View source for Investment theory of party competition

The '''Investment theory of party competition''' (sometimes called the '''Investment theory of politics''') is a [[political theory]] developed by [[University of Massachusetts Boston]] professor [[Thomas Ferguson (academic)|Thomas Ferguson]].<ref>{{cite journal |year=1983|url=|title=Party Realignment and American Industrial Structure: The Investment Theory of Political Parties in Historical Perspective|publisher=Research in Political Economy|last=Ferguson|first=Thomas|authorlink=Thomas Ferguson (academic)}}</ref> The theory focuses on how business elites, not voters, play the leading part in political systems.<ref name="GR">{{cite book|year=1995|url=|title=Golden Rule: The Investment Theory of Party Competition and the Logic of Money-Driven Political Systems|publisher=University of Chicago Press|last=Ferguson|first=Thomas|authorlink=Thomas Ferguson (academic)}}</ref>{{Rp|206}} The theory offers an alternative to the conventional, voter-focused, [[realignment election#Realignment_theory|political alignment theory]] and [[Median voter theorem]], which has been criticized by Ferguson and others.<ref name="GR"/>{{Rp|20–38}}<ref>{{cite journal|year=1976|url=|title=What have you done for me lately? Towards an Investment Theory of Voting |publisher=American Political Science Review 68 (Sept)|author=Popkin, S.|author2=Gorman, J. |author3=Phillips, C. |author4=Smith, J. |page=}}</ref>

== Overview ==
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Definitions for this theory:
*'''[[labor intensity|Labor-intensive]]:''' Businesses or investments in which [[wages]] represent a high percentage of the [[value added|value-added price]]
*'''Capital-intensive:''' Businesses or investors in which [[Capital (economics)|capital]] represents a high (or total) percentage of the [[value added|value-added price]]
*'''Realignment:''' When the economy changes (usually through a [[recession]]) and a new economic order is created, resulting in a change in political parties
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{{rquote|right|The real market for political parties is defined by major investors, who generally have good and clear reason for investing to control the [[Sovereign state|state]]....Blocs of major investors define the core of political parties and are responsible for most of the [[Political campaign|signals the party sends to the electorate]].|[[Thomas Ferguson (academic)|Thomas Ferguson]]<ref name="GR"/>{{Rp|206}}|}}

The theory states that, since money driven political systems are expensive and burdensome to ordinary voters, policy is created by competing coalitions of investors, not voters. According to the theory, political parties (and the issues they campaign on) are created primarily for business interests—separated by the interests of numerous factors, such as '''labor-intensive''' and '''capital-intensive''', and [[free market]] and [[protectionist]] businesses. In rare cases, [[labor unions]] act as major investors, such as with the creation of the [[Labour Party (UK)|Labour Party]] in Britain, but are generally overshadowed by corporations.

However, this is different from a [[corporatist]] system, in which elite interests come together and bargain to create policy. In the investment theory, political parties act as the political arms of these business groups and therefore don't typically try to reconcile for policy.

Within this framework, the [[Democratic Party (United States)|Democratic Party]] is generally said to favor internationalist capital-intensive businesses (along with labor unions) while the [[Republican Party (United States)|Republican Party]] favors  nationalist, anti-union, labor-intensive businesses. However, the growth of the financial sector since the 1970s has come to influence both parties greatly.

===Labor-intensive investors===
[[Image:Senate Income Votes.SVG|thumb|280px|A study by [[Larry Bartels]] found a positive correlation between Senate votes and opinions of high income groups similar to the conclusions in the investment theory.<ref>Based on [[Larry Bartels|Larry Bartels's]] study ''[http://www.princeton.edu/~bartels/economic.pdf Economic Inequality and Political Representation]'', Table 1: Differential Responsiveness of Senators to Constituency Opinion.</ref>]]

Labor-intensive investors made up much of the early political systems in the 18th and 19th centuries. Industries such as [[textiles]], [[rubber]], and [[steel]] favor [[economic protectionism]] with high [[tariffs]] and [[subsidies]]. Since these businesses are mainly responsible for their domestic market, they are opposed to a [[laissez-faire]] economy open to foreign competition. Among other things this led to policies such as the [[Smoot-Hawley Tariff]].<ref name="GR"/>{{Rp|145}} 

These industries are also heavily [[anti-labor|against labor unions]], since unionization increases the price of their goods. This is said to be responsible for the [[History of union busting in the United States|anti-union policies]] throughout much of the 18th and 19th centuries when these businesses controlled much of the economy.{{Citation needed|date=August 2013}}

===Capital-intensive investors===
Due to [[industrialization]] and new markets in the 20th century, capital-intensive investors became the new economic order after the realignment of the [[Great Depression]]. Industries such as [[oil]], [[bank]]s, [[tobacco]], (and companies like [[General Electric]]), along with labor, formed the [[New Deal Coalition]].

Capital-intensive industries have almost no percent of their value added based on labor and are therefore open to unionization, which, Ferguson states, is why pro-labor policies such as the [[Wagner Act]] were passed under the New Deal. These investors also favored international competition and reduced tariffs that led to [[Reciprocal Tariff Act|reciprocal trade agreements]] under the [[Second New Deal]].<ref name="GR"/>{{Rp|151–152}}

==Comparison to other election theories==
{| class="wikitable"
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|+Comparison between the Investment Theory and Realignment theory
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!
! [[Realigning election#Realignment theory|Realignment theory]]
! '''Investment Theory'''
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|Changes in political power (or realignment)
|Voters change their political views based on the performance of the party and vote differently.
|Economic changes cause shifts in power—since political parties are subordinate to [[campaign finance|campaign donations]], which mostly come from wealthy investors and corporations.
|-
| [[United States presidential election, 1932]]
| The severity of the [[Great Depression]] lead people to favor a [[welfare state]].
| New capital-intensive industries such as Banks and Oil emerged powerful and, since they employ fewer workers, were able to work with labor unions to help create the [[New Deal]] on the side of Democrats.
|-
| [[United States presidential election, 1980]]
| People became dissatisfied with the welfare state in the wake of [[stagflation]] and favored free-market policies.  
| In the wake of [[stagflation]] and increased global competition, oil industries saw a conflict with labor and shifted support to Republicans.   
|}
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==See also==
*''[[An Economic Interpretation of the Constitution of the United States]]''
*[[Campaign finance]]
*[[Cash for Honours|Cash for access]]
*[[Money loop]]
*[[Propaganda model]] -  a similar theory, but concerning the media industry and public opinion.

== References ==
{{Reflist}}

==External links==
*[http://goldenruledocumentary.blogspot.com/ "Golden Rule: The Investment Theory of Politics"]. Documentary by Jonathan Shockley featuring Thomas Ferguson, Noam Chomsky and other thinkers.

{{DEFAULTSORT:Investment Theory Of Party Competition}}
[[Category:Political theories]]
[[Category:Elections]]
[[Category:Political economy]]
[[Category:Political science theories]]