Saturday, March 13, 2010

Third Parties and Political Investments

"Don't buy a single vote more than necessary. I'll be damned if I'm going to pay for a landslide."
(Supposedly said by Joseph Kennedy to JFK during the West Virginia primary)

Judging by current polls and the views of political commentators, the upcoming British elections may well end up with a hung parliament—a majority for neither major party. If so, whichever one ends up trying to run things will need the cooperation of the Liberal Democrats. The situation suggests an interesting way of looking at third parties in systems such as Britain's.

Imagine that you are considering investing in the political marketplace, as candidate, party official or contributor. What party should you invest in?

The obvious choice is one of the two majors. Most of the time, one of them is running things and so in a position to provide benefits to its supporters—opportunities to influence policy and legislation, cash, status. There is, however, another option. The more supporters the party in power has, the more thinly the loot will have to be spread; seen from this standpoint, the ideal electoral victory produces a majority of one. Most of the time, one of the major parties is in power and someone who invests in the third party gets little or no return for his time or money. But once in a while ... .

In a hung parliament, any two parties can form a government. Think of parties—abstracting away from their internal politics—as players in a majority vote game. Each has one vote, and two votes out of three control. The third party is not merely an equal player in that game, it is a superior player, since each of the other two prefers alliance with the third party to alliance with its traditional opponent. Each major party has a chance of about .5 of being in the ruling coalition. The third party has a near certainty. Hence, on average, the third party should get more out of the situation than either of its larger rivals.

From the standpoint of the investor, the question is not what the party gets but what he gets. The third party has fewer contributors, fewer candidates, fewer workers. It is easier to be a big fish in a small pond. The fewer people the loot is divided among, the more for each. So, while investing in a third party should yield a lower probability of a payoff than investing in a major party, the payoff, if it comes, should be larger. Perhaps much larger.

Which may help explain the existence of third parties.

13 Comments:

At 12:19 PM, March 13, 2010, Anonymous Anonymous said...

Great Kennedy quote. I am thinking that Nancy Pelosi has that as her screensaver right now.

 
At 4:11 PM, March 13, 2010, Blogger bobby g said...

Sounds similar to the power Justice Kennedy generally has over polarizing issues before the US Supreme Court.

 
At 7:27 PM, March 13, 2010, Blogger Michael said...

I don't particularly like the words investor or payoff when it come to government. It gives the impression that a person can put money in expecting a chance to get money out. That money is taken by force from the productive in this country.

 
At 11:15 PM, March 13, 2010, Blogger Jonathan said...

Another explanation for the existence of third parties, of course, is that some people are so disgusted with both major parties that they won't consider supporting them in any way.

As for "opportunities to influence policy and legislation, cash, status": as far as I know, few British Members of Parliament get significant amounts of any of these things. The most obvious attribute of a contributor is that he donates (and thus loses) a large amount of cash. Does he really get it back in any way?

The political process in the USA may well be different...

 
At 9:32 AM, March 14, 2010, OpenID hudebnik said...

Interesting. As stated, the argument only applies to a parliamentary system like the UK, where a majority party or coalition pretty much runs everything. But we saw "moderate" Democratic Senators wielding similar leverage in the health care debate a few months ago: "you need every one of us to stop a filibuster, so you have to give us whatever we want."

 
At 9:42 AM, March 14, 2010, OpenID hudebnik said...

As for "opportunities to influence policy and legislation, cash, status": as far as I know, few British Members of Parliament get significant amounts of any of these things.

I read David as referring more to campaign contributors than to candidates themselves. And at least in the US, major campaign contributors do get lots of behind-the-scenes influence, mostly in the form of meetings with legislators and their staff. If a legislator says "I'll vote for this bill if you give me a million dollars," that's illegal; but if the same legislator says "you gave me a million dollars; let's do lunch, and maybe your staff can get together with my staff and write the next bill," that's apparently perfectly legal."

 
At 9:44 AM, March 14, 2010, Blogger Michael said...

Jonathan,

As a Yank reading the UK Times, I might have some trouble with the English to English translation, but the Brits were quite upset with MPs until the CRU story broke.

You had MPs claiming a relative's closet as their primary residence to get government to buy them a second home. And expense accounts is rampant.

The MPs are breathing a collective sigh of relief that the CRU story broke.

 
At 10:03 AM, March 14, 2010, Blogger Michael said...

This is a bit off topic, but I don't believe Cincinnati politicians are ever going to be fiscally responsible.

Ohio law makes it rather easy to leave a city. I was starting the process when I met a woman in another neighborhood wanting to do the same thing.

While the mayor keeps pushing his budget busting tax increasing spending programs, he's going to wake one morning to find he's mayor of a smaller city.

 
At 3:02 AM, March 15, 2010, Blogger Jonathan said...

Hello Michael, thanks for your comment. The salary of a British MP is quite modest: just over half the salary of a US Member of Congress. I suppose MPs have got accustomed to claiming all the expenses and perks that they can. New MPs have seen what existing MPs have been doing for many years, and assumed it to be normal and acceptable. So the recent crackdown must have come as an unpleasant surprise to all.

It's abnormal for me to be making excuses for politicians' bad behaviour, but even with the expense fiddling I imagine that the standard of living of a British MP remains below that of an honest US politician. If you can find such a person for the purpose of comparison.

They're not really luxuriating in wealth—except, of course, those who would be wealthy anyway without being MPs.

 
At 8:11 PM, March 18, 2010, Blogger Jock Coats said...

...and those, not a few at that, who gain lucrative consultancies and lobbying positions as a result. And these opportunities are multiplied many times by having had a sniff of actual executive power in government. Which kind of makes David's point - if you want that type of payoff for as little investment as possible, the third party whose access to executive power is normally very limited would be the obvious choice for a "punt" at a time when that influence may be about to become disproportionately increased.

Oh, and don't be fooled that somehow the system in the UK is any the less prone to capture by commercial interest than anywhere else. The opportunities for an individual politician to reward his backers such as with "earmarks" or whatever they are called in the US may not be so obvious, but the process of making legislation is still very amenable to the influence of interests who expect a financial gain out of getting the wording just right to benefit them.

 
At 11:25 AM, March 22, 2010, Blogger neil craig said...

2 caveats to that.

1 - Under the first past the post electoral system at play in Britain & the US parties, other than the biggest get proportionately fewer seats than their votes nationally because they come 2nd or 3rd everywhere. Thus the Lib Dems in Britain will get about 17% of the vote, half as much as labour or Tory & about 8% of the seats. Under pure PR systems, as in Israel, small parties do indeed get their particular hobbyhorses attended to - which is why El Al don't fly on Saturday.

2 - It depends on where the party sits on the left/right spectrum (assuming the country's politics work like that). Centrist parties like the LibDems have the option of allying with either of the 2 parties but a libertarian party (UKIP is the nearest in Britain) would not have the option of allying with the Conservatives which reduces their leverage.

I personally think a PR system, even though it has a few drawbcks, is far superior to the other. In economic terms it lowers the barriers to entry of politics which is evne more uniforml;y valuable there than in economics. The fact that Britain has & America has repeatedly had more than 2 parties despite an electoral system that so discriminates against them shows the big parties are arrogant 7 unresponsive to new ideas - exactly the problem with economic monopolism.

 
At 11:32 AM, March 22, 2010, Blogger neil craig said...

Sorry I meant UKIP could not ally with Labour, being nominally a bit socialist, not the Conservatives.

If, by giving the balance position to centrists, this produces more stable but therefore less radical government this may be an advantage or disadvantage according to taste.

 
At 10:56 PM, March 27, 2010, Blogger David Friedman said...

Commenters discuss to what degree British MP's can make money from their position. A recent BBC story suggests that ex-MP's can do pretty well--2,500-5000 pounds a day for the use of their contacts and influence.

http://www.timesonline.co.uk/tol/news/politics/article7076041.ece

 

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