MMP as a contestable electoral system

 9 April 2002

With the fracture of the Alliance, our MMP voting system has once again come under the spotlight. In politics, perceptions reign, and competitive political infighting always fuels negative perceptions.

The "debate" about MMP is problematic. It is totally negative in that it is driven by perceived disadvantages of MMP, and not about the positive advantages of alternatives to MMP.

From the 1978 to1993 it was different. Then we got "majority" governments with about 37 percent of the vote. They routinely proceeded to govern, in dictatorial fashion, in ways that were quite different to electors' expectations. MMP then became an alternative around which opposition to FPP could rally.

Today we have a government which is exactly what middle New Zealand wants. It has pulled no surprises. We have a government of the centre. Hence, something almost unheard of has happened. The ratings of the government have stayed high throughout its term of office. While the sideshows are distracting, we have come to like our governments.

Ironically, the popularity of the Labour-Alliance government has been the Alliance's problem. Until a few months ago, there was nothing anti-Alliance in its low poll ratings. It is just that the government is widely perceived as a Labour Government.

Even the National-led government of 1996-99 was nothing like as unpopular as governments were routinely in the 20 years before MMP. Despite the loss of support for New Zealand First (and its fragments), polls showed quite clearly that we did not want an early election.

It should be clear to any economist (or any other person who extols the virtues of competition) why MMP is so much better than the rejected former (FPP) system that some media reports (eg Herald 30 March p.A10) suggest we should readopt.

Political competition is closely analogous to business competition. Parties sell policies to the public. Businesses sell goods and services.

Perfect competition, the economists' favourite, would not work in politics. Under perfect completion, many sellers sell exactly the same thing.

The next best thing in the economics' textbooks is called monopolistic competition. That's what MMP is like.

The worst forms of market structure are monopoly and duopoly. A one-party state (Zimbabwe?) is like a monopoly. A two-party Parliament is a duopoly.

In business, monopolies and duopolies are economically inefficient unless they are genuinely contestable.

Under a system of monopolistic competition, competing businesses use branding to create a kind of monopoly. While many companies can sell milk, only one company can sell "Anchor" milk. Only one company can make Levis, but many companies can make jeans. Only Microsoft makes "Windows".

Political parties' policies are very much like branded goods. Paid parental leave, for example, is linked to the Alliance brand. Low flat taxes and education vouchers are linked in the public mind to the Act brand.

Imperfect competition, in general, is characterised by "barriers to entry". MMP contains two formal barriers which parties wishing to enter Parliament must face. These are the five percent threshold, and the requirement to have an electorate MP.

An aspiring party must overcome only one of these two barriers. Hence, if we remove either of these barriers, we raise the difficulty of getting into (or staying in) Parliament. Parliament would become less contestable - more like a closed shop - if we remove the waiver to the five percent threshold that is enjoyed by parties with electorate MPs.

Under FPP the barriers to entry were formidable. With relatively homogeneous general electorates, a nationwide party might need 20 to 25 percent of the national vote in order to get just one MP. In 1984, the New Zealand Party got 12 percent and was not even close to getting a candidate elected.

The scattering of minor party MPs that we did get - usually through by-elections - never came close to threatening the National-Labour closed shop. Even under FPP the pressure on small parties was too great. Social Credit fractured twice after getting into Parliament; in the early 1970s with the John O'Brien split and in the 1980s after Bruce Beetham supported the Clyde Dam.

At present New Zealand has a political system that embraces the spirit of competition. The barriers to entry are relatively low. The main difference between business competition and political competition is that most business competition does not make front page headlines.

John Roughan (Herald 6 April) is right to note that, even under MMP, we may end up with just two parties in Parliament. Or, if more than two, the additional brands (eg the Greens or a Maori party) might not fit neatly onto a left-right spectrum.

He is wrong however if he is suggesting that a two-party MMP parliament is the same as a two-party FPP parliament. A two-party MMP parliament would be a contestable duopoly. The two-party FPP parliament was a closed shop.

If we ever end up, once again, with just two parties to represent us, under MMP the governing party will not be able to go on an ideological walkabout, as happened with Labour in 1984. They will be forever looking over their shoulders, knowing that an alternative party will only need five percent of the vote to disturb the happy twosome.

The Alliance fracture is no more than a symptom of the competitive process at work. There has been a fatal dispute over how best to market the party. The tragedy is that there is a law - the 2001 Electoral Integrity Act - which attempts to prevent such political competition.

That tragedy would be compounded if we make it too hard for smaller parties in government to survive; eg by eliminating the electorate MP waiver to the five percent barrier.

Reverting to a non-contestable duopoly such as FPP would be the ultimate political tragedy.

 NZ Herald version, 11 April 2002

We have no more need of a leg to Labour's left John Roughan, NZ Herald 6 April 2002

© 2002   Keith Rankin

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