Thursday, August 20, 2009

Zero or one?

The dilemma faced by Rodney Hide, his supporters, and his opponents over whether or not to have “Maori seats” on any new Auckland Council highlights a fundamental flaw in the very nature of political process as a way of allocating resources. Most people can “feel” this but often cannot put their finger on what the problem is.

Both markets and politics provide ways of allocating resources – whether the resources be a special “voice” for one race or some sugar to those wanting sweet satisfaction.

Political processes ultimately allocate according to votes – and all the manoeuvring which leads to a vote this way or that.

Markets allocate by comparing value expressed in prices for one use against another use for the resource.

The trouble with political allocation is that you can’t buy “bits” of policy. We cannot have bits of  Rodney and Rodney is having trouble buying “bits” of the National Party he is in coalition with.

In politics votes buy  all the policies or none of them. It’s all or nothing. You can’t buy increments. So people who want “a bit” of special treatment  for Maori have to either buy all of the Maori Party and its policies with a yes vote – or none. Likewise, buy all of Rodney or none of him.

With buying sugar in a market you can buy sweetness “up to a point”, one lump or two, one grain or ten. You can stop when you have had enough.

The process is much better matched to the fact that humans have all sorts of mixed, varying, constantly altering, perhaps inconsistent tastes and desires for things. Mix and match is more common than zero or one.

This helps us understand why regulation – which is allocation by political process – is hopelessly blunt.

With occupational licensing you either fit the “requirements” or you don’t. N.Z. registered and approved  surgeon - or butcher and not a lot in between – no Indian or Chinese surgeons without NZ qualifications for instance. Trying to get around this with “discretion” is simply an open invitation to corruption or anti competitive behaviour.

Ditto with land use planning and housing – and so the danger of “mansion or no house” planning rules. Trying to introduce discretion creates the same invite to bribery or competition problems.

For the record the economic concept underlying all this is that efficient allocation comes from decisions made at the margin – a little bit more and a little bit less – political processes use binary, zero one, yes no categories – with resulting inefficiencies and inequities.

This may be why we often find politicians  frequently “promising” and “threatening” but not actually doing – a poor man’s attempt at marginal decision-making.

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