Freakonomics Radio - 356. America’s Hidden Duopoly

Episode Date: November 1, 2018

We all know our political system is “broken” — but what if that’s not true? Some say the Republicans and Democrats constitute a wildly successful industry that has colluded to kill off competition, stifle reform, and drive the country apart. So what are you going to do about it?

Hey there, it's Stephen Dubner. Before we get to this week's episode, I'd like to tell you about a new spinoff project from our friend Jad Abumrad, who hosts Radiolab. If you've heard Radiolab, you know that Jad has an interest in powerful stories and sonic adventures. So you might want to check out his new podcast. It's called Unerased. It's about conversion therapy, a treatment that's billed as a way of turning gay people straight. You may know it as the Pray Away the Gay treatment. It's, and why it continues to attract proponents,

even though the research literature suggests it is not efficacious. Whether it's desirable, of course, is a separate matter. The first episode features Garrett Conley, who was sent for conversion therapy when he was 19. He wrote a memoir about that experience called Boy Erased. So please check out the new Unerased podcast from Jad Abumrad, wherever you get your podcasts. Now, before we get on to this week's episode of Freakonomics Radio, a quick note about our previous episode, number 355, which was called Where Does Creativity Come From? In a section about the Chinese artist and activist Ai Weiwei, we noted that Weiwei had been kidnapped and jailed in 2011 by the Chinese government. We noted that Weiwei had been kidnapped and jailed in 2011

by the Chinese government. We also noted that he had been, quote, charged with subversion of state power. But in fact, he wasn't officially charged with any crime, which meant his imprisonment was even more punishing as he was detained without access to lawyers or family. We regret the error. Since it was pointed out to us shortly after we released the episode, we were able to correct the error and republish the episode immediately. So there's a good chance you never heard the error. But if you did, we wanted to let you know. Imagine a gigantic industry that's being dominated by just one or two companies. Actually, you don't have to imagine.

Google has more than 90% of the global search engine market. So not quite a monopoly, but pretty close. Such cases are rare, but not so rare is the duopoly, when two firms dominate an industry. Like Intel and AMD and computer processors, Boeing and Airbus and jet airliners, the sharks and the jets, and the fictional gangs from the 50s industry. But surely, the most famous duopoly is this one. There's nothing like the cool, the cold, and nothing like the cold. People who think like Coca-Cola, nothing like Coca-Cola. People who think young say,

Pepsi, please. The rivalry between Coca-Cola and Pepsi-Cola goes back to the 19th century. Coke was long dominant, but in the 1970s and 80s, Pepsi gained ground and marketed hard to younger consumers. You're the Pepsi generation.

Cause look down and taste the thrill of the day. And feel the Pepsi way. Coke's internal research found that most people, even Coke employees, preferred Pepsi. In 1985, they abandoned their classic recipe in favor of New Coke, which tasted more like Pepsi. This did not work out so well. I'm Don Keogh, president of the Coca-Cola Company. When we brought you the new taste of Coke,

we knew that millions would prefer it, and millions do. What we didn't know was how many thousands of you would phone and write asking us to bring back the classic taste of original Coca-Cola. Coke eventually got rid of New Coke altogether. And despite the flip-flop, or maybe because of it, and the attendant-free media, in any case, Coke regained the top spot. Today, even as soda consumption falls, the rivalry rages on, with both companies adding juices, teas, and waters to their portfolios. You can afford to make those big acquisitions when you've got a ton of cash on hand, when

you're one of just two companies sharing a huge market. And there's another advantage to being half of a duopoly — self-perpetuation. This was covered pretty extensively in the media during the so-called Cola Wars. The, quote, war is good for both of them. I believe that Coke and Pepsi together, this Cola War they've been in for decades now, actually helped each other sell an awful lot of product. There are plenty of reasons why duopolies exist, and they're not necessarily all sinister.

In capitalism, scale is really important. There are all sorts of advantages to being big, which leads big companies to get even bigger, gobbling up smaller companies, and essentially dictating the rules of their market. Not everyone likes this trend. In many quarters, there's a strong appetite for a smaller scale, for mom-and-pop and indie and artisanal. But let's be honest, that smaller

scale idea is cute, but it's not winning. What's winning is dominance. Entire industries dominated by just a couple behemoths. We've already given you a few examples from a variety of industries, but there's another duopoly, a mighty one, that you probably don't even think about as an industry. Which duopoly am I talking about? I'll give you some clues. Let's go back over what we just discussed about duopolies.

They're big institutions that take advantage of their size to get even bigger. I mean, I'm talking to consultants on both sides, many of whom have been doing this for a long time, and they've never seen this amount of money. As we said, not everyone likes this trend, but the opposition is not winning. I'd like to see more competition, you know. Competition makes a better product. And this leaves an entire industry run by just two behemoths.

Ladies and gentlemen, my mother, my hero, and our next president. And I could not be more proud tonight to present to you and to all of America, my father and our next president, Hillary Clinton. Donald J. Trump. Does it surprise you to hear our political system characterized as an industry? It surprised this guy. Absolutely never thought of it in those terms. And that's Michael Porter, the world-famous business strategist. And at the core of it is what we call the duopoly.

Comparing our political system to something like Coke and Pepsi, that can't be right, can it? No, Porter says. It's worse than that. Coke and Pepsi don't control their market nearly as fully as the Republicans and Democrats do. So you see, even in soft drinks, we have a lot of new competitors. Even though Coke and Pepsi are so big, they don't truly dominate. Indeed, Coke and Pepsi only control about 70% of the soft drink market. At least they've got the Dr. Pepper Snapple Alliance to worry about. Whereas Republicans and Democrats, you can take all the libertarians and independents, the Green Party, Working Families Party, the American Delta Party, the United States Pirate Party, which is a real thing.

You add them all together and they're not even close to Dr. Pepper. For decades, we've been hearing from both sides of the aisle that Washington is broken. Washington is broken. Washington is totally broken. This system is broken. Washington is broken. Washington is totally broken. This system is broken. It's not working. Washington is not working. Washington right now is broken.

Mr. Speaker, Washington is broken. But what if the Washington is broken idea is just a line? I like to teach the world to sing. Maybe it's even a slogan that the industry approves. Yeah, what if they're just selling and we're buying? What if it's not broken at all? The core idea here is that Washington isn't broken.

In fact, it turns out that Washington is doing exactly what it's designed to do. Today on Freakonomics Radio, is Washington really an industry just like any other? How'd it get that way? And what's it mean? And, oh yeah, it's election season in America. Don't forget to vote. From Stitcher and Dubner Productions, this is Freakonomics Radio, the podcast that explores the hidden side of everything. Here's your host, Stephen Dubner. Once upon a time, there was a dairy products company in Wisconsin called Gale Foods, G-E-H-L.

My name is Katherine Gale. Katherine Gale was the CEO of the company. It had been founded well over a century earlier by her great-grandfather. For years, Gale Foods sold the standard dairy items, butter, milk, ice cream. In the 1960s, they got into pudding and cheese sauces. And more recently, Gale Foods kept keeping up with the times. High-tech food manufacturing. Meaning low-acid, aseptic processing and packaging using robots,

which creates shelf-stable foods without the use of preservatives. The process is also useful for products like weight-loss shakes and iced coffee drinks. Under Catherine Gale, Gale Foods had more than 300 employees and was doing nearly $250 million a year in sales. But there were a lot of challenges. Why? Because the food industry is incredibly competitive. There are new competitors all the time, also new technologies, new consumer preferences. So to plot a path forward, Gail turned to one of the most acclaimed consultants in the world.

I'm Michael Porter. I'm a professor at Harvard Business School, and I work most of the time on strategy and competitiveness. Porter is in his early 70s. As an undergrad, he studied aerospace and mechanical engineering. Then he got an MBA and a PhD in business economics. So he understands both systems and how things are made within those systems. He's written landmark books called Competitive Strategy and On Competition. He is cited more than any other scholar in the field. He's best known for creating a popular framework for analyzing the competitiveness of different industries. The framework that I introduced many years ago sort of says that there's these five forces. These five forces help determine just how competitive a given industry is. The five forces are the threat of new entrants, the threat of substitute products or services, the bargaining power of suppliers, the bargaining power of buyers, and rivalry among existing competitors. We're not there yet, but if you want to jump ahead and consider how these forces apply to our political system,

I'm going to say them again. The threat of new entrants, the threat of substitute products or services, the bargaining power of suppliers, bargaining power of buyers, and rivalry among existing competitors. Anyway, you can see why someone like Catherine Gale, the CEO of a century-old food company, might want to bring in someone like Michael Porter to figure out what to do next. It was a classic business strategy exercise.

Now, Gale, in addition to her family business, had another abiding interest, politics. Yes, I've certainly moved around in the partisan classification. During high school, she was a Republican. Over time, she drifted left. My daughter, actually, when she was six, came to me and said, Mommy, I think I'm a Republican or maybe a Remocrat. And I think that gives a good sense of where things are at in our household. In 2007, Gayle joined the National Finance Committee of Barack Obama's presidential campaign.

She became one of his top fundraisers. A couple years after Obama was elected, Gayle joined the board of a government organization called the Overseas Private Investment Corporation, which helps U.S. firms do business in emerging markets. And I was paying a lot of attention to what was happening in Washington, D.C. And Gail did not like what she saw in Washington, D.C. She didn't like it one bit. It became really clear to me that this fight was not about solving problems for American people. This fight was about one party beating the other party and that the parties were more committed to that than to actually solving problems or creating opportunities.

Eventually, I understood that it didn't matter who we elected. It didn't matter the quality of the candidates. And so once it became clear to me that it was a systems problem, I switched from investing my time in searching for the next great candidate and turned an eye to the fundamental root cause structures in the political system that pretty much guarantee that as voters, we are perpetually dissatisfied. So she started raising money for nonpartisan organizations working toward political reform. And one of the things that became clear is that there was no thesis for investment

in political reform and innovation. In other words, people didn't want to give money to nonpartisan organizations working toward political reform. They only wanted to give money to political parties and their candidates. In fact, Catherine Gale found that potential donors had a hard time believing that such a thing as nonpartisan political reform even existed. That's how conditioned they were to seeing the political system through a two-party lens. It was around this time that Catherine Gale began meeting with Michael Porter. She had brought him in to Gale Foods to help figure out the company's strategy going forward, keeping in mind his five

famous forces about industry competitiveness, new rivals, existing rivalries, substitute products, supplier power, and customer power. And while we were on that strategy, I would consistently make the case to Michael that, wow, how we're analyzing this industry of low-acid aseptic food production, which is the business I was in, all of these tools are directly applicable to analyzing the business of politics. And frankly, I knew almost nothing about politics. But the more I heard and the more we talked, the more it became clear that we really needed to take a fresh look here. And so it was out of that crucible of analyzing a traditional business strategy and at the same time devoting so much time to political reform and innovation that it became clear that politics was an industry, the industry was thriving, and that all of the tools of conventional business analysis were applicable here. And that's where kind of looking at this as an industry starts to provide some power.

Okay. So you came to the conclusion that politics is an industry much like many of the other industries that you've been studying over your career. You never really thought of it in those terms before? Absolutely never thought of it in those terms. We always thought of politics as a public institution, that the rules were somehow codified in the rule of law and in our constitution. But what we came to see is that politics is really about competition between largely private actors. And these actors are at the core of it is what we call the duopoly. The duopoly, Republicans and Democrats. And that competition has been sort of structured around a set of practices and rules and in some cases policies that have been created over time, largely by the actors themselves. I mean, actually, the founders left a lot of room in terms of how the actual plumbing would work.

But it was interesting, multiple of our founders actually expressed a deep fear that parties would take over. In fact, John Adams said at one point, there is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader and concerting measures in opposition to each other. And if you take a look at Washington's farewell address, which he wrote in 1796, he talks about dangers which could come in front of the republic in the future. And he specifically focuses on two. One is foreign influence and the other is partisanship. The other danger is the formation of strong parties. Having come to the conclusion that the political

system operated more like a traditional industry than a public institution, Catherine Gale and Michael Porter set down their ideas in a Harvard Business School report. It's called Why Competition in the Politics Industry is Failing America. When you read the paper, right there under key findings is this sentence in bright red print. The political system isn't broken. It's doing what it is designed to do. In other words, it was no coincidence that politics had become self-sustaining, self-dealing, and self-centered. they were the blue team and the red team, kind of like Pepsi and Coke. Essentially, they divided up an entire industry into two sides.

And we ended up seeing that it wasn't just the parties competing, it's that they had created, you know, influence and in a sense captured the other actors in the industry. So you have media and political consultants and lobbyists and candidates and policies all divided onto one of two sides. What you see is the system has been optimized over time. For the benefit of private gain-seeking organizations, our two political parties and their industry allies, what we together call the political industrial complex. And this industry has made it very, very hard to play at all if you're not playing their game. How does the political industry compare in size and scope, dollars, employees, direct and indirect, penetration and influence, let's say, to other industries that you've studied, pharmaceutical industry, auto industry, and so on?

Well, it's a great question, and we have done enormous amounts of work on it. It turns out to be very difficult to get Great question, and we have done enormous amounts of work on it. It turns out to be very difficult to get what I would call a completely definitive and comprehensive answer. We estimate that in the most recent two-year election cycle, the industry's total revenue was approximately $16 billion. This is not the biggest industry in the economy, but it's substantial. It'd be one thing if this large industry were delivering value to its customers, which is supposed to be us, the citizenry. But Gale and Porter argue the political industry is much better at generating

revenue for itself and creating jobs for itself while treating its customers with something close to disdain, kind of like the cable TV industry on steroids. And the numbers back up their argument. Customer satisfaction with the political industry is at historic lows. Fewer than a quarter of Americans currently say they trust the federal government. In terms of popularity, it ranks below every private industry. That includes the healthcare and pharmaceutical industries, the airline industry, and, yes, cable TV. Generally, in industries where customers are not happy and yet the players in the industry are doing well, you'll see a new entrant. You'll see a new company come into business to serve those customers. A new company like Netflix or Hulu or Amazon Prime or Sling TV or, well, you get the point. So in today's world, we have the majority of voters say in polls that they would rather have an independent.

So, you know, in a normal industry, you'd have a whole new competitor coming up that was about independence, you know, to serve that unmet need. And yet in politics, we don't see any new entrants other than, you know, Democrats and Republicans. So why is that? Well, it turns out that our political parties work well together in one particular area, and that is actually colluding together over time behind the scenes to create rules and practices that essentially erect barriers to entry, ways to keep out new competition. In their report, Gale and Porter identify the five key inputs to modern political competition. Candidates, campaign talent, voter data, idea suppliers, and lobbyists. Here's what they write. Increasingly, most everything required to run a modern campaign and govern is tied to or heavily influenced by one party or the other, including think tanks, voter data, and talent. So essentially what's happened is the parties have now sort of divided up the key inputs to political competition.

And if you're not a Republican or a Democrat, then you're in trouble in even finding a campaign manager, much less getting the best up-to-date voter data and the best analytics and so forth. It's not enough to monopolize the campaign machinery. Gale and Porter argue that the political industry has essentially co-opted the media, which spreads their messages for free. This helps Donald Trump tonight. This is a big, big beginning to the end of what has been a witch hunt. The man in the White House is behaving now like a character on that old detective show, Columbo. Perhaps most important, the two parties rig the election system against would-be disruptors.

The rules they set allow for partisan primaries, gerrymandered congressional districts, and winner-take-all elections. So each side of the duopoly, Republicans and Democrats, and the players that are playing for those teams, effectively, have, over time, worked to improve their own side's fortunes. But collectively, they also have come together to improve the ability of the industry as a whole to protect itself from new competition, from third parties that could threaten either of the two sides of the duopoly. In this industry, because it's a duopoly that's protected by these huge barriers to entry, essentially what the parties have done is they've been very, very clever. They don't compete head to head for the same voters. They're not competing for the middle. likely that we have a much more powerful center, a much more powerful group of moderates than our current duopoly demonstrates. What they've understood is competing for the middle is a sort of destructive competition. It's kind of a zero-sum competition. So the parties have divided the voters and kind of sort of ignored the ones in the middle because they don't have to worry about them. Because if

the middle voter is unhappy, which most middle voters are today in America, what can they do? The only thing either party has to do to thrive, to win the next election, is to convince the public that they are just this much less hated than the one other choice that the voter has when they go to the ballot. Which means that that gives those two companies, essentially the Democrats and the Republicans, the incentive to prioritize other customers. And their target customer on each side is the special interest and the partisans, and they get a lot of resources and a lot of campaign contributions and massive amounts of lobbying money

to try to get their support with whatever those partisan or special interests needs are. There is now an entire industry of politics that moves forward independent of whether that industry actually solves problems for the American people. So what's happened is that the moat or the barriers to getting into this industry and providing a different type of competition have been built to enormous heights, which has allowed the parties to structure the nature of the rivalry among themselves in a way that really maximizes their benefit to them as institutions, but doesn't actually serve the public interest. Well, that's depressing, isn't it? Insightful, perhaps, but depressing nonetheless. So,

do Katherine Gale and Michael Porter have any bright ideas for tackling this problem? Yes. Yes. Yeah. Oh, yeah. Oh, my God. That's coming up right after this. The business strategist Michael Porter and the CEO-turned-political reformist Catherine Gale argue in a Harvard Business School report that our political system has been turned into an industry with no real competition.

The industry's primary beneficiaries are itself and its many ancillary participants, including the media. But the vast majority of Americans who are somewhere in the middle are feeling very, very disaffected. The lack of vigorous competition, they argue, has allowed the Democrats and Republicans to carve out diametrically opposed political bases, fairly narrow and extremely partisan. So years ago, we created partisan primaries in order to actually take the selection of a candidate out of this, quote unquote, smoke-filled back room and give the selection of the party candidate choice to citizens. So that was designed to give more control to citizens. It turns out it has had a very deleterious effect on competition and has increased the power of the parties. And the parties, Gayle and Porter argue, use those partisan bases to support the desires of the political industry's true customers and its wealthiest special interests.

Industries like health care, real estate and financial services. Also labor unions and lobbyists. In this duopolistic business model, polarization is a feature, not a bug. We have a chart in our report that just selects some what we call landmark-type legislation over the last 50, 60 years. And if you go back, you know, even 20 or 30 years ago, the landmark legislation was consensus. For instance, the Social Security Act of 1935 had 90% Democratic support and 75% Republican.

The Civil Rights Act of 1964 had 60% Democratic support and, again, 75% Republican. Now, for the last decade or two, that's been the opposite pattern. The only way landmark legislation gets passed is one party has enough votes to pass that by itself. The Affordable Care Act, also known as Obamacare, was passed in 2010 with zero Republican votes in Congress. President Trump's 2018 tax reform bill? Zero Democratic votes.

So your diagnosis suggests that this industry serves itself incredibly well. It suggests that it serves us, the citizenry, really poorly. And it also suggests that more competition would improve the industry, as it does in just about every industry. But just having, you know, more competition in parties doesn't seem to be the answer alone. I mean, there are plenty of multi-party political systems around the world that have similar cases of dysfunction and corruption and cronyism like ours. The UK comes to mind. Israel comes to mind. So how direct a step or direct a, you know, prescription would that be? Well, I think in our system in particular, where we have only two, and they have been able through

the set of choices we've described to actually set up the rules of competition that reinforce their partisan competition, dividing voters and so forth, more competition I think would be incredibly valuable. But it has to be a different kind of competition. It can't be just another party that's going to split our electorate into three partisan groups. And so in our work, we focus on what would it take to make the competition less about dividing the voters and how could we make the competition more around building up more choices for voters that were more about solutions. By the way, let me be clear.

We're not against parties per se. What we're against is the nature of the competition that our existing dominant parties have created. Let me ask you this. When you suggest that these rules were carefully constructed, I guess if I were thinking about something other than politics, the first thought that would come to mind then is, well, collusion, right? If I can be one member of a duopoly, I actually hate my rival much less than I hate the idea of anybody else who would interrupt that rivalry because we're splitting the spoils now. Do you have any evidence of

collusion between the parties to create a system that essentially keeps the rest out? Well, you know, first of all, that is the right word. It is collusion. And, you know, there's probably a legal definition of collusion, which I don't know. You know, I'm not a lawyer, but the effect is exactly the same. The parties have agreed on a set of rules that benefit the duopoly and preserve this nature of competition. You can really put rules into a number of buckets. There's kind of legislative machinery, as we call it, which is how the Senate and the Congress are run. And then there's the election rules having to do with, you know, what is the primary process like? And, you know, what does it take to get on the ballot as an independent and the various campaign finance stuff that

surrounds elections. Has anyone ever considered filing, whether in earnest or not, an antitrust suit against Republicans and Democrats? You know, Stephen, that's a great question. You know, I have. We've actually had, you know, a significant effort to see if that's feasible, you know, what the law is, you know, looking at the antitrust statutes. But this is absolutely what antitrust policy is all

about. It's creating, you know, open, effective competition that serves the customer and the public interest. And this industry cries out for that. All right. So in the report, you discuss the many advantages the two parties have. And I think we all recognize that, you know, there's real power in size and there's leverage, especially when you're making your own rules for your own industry. And you write that, you know, they use those advantages to retain control and to constrict competition and so on. But it strikes me that Donald Trump really got around a lot of those advantages. So you write that the parties, quote, control the inputs to modern campaigning governing. But he didn't rely on that, really. You wrote that the parties co-opt channels for reaching voters, but he kind of co-opted or maybe took advantage of his own channels, including free media and his own social media accounts.

You write that the parties, quote, erect high and rising barriers to new competition. But in the case of Trump, you know, his own party tried as hard as they could to erect the highest barrier and couldn't keep him out. And so on those fronts, it would strike me that the parties failed, failed to constrict a certain competitor. So I don't know how you personally feel about President Trump, but according to those advantages and his end run around them, it would sound as though he is at least one example of the solution to the problems that you're describing.

Well, yeah, I think that is definitely a good question, and we must take that on. I would say a couple of things. First of all, the best choice that President Trump made was to run in a party. He had to pick one side of the duopoly because he knew he couldn't win as an independent. And he had actually explored running as an independent in previous years. But that in the current system is not seen to be a winning strategy. The other thing I would say about him was that he had resources. In the end, he didn't have to use that many of them. But in a sense, he could almost have

self-financed and he was appealing to a certain subset of the partisans, maybe a somewhat neglected subset of the people on the right. And he had a very strong existing brand identity. So he was able to, you know, get a lot of recognition and coverage without having to spend that much on advertising. He represents a personality-driven campaign within a party, but we don't believe that he represents fundamentally transforming the structure of competition in the industry. But the real thing that I think everybody has to understand is that in modern politics, the parties are more powerful than the president. And Donald Trump has gotten very little done. He's achieved no compromise. And his signature success got zero Democratic votes. And the game hasn't changed. So far, Trump is just the third in a row president

that may have said that he was going to do things differently and cut across lines and all that kind of stuff. But frankly, he didn't, Obama didn't, and President Bush didn't. Even though President Obama and President Bush campaigned on bipartisanship and bringing people together, they failed. So I think that those recent case studies, I think, are sobering. We should note that some political scientists argue that Gale and Porter's analysis of party power has it backwards. These scholars say our political system is in bad shape because the parties have gotten weaker over time. They argue that stronger parties could help beat back special interests and produce more compromise and moderation. Want some interesting evidence for this parties are weak argument?

Think back to the 2016 presidential election. You had one national party, the Democrats, that tried as hard as it could, to the point of cheating, essentially, to pre-select its candidate, Hillary Clinton, who then lost. And you had the other national party, the Republicans, try as hard as it could to keep a certain candidate off the ballot,

but they failed and he won. It's true that the parties are not as strong as they were in the past, but both sides of the political industrial complex, Democrats and Republicans, are as strong as ever. It's just that the power may not all reside within the party. And if parties were stronger, that doesn't mean they'd be moderating forces. That's what some people say. I really don't understand that argument. The stronger they are, the less moderating they're going to be, given the nature of the competition that's been created. And I think we are really asking for too little when we say, let's tinker around the edges and get stronger parties so that we can have a little bit of a cleaner process. Instead, what we believe is we

need to create structural reforms that would actually better align the election process and the legislative process with the needs of the average citizen. All right. So you've diagnosed the problem in a really interesting and profound way by overlaying a template that's more commonly applied to firms, to the political industry. And of course, it theoretically leads to a different set of solutions than we've typically been hearing. So then you discuss, I guess, four major solutions. Let's go through them point by point. Number one, you talk about restructuring the election process itself.

Give me some really concrete examples of what that would look like. And I'd also love to hear whether you do see some evidence of these examples happening, because it does seem there has been some election reform in states and regions around the country. Yes. Well, when we think about reform, we have to think about really two questions. Number one, is a reform powerful? Will it actually change the competition? And a lot of what people are proposing now is actually not going to make much difference. So term limits are a great example. We aren't fans of term limits because we think that without changing the root cause incentives,

you'll actually just have different faces playing the same game. So number one is we have to re-engineer the election processes, the election machinery. And there are three electoral reforms that are important. We call it the election trifecta. And, you know, the first and probably the single most powerful is to move to nonpartisan, single ballot primaries. Currently, if you're going to vote in the primary, you show up and you get a Democratic ballot or a Republican ballot. And then you vote for who's going to represent that party in the general election. And the one that's on the farthest left or the one that's on the farthest right has a tendency to win because the people that turn out for primaries are a relatively small fraction of even the party.

And those are the people that show up because, you know, they're really partisans and they really have special interests and they really, really care about, you know, they're really partisans and they really have special interests and they really, really care about, you know, getting somebody on the ballot that's, you know, for them. In a single ballot, nonpartisan primary, all the candidates for any office, no matter what party they're in, are on the same ballot. And we propose that the top four vote-getters advance out of that primary to the general election. And the reason a single primary where everybody's in it is so important is that if you want to win, you want to appeal to as many voters as you can.

Hopefully, you know, more people will vote in the primary. And therefore, you're going to get people that, you know, are not just trying to appeal to their, you know, particular, you know, extreme. The second part of the Gail Porter election reform trifecta, ranked choice voting. Here's how ranked choice voting works. You'll now have four candidates that made it out of the top four primary. Those four candidates will all be listed on the general election ballot, and you come and vote for them in order of preference. So it's easy. This is my first choice. This candidate's my second choice. This is my third choice. This is my fourth choice. When the votes are tabulated, if no candidate has received over 50 percent, then whoever came in last is dropped and votes for that candidate are then reallocated to those voters' second choice.

And the count is run again until one candidate reaches over 50%. And what that does is it gives a candidate a need to appeal to a broader group of voters. And very importantly, it eliminates one of the hugest barriers to competition in the existing system, and that is the spoiler argument. So what happens currently is that if there's, let's say, an attractive third-party candidate or an independent candidate, both Democrats and Republicans will make the argument that nobody should vote for them because they will simply draw votes away from a Democrat or draw votes away from a Republican and therefore spoil the election for one of the duopoly candidates. Once you have ranked choice voting, everybody can pick whoever they want as their

first choice, second choice, third choice. No vote is wasted and no vote spoils the election for another candidate. And then the last part of the trifecta is nonpartisan redistricting. Gerrymandering has to go. Essentially, when parties control drawing the districts, they can draw districts that will be more likely to tilt in favor of their party, and they can end up having a disproportionate number of, quote-unquote, safe Republican seats or safe Democratic seats by the way that they draw the districts, and we want to make that go away. way. In addition to election rule reforms, Porter and Gale would like to see changes to the rules around governing. So Congress makes its own rules for how it functions. And over time,

these rules, customs and practices have been set in place to give an enormous amount of power to the party that controls the chamber. And right now, it's the Republicans that are controlling it. But what's happened, and this is sort of collusion in a way, is when the other party takes over, they do it the same way, pretty much. So we propose moving away from partisan control of the day-to-day legislating in Congress and also, of course, in state legislatures as well. The third leg of their reform agenda is about money in politics, but their analysis led them to a different conclusion than many reformers. Where we differ with so many people championing these reforms is that we don't believe that money in politics is the core issue.

Ultimately, the problem is really this nature of competition that leads to this partisanship. And that's not a money issue per se. That's a structural issue. If you take money out of politics without changing the rules of the game, you'll simply make it cheaper for those using the existing system to get the self-interested results that they want without changing the incentives to actually deliver solutions for the American people. Having said that, we do believe that there are benefits to increasing the power of smaller donors. And so the reforms that we have suggested are primarily focused on increasing the power of smaller donors. For instance, having the government itself match donations from small donors. We should note that

most of the ideas Gail and Porter are presenting here are not all that novel, if you follow election reform even a little bit. Even we poked into a lot of them a couple years ago in an episode called 10 Ideas to Make Politics Less Rotten. I guess it's one measure of how successful and dominant the political duopoly is that plenty of seemingly sensible people have plenty of seemingly sensible reform ideas that for the most part gain very little traction. It is definitely challenging. This is a ground game. We're not going to be able to do this in a year or one election cycle because the resources that the current duopoly have to deploy to play their game are substantial.

Despite the rather depressing or at least sobering picture that you paint of the political industry, throughout the report, you express quite a bit of optimism. And I want to know why or how because I don't see the avenue, I guess, for optimism. Well, you know, I do think we have a basic optimism. We have no sense that it will be easy to change the rules of this game for a whole variety of reasons. But the good news is we've had some progress. We've got some nonpartisan primary states now, including California. You know, we've got ranked choice voting in Maine. I think what seems to be building in America is a growing appetite and a growing recognition that this isn't working for our country. And I think the younger generation, you know, millennials are particularly outraged and concerned and open to, you know, all kinds of new ideas. But I think it's going to take time.

The most exciting strategy in this area that we champion is a strategy put forth by the Centris Project. And full disclosure, I'm on the board of the Centris Project. It's now actually called Unite America. And this is the Senate fulcrum strategy. So here's the idea. Let's elect five centrist, problem-solving-oriented U.S. senators who, at that number, five, would likely deny either party an outright majority in the Senate, which would make those five senators the most powerful single coalition in Washington, D.C., able to serve as a bridge between the two parties or to align with one party or the other, depending on the issue, in order to move forward very difficult policy solutions where previously there has not been the political will. So we don't need to wait

to change the actual rules of the game to deliver politicians to office who can act independently of the existing political industrial complex. So, that's an interesting idea. Seemingly sensible, maybe even viable. But this whole conversation got me thinking. If our political system really operates like an industry, as Catherine Gale and Michael Porter argue, maybe it should be treated like one. In most industries, good products and services are rewarded. Weakness and incompetence are punished. Catherine Gale, coming from the cutthroat food industry, surely knows this firsthand. There's constant pressure to modernize, to optimize, to fight off old rivals and new.

Indeed, not long after she brought Michael Porter in to consult on the future of Gale Foods, she decided to sell her company to a private equity firm in Chicago. Why? I absolutely loved running that company, she wrote to us later. But life is short, and I had other things I was also passionate about. I wanted the company to be in the best position to succeed, and so I focused on professionalizing the company and developing a long-term strategy that took into account a changing competitive landscape. Hmm. And that got me thinking. Maybe there is some private equity firm out there who would like to modernize a certain political party or two.

Any buyers out there? If you're too shy to approach the Democrats or the Republicans directly, drop us a line, radio at Freakonomics.com. We'll get things moving. Meanwhile, coming up next time on Freakonomics Radio, it's been a while since our secret life of a CEO series, but recently we got to sit down with the Ford Motor Company's Jim Hackett. Okay, so if I'm looking at your resume, I'm not seeing CEO of an auto firm. Oh God, you and me both.

Most CEOs we've interviewed told us about their challenges and dramatic turnaround efforts long after the fact. Hackett and Ford are in the middle of it right now. They did close under $9 a share for the first time in six years. What's going on with Ford? How does Jim Hackett plan to turn things around? It's beyond vehicles to transportation and actually a transportation operating system. Can a traditional manufacturing company really turn itself into a tech company? Aren't there a lot of tech companies already succeeding in that space?

Is Hackett's idea for Ford a brilliant repositioning or a desperate grab for relevance? Well, there's a long answer to that. You'll hear it next time on Freakonomics Radio. Freakonomics Radio is produced by Stitcher and Dubnir Productions. This episode was produced by Greg Rosalski with help from Zach Lipinski. Our staff also includes Allison Craiglow, Greg Rippin, Alvin Melleth, and Harry Huggins. We had help this week from Nellie Osborne. And special thanks to a Freakonomics Radio listener, Kyle Watson, for bringing the Porter Gale paper to our attention.

Our theme song is Mr. Fortune by the Hitchhikers. All the other music was composed by Luis Guerra. You can subscribe to Freakonomics Radio on Apple Podcasts or wherever you get your podcasts. The entire archive is available on the Stitcher app or at Freakonomics.com, where we also publish transcripts, show notes, and more. If you want the entire archive ad-free, plus lots of bonus episodes, go to Stitchererpremium.com slash Freakonomics. We can also be found on Twitter, Facebook, and LinkedIn, or via email at radio at Freakonomics.com. Freakonomics Radio also plays on most of your better NPR stations.

Check your local station for details. As always, thanks so much for listening.