Do economic crises cause nationalist upsurges? : a panel study on the causal relation between economic crises and politicized nationalism in post-1975 Europe

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Do Economic Crises Cause

Nationalist Upsurges?

A panel study on the causal relation between economic

crises and politicized nationalism in post-1975 Europe

Mike Winkel January 29, 2016

Master Thesis Faculty of Social Sciences Student ID 6143032 MSc International Relations

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Abstract

This study examines the link between economic crises and nationalist upsurges in post-1975 Europe. The 2007-2008 Financial crisis has made the matter more intricate due to its global and unveiled systemic scope. Existing research has shown that economic crises and nationalist upsurges may be related, although consistent empirical evidence is lacking. Therefore, an empirically quantitative approach was chosen in order to fill gaps in this field. This thesis starts out with Karner and Tønneson‟s elaboration of Billig‟s theory of banal nationalism, which can be mobilised and lead to the politicization of national identities and entails an increase of xenophobia, the assumption of an exclusively national identity, and specific to Europe, a rise in Euroscepticism. Arguing that financial crises and economic recessions cause mobilisation of national identities required further examination on their theoretical background and societal effects. Together with other theories, these results led to the formulation of three potential causal mechanisms.

The first mechanism, rationally motivated nationalism, concerns a rational choice in the assumption of a politicized national identity, due to threatened material security following economic crises. The second mechanism, hype induced nationalism, suggests that the perceived threat of negative material effects caused by an economic crisis, as expressed through the media, financial and socio-cultural globalisation, leads to the identification with a politicized national identity by way of exclusionary in-group behaviour. The final mechanism, populist instilled nationalism, proposes that in times of crisis the (electoral successful) presence of right-wing populist parties leads to an increase of politicized nationalism through the parties‟ utilisation of political opportunity offered by such moments.

Using a fixed effects panel data regression mainly based on Eurobarometer data for 15 countries in the time span of 1975 and 2014, and complemented with the KOF-index, World Bank and OECD data as well as Mudde‟s index of populist parties in Europe, yielded evidence that suggests that the theory of rational motivated nationalism is strongly supported. Hype induced nationalism yielded more ambiguous conclusions, but nevertheless the results offered some support in favour of this mechanism. Surprisingly, no evidence was found in favour of the populist instilled nationalism mechanism.

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Introduction

The Great Recession1 thoroughly shook up society by its global scope and unexpected repercussions. Contrary to preceding financial crises, those hit hardest were the advanced industrialised nations, which had previously been regarded as exempt from the destabilising effects caused by financial shocks. What had tentatively started in 2007, was heralded as a full-blown crisis by the Lehmann Brothers‟ bankruptcy in 2008, and quickly became the worst financial crisis since the Great Depression (Ötker-Robe & Podpiera, 2013, p. 2). The financial support given by various affected governments dulled the blow, as they stabilized their financial sectors and somewhat prevented further economic decline. However, in turn, this led to a fiscal deficit of the states themselves. The crisis led to a contraction of GDP and capital investment, an upsurge in unemployment, a rise of negative equity and a general decrease of consumer demand. Additionally, the severity of the crisis led to a myriad of political and social changes, of which some were more obvious than others. One author went so far as to state that Obama‟s 2008 election as president of the United States of America could partially be attributed to the recession (Wieviorka, 2014, p. 92). In 2016 the full scope of the social and political effects caused by the Great Recession has yet to be fully explored.

While the financial crisis had worldwide repercussions, contemporary Europe specifically experienced a nationalist upsurge. This recent upsurge of nationalism in Europe is often denoted as a negatively expressed sentiment of daily uncertainties and general dissatisfaction. What is more, the last few years are marked with a growing number of Europeans becoming Eurosceptic and a perceived rise in popularity of populist parties, while xenophobic sentiments are spreading. For instance, current Dutch polls indicate that the PVV – a Dutch right-wing populist party, known for its xenophobia and its prominent voicing of Euroscepticism – is currently the major political party of the Netherlands (EenVandaag, 2016). These anti-outsider sentiments are not limited to the political sphere: heavily mediatised expressions of aggression against refugees are prevalent all over Europe (New riot in Dutch town against refugee centre, 2016). In contrast, recent conclusions drawn from survey data indicate a contrary trend, by providing documentation showing that Europeans have become less antagonistic towards migrants in recent years (de Koning, 2016). This begs the question what mechanisms might be at work here.

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A possible causal relation between the 2007 subprime mortgage crisis and the nationalist upsurge in Europe, as suggested by Rantanen (2014), may shed light on this question. In his theoretical paper, Rantanen argues that the economic crisis is an example of Ulrich Beck‟s (2009) Global Risk Society at work. Further exacerbated by the media and politicians, the effects of the crisis are thought to have led to an increase of nationalism in Europe. Moreover, Kriesi and Pappas (2014) have looked into this attitudinal trend through empirical methods, and came to the conclusion that the Great Recession has led to an increase in populism all over Europe. Employing a comparative analysis of Europe, their work has indicated that the recession has generally led to both economic and political crises, which could be exploited as political opportunities by populist parties. These two works therefore seem to suggest the existence of a link between economic crises and nationalism.

However, aside from the previous two works, scarcely any research has been conducted on the matter. A search in academic libraries has yielded few results aside from other country specific and time specific research. Higgot (1998), for example, has shown that the South-East Asian crisis has led to an increase of popular nationalist rhetoric amongst politicians in several of these countries, while Cable (2010) illustrates the existence of the link in the 1930‟s. On another note, Kriesi and Pappas‟ work does not actually measure nationalist upsurges in the nation, but the success of populist parties in Europe. As such, they do not systematically describe the individual motivations of people‟s choice to vote. Lastly, apart from Kriesi and Pappas‟s work, none of these works are actually empirical in nature. Therefore, the question of an actual, systemic existence of this link requires further attention.

The uncertainty of the systemic existence of this causal relationship is poignant considering the implications it has for the future of Europe. With a growing body of literature written on the wider negative social implications of economic shocks combined with the insight that the contemporary globalised financial architecture possesses a systemic tendency to cause economic crises (Bordo, Eichengreen, Klingebiel, & Martinez-Piera, 2001), the need for a systemic reform of the international economic structure becomes more pressing. This thesis attempts to contribute to this field of literature by addressing the possibility of the existence of a systemic causal link between nationalism and economic crises and by formulating

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theorised causal mechanisms. The aim of this work is therefore to answer the following research question:

Through what mechanisms do economic crises cause nationalist upsurges in post-1975 Europe?

In order to answer this research question Gerring‟s (2005) Unified Framework

on Causality in the Social Sciences is employed. Providing his insights in how the

social sciences should deal with causal questions, Gerring formulates a myriad of criteria on how to construct a causal argument and how to test it with a research design. While Gerring lists sixteen criteria for the proper articulation of a causal argument and seven for the construction of an adequate research design, his criteria are explicated here in a more compact manner. As is universally valid for every research, a proper causal examination requires a precise specification of the relation between the two concepts and it needs to be demarcated within a limited time and space. Moreover, it requires the specification of distinct causal mechanisms, which can be compared and measured in some way. Furthermore, in order to demonstrate proof of general causality, a research design requires a degree of plenitude of available cases in order to measure, compare, and replicate its results, while, at the same time, be able to deal with variance across cases.

Following this logic, post-1973 Europe is used as the demarcation of this research because it enables this research to make wider inferences on the possibility of the existence of a systemic link, while, on the other hand, also remaining engaged in the specificities of the time. The time frame used within in this research coincides with the post-Bretton Woods globalised financial architecture. Bordo (2001) has illustrated that this architecture, established after the end of the Bretton Woods arrangements, systematically experiences financial crises and therefore possesses enough moments in time to test this research question with. Choosing Europe as the region to test causality is more pragmatically inclined: Europe consists of a myriad of different countries, thereby making more generalizable inferences possible while, at the same time, data on these countries and their citizens have been systematically collected since the 1970s.2

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Moreover, further adhering to Gerring‟s specifications, this research is structured in the following manner: chapter 1 and 2 conceptualise the nature of contemporary nationalism and economic crises. These chapters are structured by first providing the general context of these concepts and the theories employed in this research. After this, empirical research complementing the proposed framework is outlined. More specifically, chapter 1 describes Billig‟s theory on nationalism mobilised during times of crisis, while chapter 2 further elaborates on the systemic nature of economic crises and specifies its economic, social and politico-cultural consequences. In chapter 3 the proposed mechanisms that link nationalist upsurges and crises are sketched and subsidiary hypotheses are formulated. Three different mechanisms of nationalism are specified: rationally motivated, hype induced and populist instilled. Chapter 4 operationalizes the concepts, introduces the dependent and independent variables and formulates the models used and tests employed in order to test the research question. Furthermore, chapter 5 gives an overview of the results of the analysis. Chapter 6 concludes with a summary of the conclusions and a discussion of their implications.

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Chapter 1: Nationalism

This section aims to elaborate on the concept of nationalism, as it will be employed in this work. The term nationalism is used to denote the politicization of a normally unexpressed, but internalized, national identity that exists in the collective minds of the people in individualized market states. This definition relies largely on the works of Karner (2011) and Tønneson (2004). Karner made the distinction between latent national identities, which exist within the minds of inhabitants of a nation-state, and politicized nationalism, as an expressed form of that national identity when it is seen as endangered. Tønneson, in turn, points out that contemporary globalisation has an ambiguous effect on individualized nation states and argues that these states need to maintain a delicate equilibrium, between excessive nationalism and social fragmentation, in order to maintain stability and economic advantages in an increasingly globalized world. The combination of these two trends is hypothesized to lead to nationalist upsurges when adverse effects of contemporary globalisation are generally believed to impose upon cultural particularities and individual wellbeing. Consequently it is believed that these nationalist upsurges are prevalent in established European nations and that in practice they lead to xenophobia and Euroscepticism.

This section is divided into three parts: the first part explicates the traditional theories on nationalism, which fail to adequately account for the nationalist resurgence in contemporary Europe. The second part posits new theories that are able to account for this resurgence by categorizing nationalism as being a politicized subset of national identities. The third part delves deeper into the implications of these new theories by looking at contemporary empirical findings. More concretely, first, a framework of traditional nationalism literature is provided in order to clarify what nationalism entails. The necessity of this endeavour stems from the conceptual vagueness that is prevalent in literature concerning nationalism.3 From this outline some structural commonalities are derived which count as universally acknowledged notions of nationalism. After this it is explained that traditional conceptions of nationalism are unable to provide an accurate account of what nationalism entails in post-Cold War Europe. The second part starts by outlining Billig‟s (2002) theory of

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Some authors have mentioned that it is almost a cliché when others mention that it is a cliché to state that there exist as many definitions of nationalism as there are authors.

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banal nationalism. Contrary to Hobsbawm‟s and Deutsch‟s prophesy concerning the end of European nationalism following European unification, Billig‟s theory entails that nationalism persists in a more mundane manner in established nation states. After this, Tønneson‟s and Karner‟s theory are used to elaborate on the contemporary status of European nationalism, by arguing that national identities remain prevalent in Europe and are actually necessary to adequately function in an increasingly interconnected world. However, both of them also explicate the possibility of the politicization of this new nationalism due to extensive globalisation. The last part of this section deals with what this politicization entails, reasons for its occurrence and identification of the politicized groups, by explicating several empirical works that deal with these matters. This section concludes by summarizing its findings on what contemporary nationalist identities encompass in Europe, how they can be politicized and who this affects, as well as in what manner nationalist upsurges are to be analysed.

1.1 Traditional notions of nationalism in crisis

An introductory course on the traditional nature of nationalism presumably mentions Gellner (Gellner & Breuilly, 1983), Smith (1991) and Anderson (1991) some of the most prominent and relevant scholars on the matter. These authors took it upon themselves to elaborate on the origin of the modern nation as a human invention in a particular stage of history (modernism), as opposed to the nation as an ancient, universal and transcendental human feature (primordialism). Both Gellner and Anderson argue that nationalism is a product of modernity: the state and capitalism invent the nation in order to create a homogenized and willing workforce for the capitalist state or an imagined community. Smith, on the other hand, lends more credence to the primordialist argument by stating that nation-builders require historical symbols to base their nationalism upon. Nevertheless, Smith acknowledges that this task may be executed in a selective manner in order to create a false national consciousness.

It becomes apparent then that nationalism, as described by these and other authors, is a social construct that exists solely in the collective consciousness of the people. Paraphrasing Renan (ed. 1996), Kaldor (2004) further elaborates on this attribute of nationalism by stating that “nationalism is a daily plebiscite to be

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subjectively affirmed and re-affirmed, only to persist to the extent that people choose to be nationalist.” (p. 162). The importance of this lies in the fact that it makes it necessary to consider nationalism from both a micro-foundational and a socially aggregated point of view. From this perspective, people have a choice in the assumption of a specific conception of a nationalist identity over another.4 Bechhofer and McCrone (2010, pp. 2-3) elaborate on this notion by arguing that actors shape their identity based on personal actions, choice, and rationality while being constrained by the social structure in which they exist. This also implies that nationalism is not historically invariant per given nation and can change in character over time. This idea is put forward in the book of Halikiopoulou and Vasilopoulou (2011), where it is argued that nationalism has indeed changed its character throughout time and space for a myriad of reasons. Despite this, or arguably because of its adaptable nature, it remains a recurrent feature within the state-system (id. p.9). As such, it can be concluded that controlling for the historical variance of nationalist trends and focussing on the micro- and the macro-social aspects is crucial when analysing or measuring nationalism.

However, it seems that despite their analytical power, the aforementioned theories on the modernist nature of nationalism are unable to account for the continuing prevalence of nationalism in contemporary Europe. More specifically, they cannot account for the fact that nationalism remains a common feature in largely homogenous nation-states5 (Fisher, 2013) with no real threat to their survival. Elaborating on the latter, authors such as Hobsbawm (1990) and Deutsch (1966) have argued that the late 20th century trends of European unification – such as the fall of the iron curtain and the Maastricht treaty – should have marked the end of animosity (and therefore the threat of war) between European nation-states. Nevertheless, with the rise of nationalist populist parties and re-occurring trends of nationalistically inclined xenophobia existing all across Europe, the theorized end of nationalism seems far-fetched. In fact, as discussed by Halikiopoulou and Vasilopoulou (2011), this actually suggests that instead of disappearing and becoming redundant, European nationalism has changed and adapted in order to interact with new forces.

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Or choose to ignore being part of a nationality completely.

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To gain an understanding of the factors that contemporary European nationalism has to take into account, the structural deficits of the previous theories and the changed operational landscape require further examination. Two distinct theories can be identified in this context. Firstly, Breuilly (2011) speaks of an internalist bias within the ranks of writers on nationalism, arguing that he and most other modernist writers suffer from it. By the term internalist bias Breuilly describes the phenomenon that historically these modernism writers largely attribute the nature and establishment of nationalism to the nation-formation efforts of the state in the 18th, 19th and 20th century, without consideration for external factors contributing to the formation of a national identity. He furthers his case by demonstrating that external trends have positively contributed to the formation of the modern nation state. Additionally, Breuilly contends that external trends keep influencing the formation and nature of national identities after they have already been established. As such, a mere internalist analysis of national identities would offer a skewed and rather limited view, as it fails to take all relevant factors into account. The second theory distinguishes between real and perceived threats causing nationalism: Lahav (2004) argues that, contrary to traditional notions, perceived threats are responsible for fostering nationalist sentiments, rather than real threats to individuals or the nation as a collective group. In fact, formerly, real threats caused by animosity between European nation-states were a vital aspect in the manifestation of nationalism. Over time these have been replaced by the personal perception of threats, which have become the new trigger.

This can be tied to the drastic changes in Europe happening since the 1970‟s, and arguably even more rapidly following the end of the Cold War. Over the last decades European countries have become increasingly subject to trends of European integration and globalisation, thereby relinquishing traditionally sovereign power to external (and non-national) forces such as the European Union. Moreover, this trend is accompanied by the disintegration of the traditional separation between domestic and foreign policies, which increasingly overlap. In contemporary Europe states seek to manage transnational flows in a broad sense6, rather than to create a distinct and unique nation-state (Tønneson, 2004, pp. 179-180). Bobbit (2002) further elaborates upon this by pointing out that European nations are transitioning from the

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nation-state to the market state. He argues that contrary to the nation-state, the market state is not concerned with the absolute wellbeing of the nation. Rather, the latter is concerned with facilitating opportunities for individuals, so that they can forge their own path to their well being in an interconnected world. Bobbit‟s argument suggests that the nation is separated from the general political decision-making process.

1.2 Distinguishing a national identity and nationalism

A prominent theory on the nature of nationalism, which positions nationalism within contemporary Europe, is Billig‟s notion of banal nationalism (2002). Coming from a psychological context, Billig states that a national identity is the basis of the reproduction of the idea of „the national homeland.‟ According to him a study on nationalism should therefore focus on the discourse used to present a national identity. Billig contends that contemporary nationalism does not so much function on the fringes of society7, but that its influence can be found in inter alia symbols, rites and traditions. Through this argument he criticises authors who perceive contemporary nationalism as a state of exception in contemporary advanced societies. Instead, he argues that nationalism is institutionalized and people are continually, but unconsciously, reminded of nationhood via inconspicuous symbols, rites and traditions: nationalism does not disappear, although it becomes latent when people opt to forego a prominent and explicit national identity. At the same time, however, Billig states that nationalism may be rekindled following the occurrence of a crisis (p.5). He illustrates his argument with the Falkland or Gulf Wars, stating that people are quick to recover their nationalist identity as soon as it is thought that the nation or its values are in crisis, only for the identity to slowly dissipate again following the end of the crisis.

Tønneson (2004) argues that globalising states, including those in contemporary Europe (1970 until present), actually require people to assume a non-politicized (or „cold‟) national identity while at the same time being vigilant for the politicization of this national identity (or, in his words: radicalization). This necessity is based on the fact that citizens‟ identification with their state provides for political and social stability, all the while people are increasingly less inclined to bear loyalty to the

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state due to the globalising effects it has introduced. Here, a distinction should be made between the „regular‟ parts of the population, which is increasingly extra-nationally orientated (p.180-181), and the disenfranchised groups (the so-called „losers of globalisation‟), which aim to halt the trend of globalisation and return to a more exclusive national culture (p.192). The state must therefore attempt to balance between the stimulation of nationalist feelings imperative for a well-established national state, and engagement with the wider world. Moreover, the former needs to be sufficiently resilient to maintain a national culture. Tønneson argues that this balance is increasingly difficult to attain in today‟s world where “highly uneven economic and social developments both within and between nations [might incur] reactions against the effects of globalisation [which] may reinforce national … sentiments” (Tønneson, 2004, p. 192). Nevertheless, it remains important as a state successful in establishing and maintaining this equilibrium enjoys a comparative advantage over states that fail to do so.

Karner (2011) incorporates Billig‟s notion of banal nationalism and further develops the distinction between a national identity and nationalism by stating that the latter is a politicized subset of the former. More specifically, Karner states that “national identities are subject to on-going negotiations involving competing visions of social order, alternative interpretations of history and delineations of a national self that differ in their relative inclusiveness or exclusivity vis-à-vis the „other‟” (p.21). This interpretation of nationalism is a rigid conception of the distinction between „us‟ and „the other.‟ On the other hand, national identities do not necessarily require the rigid differentiation between the self and others, and can even outright deny it8, while insisting that the nation remains the most important container of humanity. In this sense a national identity is therefore akin – but not encompassed by – Billig‟s banal nationalism, where, on the other hand, Karner‟s nationalism is akin to Billig‟s identification of the moment when nationalism is mobilized during crises.

Karner further elaborates on the occurrence of crises which lead to a politicization of national identities by paraphrasing Gellner (1983) who stated that “when mobility and context-free communication come to be of the essence … the culture in which one has been taught to communicate becomes the core of one‟s identity” (p. 61). Moreover, Karner reasons that a „cold‟ national identity transforms

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As is seen in, for example, in the notion of enlightened nationalism (Jones 2014) where people who are abroad emphasize the importance of adherence to one’s nation without othering non-nationals.

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into „hot nationalism‟ (Karner, 2011, p. 58), by employing Bourdieu‟s (1977, pp. 167-1679) notion of a doxa9 transformation into a universe of discourse. This can occur as a result of „culture contact‟ or by subjectively thought of political and economic crises in society. More concretely, Karner argues that national identities politicize because of contemporary globalisation and, in the case of Europe, supranational integration. Globalisation is seen as a trend towards the politicization of national identities because of its perceived threat to the national economy, social relations, culture and identity as well as representative government (id.).10

At this point it becomes important to note that crises to the nation have different meanings (and effects) to each segment of the population. Concerning the subjectivity of crises there are two main points that need to be noted. First, these crises include risks to the (holistic conception of the) whole of the nation, as well as to the wellbeing of the people that constitute the nation. Whereas a holistic conception of danger can be found in the works of Smith and Billig - although still subjectively experienced -, it was Hechter (2004) who gave a more individually based explanation to the individual‟s choice to adhere to a nation. In short, Hechter conceives a nation as a group of people that decides to concentrate their resources and generate collective goods. Individuals then construct group boundaries to limit access to these collective goods and engage in social control to prevent possible free riders within the group. According to this – more rational choice inclined – explanation, a crisis to the nation would thus entail a breach of the delineated boundaries or a lack of internal control, both of which would imply an increase in the perception of free riders taking advantage of the nation‟s resources.

Second, it must be re-iterated that the perception of these threats are subjective, similar to one‟s national identity, as they solely exists in the mind of the people. The nature and severity of the threat to the nation are therefore based on the experiences of people. Whereas authors like Gellner (1983) and Billig (2002) are specifically engaged with the holistic conception of crises to the nation, others like Tønneson (2004), Karner (2011) and more empirically based scholars also look at individual attributes, social standing and preferences to produce insights into the nature of national identities. Considering that different parts of society experience

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The taken for granted traditions in a society. Although not made explicit it seems that both Billig’s banal nationalism and Karner’s non-nationalistic national identities are based on this concept.

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globalisation in a distinctive manner, a consequent logical conclusion is that various segments of society ought to react in a very different manner.11 As such, apart from dangers to the whole of the nation, more personally12 experienced – although still perceived as being endemic to the whole of the nation – dangers also seems to contribute to the politicization of national identities.

1.3 Contemporary findings on politicized nationalism

The results of the works by Ariely (2012), Kriesi et al (2008), Lahav (2004), Hadler et al (2012) and Jones (2014) is used to further clarify what increased globalisation entails in practise for certain parts of Europe‟s nations. It will be demonstrated that the trend of politicization of national identities is accompanied by a sharp increase of xenophobia and Euroscepticism. Ariely sheds more light on the complicated relationship between globalisation and national identity by arguing that research is unclear on whether globalisation reduces or actually increases people‟s identification with their nation. Employing a time-series and multi-level research design, Ariely proceeds to show that a country‟s level of globalisation is not unambiguously related to national identities or nationalism. Instead, it was found to be negatively related to patriotism, the willingness to fight for the country and ethnic conceptions of nation membership. As such, Ariely concludes that the spread of globalisation transforms the conception of a national identity into something that bears little resemblance to modernist notions of nationalism. Nevertheless, Ariely‟s approach does not account for the possibility of (acute) crises, nor does he control for the possibility that people‟s decreased adherence to ethnic conceptions of the nation does not necessarily entail a decrease in the level of xenophobia. More importantly, Ariely fails to consider that the effects of globalisation are not the same for all members of a national community. In formulating his conclusions he does not take individual characteristics including but not limited to income, education, employment into account. Thus, while his research offers some workable insight into the effects of globalisation, it is limited in its applicability.

Dealing with the specific issues concerning the disparity of effects on distinct groups of the population, Kriesi et al (2008) formulate that a political schism exists between the so-called „winners and losers of globalisation‟ as far as national

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This is further elaborated upon later in the text due to the European specificity of these mannerisms.

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One could contend that ‘personal’ might not be the best word to use here. Instead, the use of ‘social grouping’ comes to mind.

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identities are concerned. This rift entails an attitudinal division on the matter of globalisation between those who feel they have benefited, and those who feel that globalisation has threatened their life opportunities (p.4-5). According to Kriesi et al the essential criterion of this schism is the availability of „exit options‟ – or mobility – that determines one‟s attitude towards globalisation or Europeanization. They theorize that the availability of an exit option is centred on the sector of one‟s employment and level of education. Here they make a distinction between the sheltered sectors, which had previously been protected from global market trends, and the exposed sectors. They argue that the losers can be found in the first and the winners in the latter. Likewise, low-educated people have more difficulties coping with their exposure to other cultures and are more likely to feel threatened, which in turns leads to the assumption of a nationalist identity. Highly-educated people are more prone to cosmopolitan attitudes and engaging extra-nationally (p.7). Lastly, the authors also emphasize a direct link between the identification with the national community and having anti-globalisation sentiments, stating that those who identity themselves with this community perceive its weakening because of globalisation as a loss. In sum, workers in traditionally sheltered sector, low-educated people and those who identify with the national community are all more likely to assume a politicized national identity.

Lahav (2004) provides evidence that at least in Europe an increase in globalisation leads to an increase in xenophobia in some parts of society. More specifically, Lahav argues that people who live under conditions of general uncertainty – the losers of globalisation – are bound to act in a more protectionist manner. Using a multi-level analysis, she finds that people who feel more threatened, in their own or their nation‟s chance13

of survival, are more inclined to xenophobic tendencies and in-group solidarities (ergo: the formulation of a politicized national identity). Interestingly, her findings show that while people are less inclined to consider themselves xenophobic, they have no such qualms over applying this qualification to their fellow nationals. Moreover, Lahav also finds that people tend to express racist tendencies covertly, rather than overtly.14 Finally, her analysis

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Lahav lists threats leading to increased xenophobia ranging from sociotropic, self-interest and symbolic models.

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This is measured by asking people about specific topics concerning their attitude on the openness of their country’s borders.

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concludes that, although differing in degree of severity, both real and perceived threats lead to an increase of xenophobia.

Up until now little attention has been given to the matter of Europeanization – which can be considered a more unique form of globalisation limited to the region of Europe. Hadler et al (2012) focus specifically on the influence of on-going Europeanization (or European unification) on the constitution of national identities and an European identity while controlling for individual- and country-level specificities. Their most important finding to be noted concerns the notion that the amount of contact with Europe (or cross-border contact) may determine the level of Euroscepticism: persons who do not come into frequent contact with the European level, as well as persons who do not particularly have the potential to gain anything directly from the European Union, are more inclined to become Eurosceptic and maintain a strong national identity. More specifically, they state that those with a higher-socioeconomic status are more apt to adhere to a cosmopolitan European identity, whereas those with a lower status possess an exclusive nationalist identity. Further proof of this link can be derived from Hakhverdian et al. (2013) who arrive at a similar conclusion when measuring the correlation between Euroscepticism and education. The research shows a negative relation between Euroscepticism and education. Moreover, it also shows that the effect of education on the level of Euroscepticism has grown over the last two decades, following the Maastricht treaty. However, Eastern European countries defy this trend, as their populations appear to unequivocally assume a strong nationalist identity.

Interestingly, Jones (2014) posits the conflicting argument that those with a higher socio-economic status and increased cross-border contact do not actually foster a sense of shared international community and adhere to a national identity instead. Examining micro-level interactions, Jones‟ work concentrates on students that enjoy significant cross-border interaction. He concludes that these students solidify their national identity, rather than forfeiting it. However, strikingly the nature of this national identity is non-politicized, as the respondents enjoy a reduced sense of threat of extra-national influence. Dubbing this phenomenon „enlightened nationalism‟, Jones‟ work implies that those who often interact across national borders nevertheless have reasons to assume a (non-politicized) national identity. As such, it is unclear whether those who assume a national identity are part of the

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winners or the losers of globalisation. Rather, it may depend on the motivation underlying the assumption or the type of the national identity.

1.4 Conclusions

Arguing that traditional theories on the nature of nationalism cannot adequately account for today‟s nationalism prevailing in Europe, Billig (2002) created the notion of banal nationalism, which was further elaborated upon by Karner (2011) and Tønneson (2004). This theory entails that the current form of nationalism does not necessarily take a central position in people‟s lives anymore. Instead it continues to influence them subconsciously through institutionalized rituals, mannerisms and other background influences. However, when the nation, its constituents or its practices are (felt to be) threatened, people‟s nationalist sentiments revive. Via the works of Tønneson and Kriesi (2008) it becomes apparent that the trend of globalisation triggers the nation‟s sense of threat, which leads to an increase of nationalism – or, in the words of Karner, a politicized national identity. Hence, contemporary nationalism is reactionary in nature, rather than constitutive as argued by modernist conceptions of nationalism. The empirical works mentioned in the third part of this section have demonstrated that the nature of globalisation and nationalism has led to a split between the so-called winners and losers of globalisation. Here the winners come from the higher-educated segment of society which works in jobs traditionally subject to global market forces, enjoys a higher socioeconomic status and experiences more cross-border interaction. In contrast, the losers of globalisation have a low-educated background, work in the traditionally sheltered sectors, enjoy a lower socio-economic status, and lack daily interaction with European or global levels. It has been shown that the losers of globalisation tend to be more xenophobic and Eurosceptic.

Placing the previous works within the context of Karner and Tønneson‟s is possible by arguing that certain parts of European nations perceive themselves to exist in a constant state of crisis. Indeed, a first glance at general populist discourse and evidence provided by Karner, this appears plausible. However, in order for this theory to gain more credence, it is paramount to present a more acute occurrence of a crisis (such as an economic crisis succeeded by a recession) followed by a politicized nationalist upsurge. Moreover, keeping in mind that nationalism and a national identity are social constructs, it becomes essential to formulate actual

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mechanisms causing an individual to assume a politicized nationalist identity, while recognizing the influences of other factors imposing on the individual. These items are discussed in the next sections. The next section will provide more insight into the nature and consequences of acute financial and economic crises. The last section of this chapter will further elaborate on the actual micro-mechanisms at work, which are hypothesized to lead an individual to assume a nationalist identity, while influenced by other individual and higher level attributes.

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Chapter 2: Economic Crises

This part deals with the nature and consequences of global economic downturns that have taken place since the early 1970‟s. First, the structure wherein these global recessions have taken place will be explicated. The goal of this section is to shed light on the manifestation of global recessions in today‟s economic and financial structures. It analyses how these recessions originated following economic and financial crises, and why they take place on a global scale as far as most industrialized countries are concerned. This analysis is followed by an elaboration upon the consequences of these recessions. More specifically, attention is given to the general social implications of financial crises, and the potential general upsurge of a form of cultural and political reactionism in Europe. In turn, these can potentially lead to both populist and nationalist upsurges following financial crises. Overall, this section attempts to demonstrate similarities among (global) economic and financial crises, their subsequent recessions and the effects they have on states and their societies. Important to note is that although any systemic explanation for the formation of global crises and recessions is undoubtedly of great importance and requires more rigorous attention to the particularities of each distinct crisis, this thesis only deals with their actual occurrence and consequences. Accordingly, only a small and more general enquiry into the matter is made in order to sketch the context within which these recessions take place and to make a comparison possible between the different contemporary global economic recessions.

2.1 The global scope of economic recessions and financial crises

The contemporary period of economic globalisation is marked by the interconnectedness of countries‟ financial and economic sectors, as well as the theorized synchronization of business cycles. Economic globalisation, defined by the United Nations (Gao, 2000) as the actual cross-border trade of commodities and services, has since the 1970‟s led to an increasing flow of international capital with wide and rapid spread of technologies. It is generally seen as an irreversible trend (id). Furthermore, financial globalisation, defined as a specific subset of economic globalisation affecting the financial sector (id. p.2), is to be seen as the integration of capital markets across countries, which had been considered to be beneficial to the

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real economy (Williamson, 2003). The end of the Bretton Woods era in the early 1970‟s, led to the suspension of the gold standard and an expansion of international financial transactions through the return to the convertibility of currencies facilitated. This increased monetary interdependence. Currently, the financial sector is the most globally integrated section of the economy and is considered one of the most influential aspects of economic globalisation (id.). Moreover, other research has indicated that the degree of global interconnectedness has resulted into a convergence of business cycles among groups of countries.15 This has been the conclusion of Kose, Otrok and Prasad (2008) who argue that economic globalisation has led to a convergence of two blocks, namely the industrialized and the developing countries. Simultaneously it has lead to their separation. Arguably, the industrialised states have become increasingly economically integrated since the 1970‟s, which led to a progressively synchronised experience of the same economic fluctuations.

Despite the theorized advantages of economic globalisation, economic and financial crises appear to be an endemic aspect of the current global economic system: since 1973 financial crises have often preceded and, arguably, worsened16 economic recessions, as argued by Bordo et al (Bordo, Eichengreen, Klingebiel, & Martinez-Piera, 2001) in their analysis of the financial history of the last 120 years. A distinction should be made between financial and economic crises. A financial (referring to a distinct sector of the economy) crisis has the ability to affect the real economy17 in different ways, while an economic recession can occur without a preceding financial crisis. More precisely, a financial crisis can be defined as an abrupt change in capital flows on the financial market, whereas during an economic crisis the whole economy experiences a downturn. The latter is often reflected in a decline in GDP. Bordo‟s article analyses the occurrence of financial crises and attempts to measure their severity by looking at the effect that financial crises have on the growth of GDP. Importantly, it found that the frequency of financial crises has increased since 1973, and even doubled in comparison to the Bretton Woods era. Moreover, they concluded that crises affect recessions negatively, by taking the

15

Defined here as the fluctuations in economic activity that an economy experiences over a period of time

16_{Worsen is meant, here, as having a greater effect in the loss of GDP and as having a longer average recovery}

time

17

The real economy can be stated as to being the part of the economy that is concerned with the actual production of goods and services, as opposed to the financial sector, which is concerned with buying and selling on the financial markets.

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average GDP loss into account with and without the co-occurrence of a financial crisis. Remarkably, they found that the crises did not actually change in severity since 1973: overall, their duration as well as output losses remained the same.

Another vital aspect with regard to financial crises is the potential for cross-national spill over effects (e.g. financial contagion), especially prevalent in the post-1973 era of on-going globalisation. Along with the synchronization of business cycles, which implies that economic recessions are in sync, the notion of financial contagion describes the manifestation supra-national effects caused by nationally located financial crises (Allen & Gale, 2000). Accepting the premise that the various financial sectors are part of a general business cycle18 leads to the conclusion that fluctuations in one financial sector may have an effect on other countries‟ markets. The degree of influence mainly depends on the patterns and degree of interconnectedness between the affected and potential spill over countries. The initial impact of a financial crisis is likely to first spill over to neighbouring countries and regions, triggering a financial crisis there as well. Considering another angle of this issue, Edwards (2000) mentions that the increased capital flows across countries can potentially have serious effects on domestic interest and exchange rates. Moreover they may affect credibility in the event of a sudden reduction of these flows. In conclusion, the contemporary trend of globalisation has arguably led to a general interconnectedness of countries‟ financial and economic sectors, which makes financial crises and economic recessions originating in one nation prone to spilling over and contaminating other countries‟ economic and financial sectors.

2.2 General consequences of economic recessions and financial crises

This subsection delves deeper into the implications of financial and economic crises for societies in general and attempts to elaborate upon the potential reactionist-effects of a crisis. The main probable consequences of financial crises “include risks of economic collapse or, at least, deep recession, increased distributional strife and economic hardship, threats to democratic stability, attempts by states to externalise the consequences in ways which negatively affect other national interests, and

18_{At the time of Allen and Gale writing their work, the link between the real economy and crises in the financial}

sector during crises was under debate (p.3). While Bordo et al (2001) already showed systematic proof of this link, it was only after the occurrence of the 2007 financial crisis which was followed up by the Great Recession, that a lot more research had been conducted on the matter. The debate was largely decided in favour of those propagating the existence of the link between the two.

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sometimes war” (Underhill, 2000, p. 339). Many of the works cited and written on this topic employ the global financial crisis of 2007 as a typical case from which they infer the consequences for other situations. As this may be somewhat problematic given the particular and extreme nature of the latest crisis19, extra attention is paid to the plausibility of these inferences.

Generally, financial and economic crises lead to a myriad of social consequences, including a rise in unemployment principally among the poor and low-educated. As noted earlier, Kriesi (2008) states that financial globalisation expose previously (nationally) sheltered employment sectors to global influences and a new source of competition, which in turn stimulates general job insecurity, transnational labour flows and outsourcing. A more systemic research on the effects of financial crises, conducted by Ötker-Robe and Podpiera (2013), mentions that a crisis can cause a social crisis, if not managed properly, as a result of its effects on a country‟s population. Using the 2007 crisis as an example, Ötker-Robe and Podpiera distinguish three channels by which such a crisis can alter the affected society: through (1) the product and labour market channel, (2) the financial market channel and (3) public and private coping strategies. The below Figure 1 comprehensively describes how these channels can affect the population, by considering income loss, erosions of savings and reduced spending on private and public goods. In turn, these effects lead to implications ranging from short-term poverty and loss of social cohesion, to long-term implications such as regression of development indicators and poverty traps. Moreover, they show that a financial crisis disproportionately affects the lower income segments of the population.

Nevertheless, research by Fallon and Lucas (2002) and Bernal-Verdugo et al. (2012) indicate the presence of the same effects in other financial crises, where more attention was given to the diverse effects that exist across countries and different working sectors. Fallon and Lucas‟ main finding shows that the economies that experienced the sharpest currency depreciations, also suffered the deepest cuts in real wages. Moreover, they also demonstrated that the crises primarily impacted the urban sectors, leading to an eventual spill over into rural sectors. Fallon and Lucas conclude that while financial crises are typically short-lived, their actual impact on

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The consequences of the 2007 crisis can be seen as having an amplified effect in Europe due to the fact that it started in the west and had more severe economic consequences thereby leading to different outcomes than might have been the case when other financial crises occurred. It remains to be seen whether these

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households is long lasting. Bernal-Verdugo et al, on the other hand, state that this is not the case for unemployment in the period between 1980 and 2008 as far as countries with flexible labour market institutions are concerned. Making a distinction between countries with a flexible and rigid labour market, they state that the effects on the former are sharp in the beginning, but of short duration, while the opposite is observed for the latter. Moreover, the impact on long-term unemployment was found to be very pronounced in the medium term, thereby indicating that a hysteresis20 effect of financial crises on unemployment may exist.

Figure 1: Transmission Channels from Financial to Social Crises (Ötker-Robe & Podpiera, 2013, p. 3)

Leaving the general social consequences for what they are, this work will now focus on the reactionist effects that a financial crisis can inflict upon society and its political conduct. Unfortunately, due to the overwhelming amount of literature written on the 2007 financial crises and a lack of written works on the broader effects of other financial crises that hit the industrial countries after 1945, few articles on the structural political and cultural consequences of a crisis on political affairs can be found other than that of changed fiscal policy21 which is of little relevance. As such, the political and cultural implications elaborated upon below are primarily based on observations from the 2007 financial crisis and the subsequent recession.

20

Hysteresis in economics: When a single disturbance affects the course of the economy via a looping effect.

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Nevertheless, care is taken to prevent the mere drawing of inference for findings from other time-periods before 1975.22

Another work of Kriesi, co-authored by Pappas (2014), demonstrates that the 2007 financial crisis has led to political instability through a rise in popularity of populist parties across Europe, increased general social unrest and the inability to deal with the economic effects of the crisis. Their book notes that the crisis provided a platform for populist parties to gain influence through appealing to the growing discontent amongst the population. By virtue of their anti-establishment character, populist parties were able to take advantage of the sentiments against conventional ruling parties. It is important to point out that Kriesi and Pappas consider these populist parties not to be a product of the crisis, but of an on-going crisis of representation in European democracies (p.3). As such, it becomes clear that the recent financial crisis has been used as a staging point for populist parties, which appeal to a general feeling of discontent among Europe‟s societies. Other authors, dealing with different geographical regions and temporal periods, have also recognized the existence of a link between populism and financial crises. De Castro (2007), for example, has noted that the 1997 Asian financial crisis led to a revival of populism in the Philippines. Several of its presidential candidates employed a populist discourse to advance reform agendas following the occurrence of the 1997 crisis, arguing that the traditional political elite of the country failed to do their job. Taken together with Kriesi and Pappas‟s findings, this evidence seems to suggest that a general link between financial crises and populism may exist irrespective of the country.

Another work dealing specifically with the broader cultural effects of financial and economic crises is that by Castells et al (2014) which also focuses on the 2007 crisis. Their main premise regards the 2007 financial crisis as the product of a broader cultural phenomenon existing within Anglo-Saxon and European countries. Of special importance is the chapter written by Rantanen (2014), which hypothesizes that the crisis led to an increase of nationalism due increased insecurity existing within the most affected countries. Using Beck‟s notion of economic globalisation, global risk society and media-theory, Rantanen argues that „the financescape has moved faster than the ideoscape‟ (p.149). Effectively he argues that financial and

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economic globalisation evolved faster than the media, political and societal institution were able to. This disparity created a general sense of insecurity in society, which in turn led to an increased adherence to a national identity as a source of abstract trust. However, some caution is necessary: Rantanen‟s work is of a theoretical nature that specifically deals with the effects of the 2007 financial crisis, which makes generalization of inferences precarious. Nevertheless, considering that its results are of particular interest for this work, its causal claims are taken into consideration and its general hypothesis is tested.

2.3 Conclusions

In conclusion, this section dealt with the structural nature of supranational financial crises and their succeeding economic recessions. It has discussed a myriad of their social and a few broader political and cultural implications.23 The first subsection has made it apparent that the contemporary globalised financial and economic system, originating in the early 1970‟s, is particularly susceptible to financial crises. These types of crises have the ability to affect a multitude of countries due to the synchronization of the business cycle among industrialized countries and the potential of financial contagious effects. In turn, they impinge on a myriad of social and broader political and cultural conditions by affecting the real economy. Examples of these effects include a drop in GDP and production, higher unemployment, decreased consumption and savings, a decline in social relations and a general rise of populism and nationalism. Seeing as this work intends to address a similar macro-social trend occurring after financial crises, the next section aims to tie these implications together with the earlier posited theory of politicized nationalism, in order to establish the existence of a potential causal relation.

23

Although this certainly is not a comprehensive list of all works written on the extra-economic implications of financial and economic crises, it is does encompass the trends that are thought of as being relevant for the rest of this thesis.

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Chapter 3: Causal mechanisms and hypotheses

This chapter provides the formulation of the hypothesized causal mechanisms that to lead to a nationalist upsurge, interacting effects and other influencing variables. Two sets of micro-foundational and one macro-foundational theory are developed to explain the mobilisation of the national identity. The first micro-foundational theory concerns rationally motivated nationalism: people behave in a politicized nationalist manner when they feel threatened in their livelihood in order to protect themselves from the consequences of economic globalisation. Note, however, that these mechanisms operate within the minds of individuals and are therefore triggered by subjective interpretations of stimuli. As such, the reality of material insecurity for the whole of the nation and the actual effectiveness of xenophobic and de-supranationalisation responses are of little consequence. The second micro-foundational theory, of hype induced nationalism, is socio-psychological in nature and states that people naturally cluster together in crisis-situations because of general uncertainty exacerbated by global media hypes, rather than due to a tangent negative impact of the crisis. Thirdly, the macro-foundational theory concerns right-wing populism, which is seen as a particular phenomenon existing within several contemporary European countries. Right-wing populism is hypothesised to lead to a growth of politicized national identities by its argued ideologically contagious effect on the population. Summarizing, all three of these mechanisms qualify contemporary nationalism as reactionary, which as explored above, does not fit within prevailing modernist theorizing on the matter. The formulation of each of these mechanisms will lie at the base for the drafting of the hypotheses, which will include a proposed method for differentiating amongst them all. This chapter then concludes by summarizing the theories and hypotheses.

3.1 Rationally motivated nationalism

In essence rationally motivated nationalism interprets the individual assumption of a politicized nationalist identity after financial crises as a rational strategy for achieving more material security. This micro-mechanistic theory is based on Hechter‟s understanding of nationalism as a collective rational choice. Hechter (2004) has stated that the term nationalism is used to describe the idea that certain people,

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based on a diverse spectrum of commonalities, have clustered together to share public goods, while excluding outsiders in order to avoid free riders. According to him, nation formation is a form of collective action designed to render the boundaries of the nation congruent with those of its governance unit (p.7). Hechter continues this line of thought by arguing that the principal benefit of nationalism lies in the concentration of individually held resources by means of cooperation in order to provide material and environmental security, greater access to information, as well as a larger social pool to operate within (p.20). Moreover, he notes that group formation often occurs in the face of uncertainties regarding perceived (threats to) physical security. Variations of solidarity towards the nation are therefore based on the degree people‟s dependency on the (national) group in order to establish this security. In that sense it becomes apparent that the more the members are dependent on the nation, the less accepting they are of sharing with outsiders. Related to this observation is the free rider problem. A free rider is an outsider who exists within the set boundaries of the nation, without contributing to the production of joint goods. He is seen as a threat, especially to those who are more dependent on the common goods provided by the nation. Hechter‟s explanation of an individual‟s adherence to the nation can therefore be interpreted as stemming from the need to gain material and environmental security, where the degree of dependency to these common goods positively correlates with the exclusion of outsiders so as to deter or remove competition and free riders.

Therefore, it is essential to note that chances of a nationalist upsurge increase, when the material wellbeing of a larger group of individuals is perceived to be threatened by recessionary effects. Moreover, it bears mentioning that the collective provision of welfare to the insecure is traditionally seen as a task of the national community (Hechter, 2004, p. 26) (Gellner & Breuilly, 1983). Following this reasoning, there are three distinct sub-mechanisms at work that have the capacity to cause a nationalist upsurge during times of economic insecurity: (1) the prevention of competition for the claim on scarce goods, (2) an increased sense of antagonism against potential free riders, (3) the idea that a government run by nationals will enact superior policies. These mechanisms are theorised to lead to the assumption of an exclusive national identity along with fostering general sentiments of xenophobia and anti-supranationalism.

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The first sub-mechanism in the face of growing scarcity of resources proposes that antagonistic feelings towards non-nationals arise within the „nationals‟-group, due to the perceived competition by outsiders over limited resources. The outsiders would effectively take away resources from the nationals. This notion can be found in several rational choice theories, for instance: the split labour market theory deals with the exclusion of Others (in this case: ethnicities) in the face of (perceived) inequality (Bonacich, 1972). Antagonism arises when two distinct groups vie for the same scarce resources (in this case jobs) while the costs of hiring differs per group, thereby leading to a uneven quantity of the lower cost group to be hired. The latter group tends to consist of the extra-nationals who may enjoy protection of certain social and labour laws and may be more willing to take home a lower wage.

The second sub-mechanism is closely associated with the first and deals with an increased sense of acuteness in the deterrence of outsiders becoming free riders. The difference between the antagonism towards competitors and free riders lies in that the former includes Others who actually contribute to the general wellbeing of the nation (by partaking in labour for instance), while the free rider prevention is more directed against those Others who live within the confines of the nation but do not actually contribute to its general wellbeing.24 The logic behind this is that in times of economic prosperity the free rider problem does not affect and endanger the wellbeing of the nation significantly. This changes however, in times of general economic insecurity – such as during a recession – when free riders are increasingly seen as a significant danger to the nation. The question then rises why the free rider problem only appears to matter in the case of extra-nationals, considering that nationals themselves are also increasingly likely to act as free riders during times of economic insecurity. Bernhard, Fishbacker and Fehr (2006) have indicated that this is likely due to the parochially altruistic nature of humans: people are more forgiving towards co-nationals than they are to outsiders with regard to free riders.

The third sub-mechanism at work – the idea that a government run by nationals will enact superior policies – is hypothesised to lead to an increased desire for de-supranationalisation rather than stimulating xenophobic sentiments. The working of this mechanism should be seen in the light of on-going globalisation and

24

The current (2015-2016) discourse in the Netherlands on the matter serves as a good example. The influx of refugees is heavily debated as refugees are increasingly being depicted as free-riders who take away the money from the hardworking Dutch. Often, arguments like ‘this money should go to the elderly or the Dutch poor’ are used (De Telegraaf - Sine Nomine 2015).

Do economic crises cause nationalist upsurges? : a panel study on the causal relation between economic crises and politicized nationalism in post-1975 Europe