crisis to include investment strikes on the part of capital seems to displace rather than complement Habermas’ original sense of legitimation crisis. While Streeck (2014) faults Offe and Habermas for replacing “economic theory with theories of the state and democracy” and thus forgoing “a key part of Marx’s legacy”, Streeck effectively commits the reverse sin of analytically over-privileging political economy at the expense of considerations of public legitimation. In Streeck’s most recent work, we find scattered remarks on how the rise of “so-called populist parties” represents an “ominous symptom of growing instability of the democratic-capitalist system,” but unfortunately, we find no systematic attempt to connect these political phenomena with his insightful political-economic analysis (Streeck, 2016, 2017).

In her recent work, Nancy Fraser also sets out to revive the theory of legitimation crisis. Fraser starts from Habermas’ account of welfare state capitalism in terms of three constitutive subsystems. In any capitalist society, Fraser (2014) argues, the economic system rests on the other two systems as necessary but unacknowledged conditions of possibility for the valorization of capital, relying on “social reproduction” in the sociocultural system, and on the “public powers” of the political-administrative system. Moreover, Fraser (2014: 70–71) claims that capitalism harbors a contradictory tendency to undermine its own enabling conditions: “capitalist production is not self-sustaining, but free rides on social reproduction […] and political power; yet its orientation to endless accumulation threatens to destabilize these very conditions of its possibility.”

Fraser (2015: 187–188) wonders, “Why does the system crisis of financialized capitalism, multidimensional and severe as it is, provoke no legitimation crisis?” Her answer lies in the nature of the “system crisis” itself: namely, in globalized capitalism’s structural assault on the “public powers” of the welfare state. Today, “the problem is public power as such: its legitimation as a means of coordination, its ability to master private power, its capacity to solve social problems, and the scale at which it can be effectively and accountably deployed. In [globalized] capitalism, these matters are very much in doubt” (Fraser, 2015: 188). In other words, Fraser argues that the presupposed absence of a large-scale legitimation crisis of globalized capitalism is ultimately due to the inability of territorially fragmented welfare states to manage a globalized economic system. Fraser (2015: 188) raises the pertinent question: “how can democratic forces fix a dysfunctional system when the instrument needed for the repair is itself being ground to dust by those very same system dynamics?”

Indications of Legitimation Crisis

In the few years since Fraser put these words to paper, societies across the West have been rattled by dramatic political shocks often associated with populism, such as the United Kingdom’s decision by referendum to leave the European Union, the election of US president Donald J. Trump, and the rise of populist parties across the European continent. This surge of populism has occurred against the background of a dramatic decline in political trust across the Western world since the 2008 financial crisis. In this section, I develop the argument that Offe’s and Habermas’ theory of legitimation crisis offers a perspicuous analytical framework for making sense of the present surge of populism, which enables us, specifically, to account for the background structural conditions that nurture political distrust and the populist resurgence. Indeed, I want to argue that the simultaneous decline in political trust and resurgence of populism indicate precisely that Western welfare states find themselves amid a profound legitimation crisis, and that this legitimation crisis is in great measure born out of the welfare state’s structural inability to deliver on its normative promises of legitimation under conditions of globalized capitalism, as was so dramatically showcased during and after the 2008 financial crisis.

Political trust is perhaps the most intuitively straightforward indicator of a legitimation crisis, since this measure relates directly to citizens’ expressed confidence in political institutions, political parties and political leadership. In the US, political trust in government “to do the right thing” collapsed from a high of 64% just after 9/11 to a low point of mere 9% in 2011 (Citrin and Stoker, 2018; Hetherington and Rudolph, 2015: 7). Across the EU, trust in political institutions sharply declined in the wake of the eurozone debt crisis and the resulting economic recession, both in national parliaments and governments and in the EU as such (Foster and Frieden, 2017). Unsurprisingly, this declining trust in political institutions has been most remarked among the most vulnerable, least educated and lowest-earning citizens (the so-called losers of globalization), and it has been significantly more pronounced in eurozone debtor states than in creditor states (Foster and Frieden, 2017). Across Southern Europe, political trust has fallen from a figure of between 40% and 50% before the financial crisis to below 20% in 2015 (Foster and Frieden, 2017: 515–516). However, even in a Nordic welfare state such as Denmark with traditionally high levels of political trust, the recent decade has seen a rapid decline of trust in politicians from 69% in 2007% to 47% in 2015 (Andersen, 2017).

I want to argue that the populist resurgence is itself indicative of a legitimation crisis across Western welfare states, owing to the distinctive kind of political grievance that support for populism gives expression to. As we saw in section “Two Rival Explanations of Populism,” the ideational account of populism sees its specifically “populist” content as a thin-centered political ideology, which pits the common people against the self-serving political establishment. Moreover, taking populism’s ideational content seriously also implies that its present success cannot be reduced to economic or cultural grievances alone, but that populism always also represents a distinctively political grievance: namely, a protest or political reaction against a political order or form of elite political rule perceived as illegitimate. On the ideational account of populism, the populist resurgence thus indicates precisely the kind of public “withdrawal of support” from political institutions and the political establishment that Habermas sees as the hallmark of a legitimation crisis. Moreover, this legitimation crisis can ultimately be explained as the combined effect of welfare states’ increasing structural inability to meet the public demand for legitimation under conditions of economic and financial globalization and the conversion of the 2008 financial crisis into a rationality crisis of momentous proportions.

We can distinguish between two kinds of factors in explaining legitimation crises: long-term structural factors that gradually deligitimate political institutions in the eyes of the public over time, and systemic shocks that pull the rug of legitimation from under political institutions in one fell swoop. The present legitimation crisis can be understood as a perfect storm in which both long-term structural transformations and short-term shocks combine to deligitimate the political order of the Western welfare state. On the one hand, the globalization of capital, trade and finance represents a long-term structural transformation of the relationship between states and markets that has taken place since the 1980s, and which has gradually weakened welfare states’ control over economic life. It is important to tread carefully here, however, as it is crucial not to treat economic globalization as akin to a force of nature. As we saw in section “From Welfare State Capitalism to Globalized Capitalism,” the globalization of the economic system is to a large extent the result of political choices that liberated capital, trade and finance from the political constraints of the postwar Keynesian welfare state and paved the way for global financial markets and global capital mobility, which have in turn altered the structural relationship—and balance of power—between markets and the political-administrative system of Western welfare states. ⁴

Accordingly, it was in part the lifting of postwar capital controls that enabled the global mobility of capital, and as a consequence, wealthy citizens have tended to move their assets to offshore tax havens and capital flows have become increasingly difficult to tax (Piketty, 2018; Zucman, 2015). Capital deregulation also paved the way for intensified international tax competition to attract private investment, which have led to governments slashing corporate and capital gains tax rates—often by half or more—while tax rates on income and consumer goods have remained stable or risen, increasing the tax burden on workers and consumers relative to wealth and capital (Dietsch, 2015; Rodrik, 2018). At the same time, global mobility offered capital a vast increase in bargaining power over organized labor and democratically elected governments, leading to a dramatic increase in capital’s share of income relative to that of labor, resulting in real income stagnation and rising inequality across the West (Piketty, 2018; Rodrik, 2018). Moreover, successive free trade agreements loosened restrictions on trade across borders, but they simultaneously caused a series of “trade shocks” with dramatic redistributive consequences and labor market disruptions (Rodrik, 2018).

On the other hand, the 2008 financial crisis—which was itself ultimately the result of the political deregulation of finance—represents a sudden shock to the global economic system that immediately provoked large-scale intervention into financial markets by welfare states across the West. Indeed, the 2008 financial crisis can be interpreted as an exemplary case of a rationality crisis in Habermas’ sense—a crisis in the performance of administrative rationality, deriving from Western welfare states’ inability to a prevent catastrophic economic crises without transplanting them into the political-administrative system. After the financial crash in the fall of 2008, Western welfare states desperately struggled to prop up the global financial system with public means to avoid a catastrophic collapse of the whole economic system of globalized capitalism. However, they succeeded in preventing catastrophic systemic collapse in the global economy only at the cost of massively overburdening public finances, reflected in both a vast increase in public debt and massive central bank intervention through quantitative easing programs (Dobbs et al., 2015). As Mark Blyth (2013: 5) puts the point:

The cost of bailing, recapitalizing, and otherwise saving the global banking system has been […] between 3 and 13 trillion dollars [note that this figure is much higher, if subsequent QE-programs are included]. Most of that has ended up on the balance sheets of governments as they absorb the costs of the bust, which is why we mistakenly call this a sovereign debt crisis when in fact it is a transmuted and well-camouflaged banking crisis.

In the US case—where the crisis started in the mortgage industry and the so-called repo market and spread through a fire sale of mortgage-debt securities turbocharged with so-called credit default swaps throughout the globally integrated banking system—the Federal Reserve quickly pledged $1.75 trillion in support to collapsing banks (12,9% of US GDP) deemed “too big to fail,” and ultimately as much as $9 trillion (Blyth, 2013: 45). The resulting explosion in US public debt and economic fallout of the financial crisis—which resulted not only from vastly increased spending, but also from the collapse of tax revenue—provoked years of austerity, sclerotic private sector growth and a gridlocked US government (Hetherington and Rudolph, 2015). This rationality crisis in the US system of government in turn provided the backdrop for Donald J. Trump’s (2017) victory in the 2016 presidential election, who ran on a populist platform of “giving [power] back to […] the American people.”

In the EU, the collapse of the global financial system had particularly catastrophic economic consequences for the most vulnerable member states—the so-called PIIGS: Portugal, Italy, Ireland, Greece, and Spain. After the introduction of the euro, borrowing costs converged across the eurozone, enabling borrowers in the PIIGS to run up large quantities of debt. When credit dried up, the PIIGS went into an economic free fall and saw interest rates on their sovereign debt spiral out of control. This sovereign debt crisis, which quickly turned into an existential crisis for the eurozone as a whole, cast the PIIGS into outright debt bondage, first to private banks (German and French banks in particular), and after successive bailouts, primarily intended to lighten the burden on those banks, to the taxpayers of more economically robust member states (Germany and France in particular). While northern creditor states imposed severe austerity policies on the PIIGS in return for these bailout programs, they were also themselves forced to tighten their belts because of the need to act as potential guarantors for their own oversized banks, since “each national state’s balance sheet has to act as a shock absorber for the entire system” (Blyth, 2013: 7). This continental-wide rationality crisis in turn served as the backdrop for the electoral success of populist parties that we are presently witnessing across Europe.

The 2008 financial-cum-rationality-crisis has thus taken somewhat different forms in the US and in the EU and had more or less dramatic social consequences depending on the welfare state regime in question—depending, that is, on whether the regime is a liberal welfare state (the US and UK), a corporatist welfare state (Germany, Austria, France and Italy), or a social-democratic welfare state (the Nordic countries) in Esping-Andersen’s (1990) terms —and on whether states were debtors or creditors in the eurozone bailouts. However, these differences in terms of welfare state regimes and financial vulnerability characterize only the different baselines from which different welfare states have responded to the 2008 financial-cum-rationality crisis and to the same long-term structural transformation of the relationship between state and market precipitated by the globalization of finance, trade and capital.

In Scharpf’s terms, what we are witnessing is a structurally deep-seated, chronic crisis of output legitimation, brought to the fore and exacerbated by the 2008 financial-cum-rationality-crisis, which has been transformed into a large-scale crisis of input legitimation. The central claim of this article is that, ultimately, it is the increasing inability of welfare states to successfully manage economic crises and prevent the negative social consequences of globalization that has translated into a growing withdrawal of legitimation from the governing political institutions and ruling political elites across the West. As leaders of traditional mass parties have become more and more helpless to stem the tide of globalization, they have transformed into technocratic administrators of “functional imperatives” issuing from an ungovernable globalized economic system (Habermas, 2015), making themselves easy targets for the populist repudiation of self-serving political elites. As Offe (2015: 114–115) has recently argued:

we face a deep divorce between politics and policy: On the one hand, there is often populist mass politics (including identity-related “culture wars”) that has no perceptible implication for policy making on citizens’ core interests and bread-and-butter issues. On the other, there is elitist policy making that has no roots in, no links to, nor legitimation through politics. The promises and appeals by which political power is acquired (i.e., politics) are disjointed, under the dictate of financial markets, from the purposes of the achievement of which power resources mandated to governments are effectively employed and used for the making of policies.

In sum, while Western welfare states’ loss of control over economic life is principally due to long-term structural factors issuing from the centrifugal forces of economic and financial globalization, the 2008 financial crisis at once made manifest and exacerbated their limited capacity for economic governance, and as a result, publics across the West have increasingly lost confidence in political institutions and leaders and come out in ever greater numbers in support of populists raging against the political establishment. From this perspective, the current populist resurgence is thus by no means a mere mode du jour; rather, it reflects a deep-seated structural transformation of the relationship between the state and the market under conditions of globalized capitalism, which has resulted in the inability of welfare states to meet the public demand for legitimation, and which today manifests itself in a profound and pervasive legitimation crisis across the West.

Moreover, the theory of legitimation crisis under conditions of globalized capitalism also suggests a distinctive (if somewhat tentative) account of the fact that populism tends to focus on immigration in Northern Europe and on economic issues in Southern Europe (Rodrik, 2018), which integrates the economic and cultural grievances highlighted by Rodrik and Norris and Inglehart through the lens of the theory of legitimation crisis. This account takes the populist resurgence against the perceived illegitimacy of the ruling political establishment as its starting point, while explaining the different political orientations of populism in Northern and Southern Europe with reference to the different immediate sources of the welfare state’s loss of control with economic life in these two regions. In Northern Europe, as we have seen, this loss of control has to a large extent been inconspicuously precipitated by anonymous global market forces—unleashed, as we have seen, by prior political deregulation—leading to a gradual cross-political convergence of economic policy and a concomitant depoliticization of the economic cleavage. In Southern Europe, on the heels of the eurozone debt crisis, the welfare state’s loss of control over economic life has been mediated by a determinate set of clearly identifiable political agents—the IMF and northern creditor states—leading to a concomitant politicization of the economic cleavage.

The gradual, long-term effective disenfranchisement of democratic constituencies in matters of economic policy across Northern Europe is not unlike the metaphor of the frog in boiling water: because the water is only gradually and slowly brought to a boil, the frog does not perceive the imminent danger and is slowly boiled to death. Similarly, because anonymous market forces of economic and financial globalization have only gradually imposed evermore-restrictive structural constraints on economic policy-making, democratic electorates in Northern Europe have tended to remain oblivious to the gradual convergence of economic policies, which have slowly but steadily become increasingly depoliticized in the public realm. As argued by Norris and Inglehart, it is partly as a consequence of the increased presence of immigrants with a non-Western background in Western welfare states that conflicts over immigration and culture have been on the rise, and right-wing populist parties across Northern Europe have spearheaded this politicization of the cultural cleavage. However, the predominance of the cultural cleavage in Northern-European politics is also—I want to suggest—made possible by the structural depoliticization of the economic cleavage and the retreat of conflicts over economic policy from political life. As Thomas Piketty (2018) has recently suggested, the welfare state’s loss of effective political control with economic life under conditions of economic and financial globalization may thus indirectly serve to explain the increased salience of the cultural cleavage, and, therefore, why the populist revolt against political elites has tended to focus on immigration and culture across Northern Europe rather than conflicts over economic policy.

In the context of the PIIGS, by contrast, the welfare state’s general loss of control with economic life has been mediated through a set of clearly identifiable political agents, in that the eurozone debt crisis has cast the PIIGS into a virtual state of debt bondage to creditors such as Germany and the IMF. Accordingly, populism across Southern Europe has tended to focus much more on the immediately responsible political agents for the economic insecurity, unemployment and deprivation experienced by millions of Southern Europeans (Rodrik, 2018). The theory of legitimation crisis thus offers an integrative framework for explaining why the trans-European populist resurgence—which is explained, in the first instance, in terms of the legitimation crisis of the Western welfare state—has tended to take on different political orientations in Northern and Southern Europe, in that the respective degrees of politicization of the economic and cultural cleavages is explained with reference to the different immediate sources of the welfare state’s loss of control over economic life.

Conclusion

I have argued that the theory of legitimation crisis developed by Claus Offe and Jürgen Habermas some fifty years ago offers an instructive theoretical framework for making sense of the current populist conjuncture. The theory of legitimation crisis enables us to understand the populist resurgence and dramatic decline in political trust since the 2008 financial crisis as indicative of a profound legitimation crisis of the Western welfare state, and to account for this legitimation crisis with reference to the welfare state’s effective inability to control a globalized economic system, as well as the conversion of the 2008 financial crisis into a momentous rationality crisis.

Moreover, I have argued that the two most prominent rival accounts of the present rise of populism—offered by Rodrik and Norris and Inglehart—both implausibly reduce populism either to a backlash against economic globalization or to a cultural backlash against decades of progressive value change. In doing so, they fail to take seriously the normative or ideational content of populism, as a political reaction to a perceived crisis of legitimacy. By contrast, the main advantage of the theory of legitimation crisis is that it offers a theoretical framework tailored to account for the structural conditions of such a perceived crisis of legitimacy, explaining this crisis with reference to the welfare state’s effective loss of democratic control over economic life under conditions of economic and financial globalization—thus rendering the political-administrative system structurally incapable of meeting the public demand for legitimation.

I have also argued that the theory of legitimation crisis enables us to integrate the economic and cultural grievances highlighted by Rodrik and Norris and Inglehart into its account of the different political orientations that the populist resurgence has taken in Northern Europe (focused on cultural grievances) and Southern Europe (focused on economic grievances). More specifically, I have argued that this divergence can be explained with reference to how the different immediate sources of the welfare state’s loss of control over economic life—anonymous global market forces as opposed to clearly identifiable political agents—have affected a depoliticization of the economic cleavage in Northern Europe, thus paving the way for the politicization of the cultural cleavage, and a politicization of the economic cleavage in Southern Europe.

As noted in the Introduction, these theoretical claims cannot stand alone, but require further study and empirical work. However, if they are warranted, they imply that any serious attempt by traditional political parties to respond to the present populist conjuncture cannot limit itself to mere changes in rhetoric or policy within the given political-economic framework. Rather, any such attempt must grapple with the deeper structural transformation of the relationship between state and market precipitated by economic and financial globalization, which has structurally disempowered democratic politics and cleared the path for the current populist resurgence across the West.