Investment theory of party competition

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The Investment theory of party competition (sometimes called the Investment theory of politics) is a political theory developed by University of Massachusetts Boston professor Thomas Ferguson.[1] The theory focuses on how business elites, not voters, play the leading part in political systems.[2]:206 The theory offers an alternative to the conventional, voter-focused, political alignment theory and Median voter theorem, which has been criticized by Ferguson and others.[2]:20–38[3]

Overview[edit]

Definitions for this theory:

  • Labor-intensive: Businesses or investments in which wages represent a high percentage of the value-added price
  • Capital-intensive: Businesses or investors in which capital represents a high (or total) percentage of the value-added price
  • Realignment: When the economy changes (usually through a recession) and a new economic order is created, resulting in a change in political parties
The real market for political parties is defined by major investors, who generally have good and clear reason for investing to control the state....Blocs of major investors define the core of political parties and are responsible for most of the signals the party sends to the electorate.

Thomas Ferguson[disambiguation needed][2]:206

The theory states that, since money driven political systems are expensive and burdensome to ordinary voters, policy is created by competing coalitions of investors, not voters. According to the theory, political parties (and the issues they campaign on) are created entirely for business interests—separated by the interests of numerous factors, such as labor-intensive and capital-intensive, and free market and protectionist businesses. In rare cases, labor unions act as major investors, such as with the creation of the Labour Party in Britain, but are generally overshadowed by corporations.

However, this is different from a corporatist system, in which elite interests come together and bargain to create policy. In the investment theory, political parties act as the political arms of these business groups and therefore don't typically try to reconcile for policy.

Within this framework, the Democratic Party is generally said to favor internationalist capital-intensive businesses (along with labor unions) while the Republican Party favors nationalist, anti-union, labor-intensive businesses.

Labor-intensive investors[edit]

A study by Larry Bartels found a positive correlation between Senate votes and opinions of high income groups similar to the conclusions in the investment theory.[4]

Labor-intensive investors made up much of the early political systems in the 18th and 19th centuries. Industries such as textiles, rubber, and steel favor economic protectionism with high tariffs and subsidies. Since these businesses are mainly responsible for their domestic market, they are opposed to a laissez-faire economy open to foreign competition. Among other things this led to policies such as the Smoot-Hawley Tariff.[2]:145

These industries are also heavily against labor unions, since unionization increases the price of their goods. This is said to be responsible for the anti-union policies throughout much of the 18th and 19th centuries when these businesses controlled much of the economy.[citation needed]

Capital-intensive investors[edit]

Due to industrialization and new markets in the 20th century, capital-intensive investors became the new economic order after the realignment of the Great Depression. Industries such as oil, banks, tobacco, (and companies like General Electric), along with labor, formed the New Deal Coalition.

Capital-intensive industries have almost no percent of their value added based on labor and are therefore open to unionization, which, Ferguson states, is why pro-labor policies such as the Wagner Act were passed under the New Deal. These investors also favored international competition and reduced tariffs that led to reciprocal trade agreements under the Second New Deal.[2]:151–152

Comparison to other election theories[edit]

Comparison between the Investment Theory and Realignment theory
Realignment theory Investment Theory
Changes in political power (or realignment) Voters change their political views based on the performance of the party and vote differently. Economic changes cause shifts in power—since political parties are subordinate to campaign donations, which mostly come from wealthy investors and corporations.
United States presidential election, 1932 The severity of the Great Depression lead people to favor a welfare state. New capital-intensive industries such as Banks and Oil emerged powerful and, since they employ fewer workers, were able to work with labor unions to help create the New Deal on the side of Democrats.
United States presidential election, 1980 People became dissatisfied with the welfare state in the wake of stagflation and favored free-market policies. In the wake of stagflation and increased global competition, oil industries saw a conflict with labor and shifted support to Republicans.

See also[edit]

References[edit]

  1. ^ Ferguson, Thomas (1983). Party Realignment and American Industrial Structure: The Investment Theory of Political Parties in Historical Perspective. Research in Political Economy. 
  2. ^ a b c d e Ferguson, Thomas (1995). Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems. University of Chicago Press. 
  3. ^ Popkin, S.; Gorman, J.; Phillips, C.; Smith, J. (1976). What have you done for me lately? Towards an Investment Theory of Voting. American Political Science Review 68 (Sept). 
  4. ^ Based on Larry Bartels's study Economic Inequality and Political Representation, Table 1: Differential Responsiveness of Senators to Constituency Opinion.

External links[edit]