The rise in populism in numerous advanced economies has been driven by cost-of-living pressures. To protect our democracy, we will need faster productivity growth and all wages to rise with productivity.

Just over a week ago Pauline Hanson’s One Nation Party came second in the South Australian election with 22 per cent of the vote. This was a major increase on One Nation’s vote a little less than a year ago in the Federal election, when the party only won 6.4 per cent of the vote for the House of Representatives. Nevertheless, that was already an improvement on the around 2 per cent of the vote that One Nation had been winning in elections over the previous decade.

One Nation has few specific policies, but its populist appeal comes from those who feel they are missing out. The One Nation vote is a protest vote by people who say they are fed up, and the lack of specific policies does not worry them unduly.

But why this recent upsurge in One Nation’s popularity now? After all, Australia had been pretty successful in avoiding the increase in polarisation and upsurge in populism that has plagued many other liberal democracies, such as America and some of the European nations for a decade or more.

The common factor that seems to have driven the rise of populism everywhere is “cost of living pressures”.

Until the Covid pandemic, real wages in Australia were increasing sufficiently to avoid cost of living pressures for most people. But today, on average real wages in Australia are lower than they were six years ago before the Covid pandemic. Furthermore, real wages have fallen slightly further since the Albanese Government came to power (See Table 1).

Table 1 Real wage and productivity growth

Average annual rate of change %

The obvious reason for falling real wages and rising cost of living pressures is that productivity is not increasing; even falling (see Table 1). Fundamentally in a market economy it is productivity that determines people’s living standards, and if........

© Pearls and Irritations