Why the ‘Great Realignment’ is Bad News for Economic Policy

If you feel politics is strangely untethered from what left and right used to mean, you are not imagining it. The historian Steve Davies’s latest book, The Great Realignment, argues that the old political axis of the late 20th century — markets versus state control — is giving way to a different one. The new dividing line is not primarily about the size or scope of the state in economic affairs. It runs between nationalism, sovereignty and a thick collective identity on one side, and cosmopolitanism, globalism and rule-bound technocracy on the other.

People still disagree fiercely about economics, of course. But politics usually sorts voters first around one big organising question, and only then around secondary disputes within camps. For decades that sorting question was economic. Now it increasingly is not. Brexit, Trump, and the wider revolt against the technocratic centre worldwide make sense once you see that the primary, animating political questions have become: who are we, who belongs, and who rules? That is why borders, judges, and “woke” institutions carry more political voltage than positions on taxes or trade.

If Davies is right that this alignment issue will stick, the near-term prospects for economic policymaking look grim. Start with the obvious: when politics stops being mainly about economics, economic efficiency is no longer a decisive critique of policy. Voters will back policies that make them poorer if they think those policies restore sovereignty, protect identity or punish elites they despise. Brexit was an example. The emotionally resonant version was to take back control, spend more on the NHS and cut immigration.

Could a coherent free-market “national liberalism” win out on the new right? It’s unlikely, says Davies. The nationalism part tends to eat economic liberalism, not least because there is a bigger voting base for the former. It is no coincidence that Nigel Farage’s Reform UK, despite its stated deregulatory and low tax instincts, is slowly combining immigration restrictionism with an openness to industrial policy, nationalisations and dalliances with welfare statism. The same happened in Viktor Orban’s Hungary, with the National Rally in France and in President Trump’s second term.

Nor does the opposition provide much immediate comfort. The pro-cosmopolitan, anti-nationalist camp is economically fractured. It contains technocratic liberals of the centre left and centre right, greens, social democrats and a large hard left. The centrists are widely loathed as defenders of the status quo and out of ideas. The harder left has bad ones.

Even the inklings of new thinking — among the “abundance” or “supply-side” progressives — are market-friendly only when markets help achieve expert-designed ends. Their instincts to remove regulatory barriers to building are all welcome. But usually it is in service of state goals on housing, climate or industrial strategy, not a principled commitment to pro-growth policies. That makes the ideas expendable.

This need not be the final settlement, obviously. When tried, nationalist economics will likely discredit itself. Once it slips liberal restraints, it often curdles into cronyism, patronage, corruption and waste. Favouritism replaces competition; political allocation replaces market discipline. That can make nationalist governments both economically destructive and morally grubby, eventually sowing the seeds of their own defeat. On the cosmopolitan left, Davies expects the centre to win out against the hard left via a reinvigorated liberal coalition.

But that will take time. For now, the bleak arithmetic is straightforward. The side with the strongest emotional connection to voters is becoming more anti-market, and even its market-friendly voices are willing to junk old principles when identity and sovereignty are at stake. The side that is occasionally pro-market is competing with socialists and often treats liberalisation as an instrument, not a creed.

That points to a near-term equilibrium entailing more tariffs, various forms of industrial strategy, immigration controls and more overt political meddling in the economy. I suspect things will get worse before they get better.