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A Little More on Coase, Dean, Everett Ehrlich and Politics and Technology

via Mickey Kaus, who is quite obsessed with Everett Ehrlich's essay on technology and politics that I discussed at unnecessary length a day ago, pointed me to another long comment on Ehrlich by a law professor who seems to know what he's talking about: Ronald Coase Does Not Explain Howard Dean: Political Parties and the Transaction Cost Economics of Voting.

Professor Bainbridge takes a completely different approach to this, but basically arrives at the same conclusion I did: that Ehrlich is incorrect to predict that Internet-based organizing efforts will become third parties or take the place of the major parties. His argument is that the heuristic functions of political parties, which is to say, their value in helping people figure out who to vote for, is not replaced by the Internet. And Bainbridge confirms my understanding, based on reading one essay by Ronald Coase and one about him, that Coase was more concerned with when and why people organize their economic activity in particular forms such as firms, than with the size of firms.

As Kaus has argued, there are many other functions of political parties, or activities that take place within parties, that really can be dramatically changed by reducing transaction costs. The best example is Dean's fundraising. The Internet doesn't just make traditional fundraising easier; it completely transforms it. So, under the classic Democratic model, there is a set of people already identified as "donors," divided into major and minor donors, and a set of people identified as "fundraisers." Raising money involves deploying the fundraisers, and also the candidate, appropriately to get the largest contribution out of each identified donor, ideally in a single shot. The cost of asking for money from people who are not pre-identified as donors is too high, as is the cost of going back after each donor for multiple contributions.

But with the Internet, the cost of the "ask" goes down considerably. And the cost of asking for a repeat contribution is almost zero. In addition, some contributions come in spontaneously, which almost never happens in regular politics. This is transformative, because it allows a candidate or party to approach people who have never given, and it allows them to ask for a very small contribution at first, and then go back and back again (which is what Dean does when they "bring out the bat" on the website) until an individual either maxes ($2,000), or reaches the maximum that he or she is able to give. In other words, what had been a command-and-control system now becomes a system of constant bargaining to find the exact amount people are willing to give. This is also what I meant in the earlier post about "transactional" politics: fundraising does not ask for a single commitment of loyalty, but builds it up out of many smaller transactions, which may not be financial.

It's likely to be much more lucrative because, just in simple economic terms, it picks up a lot of dollars that would otherwise be left on the table, from potential donors who are never asked, or from people who are asked for too little or too much. But more importantly, it changes the very nature of the campaign. Instead of depending on the ridiculously narrow class of political donors, who are very different from voters, a candidate (or party) can appeal to a far broader group, largely the same people he would want to have vote for him. And it gives him some ideological freedom as well as freedom with time, because the candidate himself does not have to raise every dime. (This is one reason I think many politicians hate Dean: a guy like Gephardt spends a year at least going from one rich person's living room to another's law firm conference room to another's private club, sucking up to every one of them -- almost every politician finds this activity hateful -- and at the end of the day, all he's got is $13 million, where a guy like Dean at least appears to just sit back and $25 million rolls in! (Not that Dean didn't do plenty of the same hat-in-hand stuff, but he sure makes it look easy.))

The same logic that controlled fundraising for years governed parties' approach to voting. There is a group of people who are pre-identified as voters. Most of them are 1s or 5s -- that is we know who they're going to vote for. And then there's the smaller number of 2s, 4s (leaning for or against), and the oh-so-valuable 3s. The entire political effort of the Clinton-era party went into identifying and switching those swing voters, and all the analysis of pollsters like Mark Penn (which I mentioned over the weekend in this post) were about identifying those swing voters, soccer moms or office-park dads, who might make up just two or three percent of the population in a particular key state. This also had an effect on the way Clinton governed after 1994, with micro-issues that appealed to swing voters rather than larger visions. But going after someone who was not a reliable voter at the time just didn't seem worth the cost, given that most wouldn't vote anyway, and because a new voter is only half as valuable as switching an existing voter. (That is, he doesn't take a vote away from your opponent.)

The big question for next year is whether technology can change the transaction costs of trying to draw out new voters. If so, it will completely transform politics, as candidates will simultaneously go deeper into their bases and also try to reach new populations. Both the Republicans, with their "72-Hour Plan" for voter turnout, which was very successful in Georgia in 2002, and independent groups supportive of Democrats, through voter contact projects such as America Coming Together will use technology, such as constantly updated voter files on Palm Pilots, to reduce the cost of approaching new voters. If successful, this will have an even more transformative effect on politics than changing the fundraising.

So, Bainbridge is right and Ehrlich wrong that reducing transaction costs will lead to the creation of new political parties. But transaction costs can hugely change the way existing parties do business, the way candidates like Dean and Clark operate in their efforts to take control of an existing party, and ultimately on the way citizens are encouraged to participate. Ehrlich would have had a stronger and less confusing argument if he had not brought in the issue of third parties or virtual parties at all.

Incidentally, Bainbridge makes the point that the Internet can't substitute for the heuristic functions of parties, in that voters will never bother to use a comparative website to find the candidate they favor. This is absolutely correct. I spent a few years trying to help build up projects that would serve exactly the purpose Bainbridge talks about, which is helping people figure out who to vote for in obscure races. Unfortunately, the non-partisan voter information systems like The Democracy Network never really took off. Neither candidates nor voters participated in great numbers. Politics on the internet took a very different turn, though, as campaigns made better use of it, ultimately leading to Dean's achievement. Sometime I'd like to write more about that whole experience.

Yikes, I didn't mean to write yet another long post on this topic!

Posted by Mark Schmitt on December 18, 2003 | Permalink

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