January 24, 2004

The information diffusion
Posted by Jon Henke

Everett Ehrlich writes an interesting column on the effect of the internet on politis. Specifically, he suggests that Ronald Coase's insight - "The cost of gathering information determines the size of organizations" - when added to the explosion of the internet, means political parties are going to begin to splinter, to get smaller, and to get more competitive.

There are so many "money quotes" in this bit, I'll just post it all.....

To an economist, the "trick" of the Internet is that it drives the cost of information down to virtually zero. So according to Coase's theory, smaller information-gathering costs mean smaller organizations. And that's why the Internet has made it easier for small folks, whether small firms or dark-horse candidates such as Howard Dean, to take on the big ones.

For all Dean's talk about wanting to represent the truly "Democratic wing of the Democratic Party," the paradox is that he is essentially a third-party candidate using modern technology to achieve a takeover of the Democratic Party. Other candidates -- John Kerry, John Edwards, Wesley Clark -- are competing to take control of the party's fundraising, organizational and media operations. But Dean is not interested in taking control of those depreciating assets. He is creating his own party, his own lists, his own money, his own organization. What he wants are the Democratic brand name and legacy, the party's last remaining assets of value, as part of his marketing strategy. Perhaps that's why former vice president Al Gore's endorsement of Dean last week felt so strange -- less like the traditional benediction of a fellow member of the party "club" than a senior executive welcoming the successful leveraged buyout specialist. And if Dean can do it this time around, so can others in future campaigns.

Ehrlich follows up this observation with a prediction that the diffusion of information will create an opening for "third parties", and specifically (assuming he loses in '04) a third-party run by Howard Dean in '08.

I think the observation is fair, as far as it goes, but the predictions are a bit wrongheaded. It's very true that the Parties are becoming more fragmented. Witness the exodus of Greens from the Democratic Party in recent years. Libertarians are in a constant state of flux about the Republican party, and the "Moral Majority" are somewhat petulant, as well. Finally, the rise of various "Independent" parties and candidates over the last 12 years is another sign of the fragmentation of the Parties.

But none of those have managed to fracture more than a few percentage points here and there. In every case, the major Parties adjust their message to (just barely) assuage the defectors.

Ehrlich, I think, has a mistaken notion of the effect of the internet.....

But the Internet doesn't reinforce the parties -- instead, it questions their very rationale. You don't need a political party to keep the ball rolling -- you can have a virtual party do it just as easily.
Well, not quite. A virtual party can build up a great deal of steam (reference: Howard Dean), but it can lose a great deal of steam, as well. The spontaneity of the medium is both its strength and its weakness.

Rather than giving rational actors a full range of information on which they can make rational decisions, I suspect the internet will largely reinforce the assumptions of those who are already involved in politics. It will further polarize the debate between the two major parties. We've seen good examples of that in the past decade already, with internet driven charges of drug-smuggling, murder, draft-dodging, imperialism, oil-theft, and dozens of other allegations. Have the internet memes created a push for new parties? Not really....they've largely driven people to be more passionate - but also more irrational - about their assumptions.

Ehrlich's mistake can be seen most easily here....

Here are some predictions. First, if Dean loses the nomination, he will preserve his organizational advantage and reemerge as a third-party force four years from now. He has done with technology what Ross Perot could not do with money alone. Second, the evangelical right will become a separate political party in the near future, and will hold its own conventions and primaries.
In the world of business - the world in which Coase's insight applies - this fracturing assumption may well hold true. There is, after all, a very large and expandable pie. BOB Supply might not be as wealthy as ACME Supply, but they can profit in competition with ACME.

This does not hold true in politics, where the game can be zero-sum, and the voters are aware enough of this to be rational actors. Voters know perfectly well that a vote for the Green Party candidate detracts from the Democratic Party. They may vote Green in small numbers, but any large fracture will be accounted for by the Democratic Party in short order, and the duopolistic balance will be re-instated. The same will apply to the Republican Party vis a vis the Religious Right.

In short, a small faction simply cannot compete profitably against their former Party. Not in a zero-sum game.

NOTE: More good blog commentary on this column can be found by Arnold Kling, Professor Bainbridge, PoliBlogger, and NewMarksDoor.