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Red Or Blue

In ‘Why competition in the politics industry is failing America(2017), Michael Porter and Katherine Gehl argue that U.S. politics is subject to a duopoly exploited by its two leading parties, with nefarious consequences for consumers, i.e. voters. In summary, the authors make the following assertions:

  • The Democratic and Republican parties exert a dominant position in the industry of U.S. politics

  • The barriers to entry are making it impossible for a newcomer to challenge the incumbents

  • This duopoly is free from any oversight since self-regulated, unlike any other industry

  • Naturally, the industry competes to grow and accumulate resources and influence for itself

  • The parties prioritize the customers that most advance their interest through votes and/or money, i.e. ideological voters, special interest groups and donors

  • Thus, the two parties compete on ideology to deepen their differentiation and segment the market, with roughly equal shares

  • The apparent intensity of the competition is an illusion; and

  • The industry has no incentive to innovate and provide solutions for the average voter

Incidentally, the emergence of the Democratic and Republican parties is not the fruit of evil machinations, but of the type of electoral system in place: Duverger’s Law states that the simple majority, single ballot system favors the two‐party system, essentially because all votes for a third or fourth alternative end up wasted.

While Porter and Gehl suggest otherwise, it seems to me that there is an inherent stability in the duopolistic system. In game theory, the reference would be to the Nash equilibrium, i.e. ‘a stable state of a system involving the interaction of different participants, in which no participant can gain by a unilateral change of strategy if the strategies of the others remain unchanged.’

Besides, alternative electoral systems based on proportional representation have not fared much better when it comes to delivering a political direction and economic success. A survey by Pew Research (2020) indicates that a majority of citizens around the world living in a democracy are dissatisfied with it. The U.S. are not doing particularly well in that respect, but they are not an outlier. A way for the functioning of democracies to improve lies in the greater engagement from average voters who do not respond to ideology, but to ideology going mad. There could be a welcomed record turnout at the upcoming U.S. elections, to a level not reached in more than a century.

The financial industry and its markets seem to cheer the prospects of a ‘blue wave’ in anticipation of a wildly expansive fiscal policy, partially financed by a raise in taxes. It is unexpected to see the raw expression of capitalism rooting for a greater role of the government in the economy. This might represent a source of instability in the U.S. politics industry, a challenge to the prevailing Nash equilibrium which a well-functioning, balanced duopoly will seek to address in the coming years.

For now, I look forward to seeing democracy, however imperfect, in full swing next week, hoping for an incontestable and uncontested outcome.

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