Monthly Archives: March 2011

Political Power Play: The Game of Politics

We often ideally think that democracy is about taking the political equality of all citizens seriously. It’s about giving them an equal voice and vote, encouraging them to participate, allowing their views to be fairly represented, and facilitating an open and respectful dialogue in the search for the best solutions to the collective problems of society.

In reality, democratic politics are not that pretty. “Adversarial” might not be the first word that pops into our minds when we think of democracy in the US, but maybe it should be. The electoral system in the United States is fundamentally adversarial in nature: parties and candidates are encouraged to play to win.

As citizens in a constitutional republic, every American has one equal vote to elect representatives to the government in each electoral cycle. Elections pit candidates against each other in a competition for power. Almost all the offices of government, from Congress to the Presidency, are elected within this adversarial framework which requires them to compete against other candidates in order to gain or hold their jobs. Although most people don’t want to think of electoral politics as a game, a game is precisely what electoral politics looks like, except the prize for winning is a whole lot bigger than a ring or a trophy—it is power.

This is the first of a series of posts in which I will explore different angles of thinking about democratic politics as a game: one that is heavily regulated to help it achieve certain desired ends, and one that demands a degree of “good sportsmanship” from the players, to be sure. The open question at this stage is whether this way of “framing” democratic politics will help us evaluate and analyze both normative and empirical questions about democracy more clearly and effectively.

Why do we have this adversarial system of elections? What non-adversarial alternatives might there be? Is there value, moral or otherwise, inherent in this system; or is it justified entirely by the ends it might promote? Then there are more specific questions of function—if the system really is like a game, what are the rules that govern how it is played or ought to be played? What constitutes fair versus foul play? Who are the referees, what powers ought they be given, and how do we ensure their impartiality? These are just a few questions that I hope to address in later posts.

The Primaries: what doesn’t kill them makes them stronger?

That special time of the election cycle is approaching us—the primaries. A time when members from the same party begin a four to six month cycle of in-fighting that makes even the nastiest of family arguments look like a walk in the park. I have always found the American Presidential Primary system to be fascinating because of the quick shift that the Democratic and Republican (and…Tea??) Parties must undergo between competition and unification. They compete heavily and often ruthlessly for the nomination amongst their own party, but then everyone in the party is expected to turn around after the convention and promote a unified stance behind whoever the nominee may be.

Essentially, what we see in American politics is that our entire political system was established to be a very deliberately adversarial institution. Americans believe that a one-party system, without debate and negotiation, can lead to corruption, or—our Founding Fathers’ biggest fear—a non-representative monarchy. But, within this system we have developed political parties, which are not deliberately adversarial institutions. Yet, every four years the parties break their norm of cooperation and, essentially, become adversarial institutions in order to attempt to elect the candidate who will win the White House.

This seems pretty unusual, right? Well, I would argue that this is actually a commonplace practice amongst many institutions that are not necessarily adversarial in and of themselves, but must compete in a larger adversarial context. Law firms are perhaps the greatest example. The American legal system is very adversarial, but law firms themselves are supposed to be cooperative bodies that are working towards the same goal. However, in order to motivate employees and attempt to rise to the top of their field, law firms often create inter-office competitions that pit employees against one another.

After: It's a different story after the primary, when party unity trumps all.

 

The American Presidential election system is often criticized, and as we begin yet another election cycle the pundits and criticism will rise anew, but maybe we should all think more about why it is designed this way and how effective competition can be first.

Should responsible regulators follow the letter or the spirit of the law?

We typically expect ethical companies to follow not only the letter of the law, but also the spirit of the law. And in some cases, we would say that they should follow the spirit of the law rather than the letter. For example, if your washing machine breaks the day after the 3-year warrantee expires, you might think that an ethical – or even just reasonable – appliance manufacturer would nevertheless fix it for free.

By the same token, shouldn’t we expect responsible regulators and other government officials to respect the spirit of the law as much as the letter – and perhaps even to let the spirit override the letter some times?

Test your intuitions on the following case.

The Medicines Company engaged in a 9-year legal battle with the FDA and the United States Patent and Trademark Office, on whether it will be allowed to extend the patent on its blood thinner drug Angiomax until September 2014. The legal battle stemmed from the failure of the company to file its application for renewal within the 60 days allotted.

“The Medicines Company, based in Parsippany, N.J., learned of Angiomax’s approval by fax from the F.D.A. at 6:17 p.m. on Dec. 15, 2000, a Friday. It applied for the patent extension on Feb. 14, 2001. That is either 61 or 62 days after the approval, depending on whether the approval date itself is counted.”

Medicines Company contended that since the original fax was sent after 5pm the clock should not have started until the next business day allowing them to fit the law. The company pointed to the fact that the FDA marks anything received by their office after 5pm as received on the next business day. This administrative mistake could have cost the company over a billion dollars, and given its small size (with only one other drug on the market) marked the end of the company.

Big picture here isn’t just about one company’s struggle against the patent office and FDA, it is about the role of regulators in the pharmaceutical industry and the spirit of the law. Do we want our regulators to be inflexible in enforcing written laws or would we prefer some discretion allowed by administrators? Should they look to the spirit of the law, and not merely to its letter?

Sometimes the courts say, Yes. After 9 years of fighting and over $4 million spent on lawyers and lobbyists, Medicines Company won their legal battle.

 

 

Race-to-the-Bottom Watch: Are We Drowning in Advertising

Advertisements are everywhere.  Cabs and busses are covered in full-size ads, billboards are placed every 50 yards along highways, YouTube now plays ads before you can watch the video you intended, TV events are created out of one-sentence announcements (e.g. Heisman Trophy presentation, American Idol final), pop-ups pervade web browsing while we simultaneously find ads for pop-up blocker applications, high school prom dances turn into ads for the usefulness of duct tape, and people are ever getting paid to get advertisements tattooed on their bodies.  A 2009 study suggests that the average American adult spends over an hour a day watching advertisements on TV alone.

But really, you’ve got to feel sorry for the advertisers, don’t you? Think about it: the more ads that are put into the public domain, the less effective each individual ad becomes.

This stems from the fact that advertisers are competing to satisfy the existing and limited demand of a consumer base, rather than creating new demand.  Think of the sheer volume of ads for food and drinks.  These companies are not assuming that without advertisements people will just not eat at all; rather, they assume that people are going to eat somewhere, and advertisements are intended to direct the consumers’ demand in their direction.

While there is a certain amount of demand created by advertisements, advertisers aren’t so naïve as to assume that they can convince you, with a single 30-second spot, to buy a brand new car out of the blue.  Rather, their primary interest is to direct, and at times exaggerate, a consumer’s existing desires.  This means that marketers are essentially competing to win the same consumer demand, and consequently, with each entrance of a new competitor, the old ones have to fight even harder to maintain its market share.

Imagine visiting a city for the first time and getting lost on your way to the hotel.  Contrast the following scenarios:

Scenario 1 –You pull over and ask someone for directions.  The person says they know where you are intending to go and gives you concise enough directions to follow.

Scenario 2 – You pull over and ask a group of people for directions.  They all say that they know where you are intending to go and each gives you concise enough directions that you believe you can execute—however; everyone in the group gives you a different set of directions that lead you to altogether distinct places!

Presumably in scenario 1, you would simply follow the directions you were given, but scenario 2 seems much more confusing.  Whose directions are you to follow?  The person who has lived in the city the longest?  The one who seemed most confident?  The one who claimed to be a taxi driver?  The one who claimed to be a doctor?  The one who was most well dressed?  In fact, the situation seems altogether so confusing that you will probably reject all of their opinions and ask a new person or try purchasing a map.

The same confusion arises when advertisers compete for your demands.  The more businesses that decide to advertise, the more the existing advertisers have to shout louder, in more places, and in smarter ways in order to get your attention.  This ultimately leads to more and more of our dollars and minutes being spent on advertisements every year. We are, in short, in a commercial race to the bottom wherein the more effort that is expended leads to not only fewer gains but higher costs for both businesses and consumers. 

Race-to-the-Bottom Watch: Fishing for Trouble

What’s the most deadly occupation in America? According to the U.S. Bureau of Labor Statistics, it’s fishing. Commercial fishing, to be precise. Why is fishing so dangerous? Fisherman can be trapped in a perfect storm of collective-action problems and, well, actual storms.

The harsh competition in this already dangerous industry is leading workers to labor in ever-worse sea conditions in order for businesses to stay afloat (so to speak). The best fishing grounds are often found in the most treacherous seas, and the clock ticks down quickly in some fisheries (say, the crab fishery off the coast of Alaska) where the seasons last only a few weeks. When one vessel decides to go out in stormy weather in order to get a competitive edge, crews of other vessels are faced with the dilemma of either falling behind the competition or following suit in braving the potentially life-threatening conditions.

This dilemma is only exacerbated by the depleted state of many of the world’s most important fisheries.  In an effort to stem the “tragedy of the commons” of overfishing, authorities have commonly resorted to setting an overall limit of fish that can be caught in a given fishery for a given season.  The approach of giving an aggregated limit breeds intense competition because each fish caught by one fisherman entails one fewer available to all the others.  This creates what has become known as a “race to fish” wherein fishermen are willing to do almost anything in order to nab a greater share of the overall quota before it runs out, including foregoing safety precautions.

So this race to fish is really a race to the bottom. One crew deciding to risk the elements in order to gain a competitive advantage starts the race. But once the other vessels join the competition by going out in perilous weather conditions, the competitive edge that motivated the first mover vanishes, while the risk of death for all of the fishers increases.  Thus, in the race to fish we can see how individuals attempting to act in their own interest, while responding to the actions of others attempting to do the same, can all end up worse off.

Is there any way out of this race to the bottom? Some authorities have replaced the overall quota with individual allocations to prevent such fierce competition.  Critics protest, however, that this solution does not live up to the free-market principles of American capitalism.  However, it is evident that the case of a totally free market for fishing (in which fishers and their customers do not pay the cost of replenishing the fish stock) is likely to lead to overfishing and ultimately the end of any kind of market for fishing. What if the rights of individual allocations were auctioned off in advance?

 

 

The Hesitant Hand: what Adam Smith did and didn’t say about government regulation, corporate lobbying, and CSR

Ethics for Adversaries has been on spring break, but should be roaring back to life in the coming days.

Here’s a newish book I’ve just ordered on the history of Adam Smith’s Great Idea — the one that still frames so much of our thinking about the ethics of deliberately adversarial institutions. (Steven G. Medema, The Hesitant Hand: Taming Self-Interest in the History of Economic Ideas.)

I just hope the book is better than the first line of Princeton University Press’s blurb, which seems at best skewed and revisionist, and at worst just false:

“Adam Smith turned economic theory on its head in 1776 when he declared that the pursuit of self-interest mediated by the market itself–not by government–led, via an invisible hand, to the greatest possible welfare for society as a whole.”

It is well-known that the famous phrase “an invisible hand” (not even “the invisible hand,” which is what we tend to say now) was used only once in the massive two-volume Wealth of Nations. It comes in a chapter railing against Restraints on the Importation of Goods. Much of the chapter concerns what we would now call the law of comparative advantage — that is, about why it is to each country’s advantage to produce what it can produce most efficiently, and to trade abroad for what can be produced more efficiently in other countries. Throughout the chapter and the book Smith points out the myriad ways restrictions on international trade create inefficiencies. And also how these restrictions inevitably come from business people lobbying gullible or corrupt politicians in order to secure domestic monopolies.

But not only is it inefficient to restrict imports of goods produced more efficiently abroad, it is usually unnecessary. Business people prefer to keep an eye on their investments and to be able to trust the people they deal with, so they will naturally, even other things not equal, invest domestically. As Smith says in the famous “invisible hand” paragraph,

“As every individual, therefore, endeavours as much as he can both to employ his capital in the support of domestic industry, and so to direct that industry that its produce may be of the greatest value; every individual necessarily labours to render the annual revenue of the society as great as he can. He generally, indeed, neither intends to promote the public interest, nor knows how much he is promoting it… he intends only his own gain, and he is in this, and in many other cases, led by an invisible hand to promote an end which was not part of his intention.”

He is talking about a particular case, and criticizing a particular type of government regulation, namely, what we would now call protectionism. He notes that this basic logic of the market replicates itself “in many other cases.” He does not say “in all other cases.” We know, for example, that the invisible hand will get all messed up in situations that involve collective action problems like the Prisoner’s Dilemma. Adam Smith would have had no reason to object to that (and I suspect that a real Smith scholar could point you to his discussions of PD-like situations). And he wouldn’t think that the general welfare would necessarily be increased by trade involving deceit, the exploitation of what we now call information asymmetries, or negative externalities.

It is also noteworthy, given the wording of the Princeton University Press blurb, that he does not say that self-interest via the invisible hand leads to “the greatest possible welfare of society as a whole.” In the “invisible hand” paragraph he is talking about “the annual revenue of every society [which] is always precisely equal to the exchangeable value of the whole annual produce of its industry.” That is, something like GDP. It is obviously an open question whether GDP tracks the “welfare of society.” Even the British Conservative Party doubts that assumption these days!

Once again, I’m no Adam Smith expert, but I have actually read great swaths of the Wealth of Nations, which is more than most latter-day “disciples” of Smith can claim. It is somewhat odd that the enduring lesson from that monumental work is the panglossian one that markets, left to their own devices, always lead to the best of all possible worlds (since that is not what Smith ever says), rather than Smith’s repeated warnings that we should always be suspicious of corporate lobbying and corporate conspiracies.

The conspiracy part we do remember from the famous quote about how we should worry whenever members of the same trade meet, “even for merriment and diversion” since they will inevitably try to fix prices. That is why even conservatives support anti-trust regulation; even if they also tend to think it is unfair in almost any particular case. But just as relevant today would be Smith’s utter contempt for business people lobbying and corrupting hapless politicians in order to enact particular regulations that serve their interest more than the public’s. Smith was concerned with trade restrictions that create unnatural monopolies, but he would be just as worried today about lobbying to allow for the exploitation of other market failures in a modern economy. And he would have been horrified when the right-wing — supposedly pro-market — justices on the Supreme Court used the Citizens United case to make it easier for corporations to pursue their interests by manipulating election processes.

And while this new book is drawing our attention to the famous “invisible hand” paragraph, it is worth noting that Smith was no fan of Corporate Social Responsibility, or CSR, either. He continues the paragraph quoted above by noting:

“By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good. It is an affectation, indeed, not very common among merchants, and very few words need be employed in dissuading them from it.”

Bringing a snake to a knife fight

(Continuing the theme of the previous post by K. Listenbee.) From this week’s issue of the eponymous magazine of the City so nice they named it twice: a cartoon on the ethics of deception in adversarial negotiations.

 

 

(This cartoon is retransmitted without permission and will be removed upon request.)