Why the political duopoly is losing market-share

Why the political duopoly is losing market-share

Federal election 2022

If you hadn’t noticed, economic policy and politics are closely entwined. And economic journalism is a just specialty within political journalism. But some parts of economics – agency theory and industrial organisation, for instance – are surprisingly useful in understanding how politics works.

The big surprises in this election weren’t the election of Labor, but the steep decline in the two major parties’ share of the primary vote, and the emergence of climate action as the big vote-shifting issue, even though it got little attention in the campaign, especially compared with the focus on the cost of living.

Prime Minister Anthony Albanese with his girlfriend Jodie Haydon and senator Penny Wong. Despite the ALP’s success, its primary vote fell to a level not seen since the 19030s. Credit:Janie Barrett

Some decades ago, the two big parties’ share of the primary vote was 90 per cent. By the last election, the non-mainstream vote had risen to a quarter. But this time it jumped to a third, leaving the big guys sharing roughly a third each.

Despite its win, Labor’s third was its lowest since the 1930s, and amazingly low for the winning party. Though the Coalition’s share was bigger than Labor’s, it fell far more this time.

Why are fewer and fewer people prepared to vote for either of the two majors? Why is the two-party system in decline? The economists’ basic neoclassical model of markets assumes intense price competition between a large number of small firms.

In real life, many markets are characterised by “oligopoly” – they’re dominated by a small number of large firms. Many decades of firms pursuing economies of scale do a lot to explain why we see so many oligopolistic markets.

In the sub-discipline of “industrial organisation”, economists seek to explain why oligopolistic markets differ from that basic model of “perfect competition”. They’ve found that the few big firms are not so much competitors as rivals. Their huge size gives each of them “market power” – more control over the prices they’re able to charge – but they watch each other like hawks, and never make a move without considering what the other big firms might do in reaction to their move.

They live in fear of losing market-share. With only two huge firms – a duopoly – the rivalry is that much more intense.

Few people realise that, though our political duopolists paint themselves as poles apart ideologically, the main thing that influences the choices they make is what the other side’s doing. Governments are constrained by oppositions; oppositions are constrained by governments.

See what this does? It makes the rival parties more alike. When I see you behaving badly but getting away with it, I decide I’ll do the same. And if you’re not sticking your neck out on climate action, I decide I’d better not risk it either.

That’s why so many people complain the parties are “all the same”. An economist called Harold Hotelling formulated a rule that two firms serving an area – ice cream sellers on a beach, for instance – will tend to gravitate to the same central location. Why? Because they want to reduce the chance of the other side getting a bigger share of the market than they do.

This, of course, reduces the choice available to customers. So, does it surprise you that, as the two sides of politics become more similar – as they crowd around the political centre – more people set up fringe parties, and more people vote for them?

For many years, the Liberals used climate change as a stick to beat Labor over the head, making Labor more cautious in what it proposed. For years that’s mean Labor’s lost many first-preference votes to the Greens. But this time the Libs lost votes to the teal independents in Sydney, Melbourne and Perth, and both sides lost votes to the Greens in Brisbane.

Yet, just as commercial firms have become bigger over the decades, so politicians and their parties have changed. Economies of scale are one reason for fewer, bigger firms, but another technique we’ve used to get richer is “specialisation and exchange”. The more we specialise, the more efficient we get at doing whatever it is we do.

“So, does it surprise you that, as the two sides of politics become more similar – as they crowd around the political centre – more people set up fringe parties, and more people vote for them?”

By now, we have specialties within specialties. We have experts who know more and more about less and less. Politics used to be a game for amateurs. People who’d done well in their careers, switched to politics to “give something back”.

These days, politics has become more professionalised, more a lifetime career where, upon graduating, you start at the bottom as a research assistant for a union or a minister, and work your way up, becoming an MP, then a minister, then who knows?

The more professional politicians become, the more they focus on advancing in the political game, and less on the things they got into politics to fix. They used to have to guess at what the voters wanted; now the majors spend a fortune on polling and focus groups. They’re more inclined to give the voters what they now know they want, and tell them what they know they want to hear.

Voters have shown less loyalty to a particular party the more they suspect the pollies are advancing their own cause, not the public’s. The minor parties and independents are more like the amateur politicians of old: they turned to politics after a career elsewhere and they did so because they cared about a few particular issues. A growing number of voters find these issue-driven politicians more attractive.

The main political parties have changed, too. They used to be grassroots, bottom-up movements with many members. Now, they have few members and those they retain tend to be a lot more hard-line than the people who just vote for the party.

With the professionalisation of politics, the two majors have become more top-down. Just as the interests of executives don’t always align with those of their shareholders and supposed masters, so it is with political parties. Economists see this as a principal-and-agent problem.

The two majors have become more like franchise operations. All the big decisions are made at the centre by the professional managers, leaving the franchisees to just flog the product. These days, the party’s policies are made at the top, with party members getting little say.

In the old days, the branches’ main right and function was to preselect the candidates who would represent them in parliament. They tend to favour candidates who are well-known and well-liked in the district – maybe a former mayor – who’ll work hard attending school fetes and advancing the electorate’s interests.

As we’ve seen in this election, leaders and people at the centre increasingly insist on parachuting in someone with a higher profile and greater leadership potential. The party faithful increasing resent this.

The people at the top must wonder why they still need branches at all. Short answer: they still need enough volunteers to door-knock and man the booths on election day.

We saw that Labor’s attempt to foist Kristina Keneally on some electorate cost it the seat. In the Liberals’ leafy heartland, I suspect the locals’ thought that they might see a lot more of an independent member contributed significantly to the teals’ success.

It’s not at all clear the teals will be one-term wonders. And it maybe the days of either major party ruling with a comfortable parliamentary majority are gone.

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