ABSTRACT
Two kinds of destructive nationalism have weakened regimes and their governments and have led to crude and ill-conceived policies in both rich and poor countries. A more serious constraint to confronting regional inequality in wealthier countries is the severe housing constraint on productivity. The sources of both ethnic and populist nationalism have been voter dissatisfaction with their economic lot deftly used by demagogues and their supporters against immigrants as scapegoats. Populist demagogues play on the loss of middle-class cultural status and whip up resentment against immigrants who ostensibly threaten their cultures and jobs. Early twentieth century economic theory suggested that regional and national inequalities would even out as richer places would invest in poorer places with more potential. While political economy theory failed to encourage governments to adopt innovative policy responses to the problems of growing regional inequality, international donors applying public financial management performance criteria since the early 1990s also failed to respond to problems known as allocational inefficiencies.
