Economics of Identity Politics

Before we go into the details of Identity Politics, we need to spend some in understanding the concept of life time value of a customer. Let's say a toothpaste tube lasts one month. Let's assume that X  is 20 years old and his expected life expectancy is 70 years. If the price of toothpaste is Rs 100, the life time value of X for the toothpaste manufacturer is (70-20) * 12  * 100 = Rs 60,000. 

Let's take another example: Let's say X’s kid goes to some school and he is in grade 1. The yearly school fees is Rs 2 lakhs. The lifetime value of the kid to the school is 12 * 2 = Rs 24 lakhs. What this calculation enables is putting a cap on maximum money manufacturer or school can spend on acquiring the customer. They may not make money on the first few sale, but over the lifetime of the customer, they will still make money. 

Let's try to see how this applies to politics in a democracy. In theory, in a democracy political parties will come up with policies and then the voters will judge them on the basis of these policies. The party with better policies win. Democracy in theory is like economics, where the invisible hand of rational self interest will cause parties to come up policies that matter to most and the voters will choose the most representative government. Just like everything else, theory is not quite applicable in practice. Coming up with better policies and doing good work is just plain hard. Even harder is selling the idea of why their policies are “better”. Let's have better tax collection to make infrastructure better is a really bad idea. No one likes it and no one wants to pay more tax. It so happens that “better” is different for different people. The worst part of this strategy is that the party needs to compete in every election to get back the people who voted for them the last time. This is very expensive and uncertain politics. This is bad business. 

Identity policies is a far better strategy. Voters are not expected to change their identity, by definition of identity. Once the voter is sold using identity, voter is acquired for lifetime. This amortises the cost of voter acquisition over the life time of the voter. What it means is that if the voter decides to vote because of identity, he will continue to vote for the same party unless he invents a new identity or other parties claim the same identity. No amount of good policy from competitors can swing his vote. This is a gem of a strategy. Not only do party reduced the cost of voter acquisition, increased voter stickiness but at the same time got complete independence from voter judgements around policy.

I love this quote from Sin City where Senator Roark says  “Power don't come from a badge or a gun. Power comes from lying. Lying big and gettin' the whole damn world to play along with you. Once you've got everybody agreeing with what they know in their hearts ain't true, you've got 'em by the balls”.  Identity voting is a pact with the devil, sale of soul. Once sold on identity, any rationale against party policies would either insult the identity or the self. It looks almost impossible to beat the vote unit economics of this strategy and the freedom of action it gives to the party. It attacks democracy exactly at the point which it was not evolved enough to handle, namely tyranny of the majority. The only available counter strategy against identity politics is more identity politics. The problem of course is that what looses out in this game is the integrity of nation. You only win this game by destroying the stadium.

Counting Representation

Democracy is great and so is the idea of representative government. The point where it starts hurting is that majority wins. By definition, majority is representative of just majority.  Even majority representing majority is questionable. Majority does represents majority when we have just two parties. But when we have more the two, we can be easily sure that majority is not represented. For example, in a three party, highly contested elections 34% would count as winning majority and it excludes 66% (real majority).  Essentially, majority of votes don't translate to majority in representation.

Surprisingly, it is easy to fix. All we need to change is what we count. The basic idea is to add the dimension of time to representation. Instead of the crude approximation of majority, we can have complete representation for everyone over time.  As popular is management circles, you only get what you measure.

How do we measure representation? As we discussed earlier, votes don't translate to majority representation. Well some of the votes do translate to representation. The votes which are cast to the winning party. The votes that are not cast and the votes that are not cast to the winning party are useless. They don't count toward representation.

Without much ado, here are the rules of the game:

1. Votes which result in representation are "spent"
2. Votes that don't get representation are "not spent"
3. Votes that are not cast are "not spent"

In other words, votes can be stored and used across elections.  Each vote is worth 5 years of representation. They work just like currency as store of "political value".  For example: say we had a two party system with 100 people and say party A won the election with 51 votes. These 51 votes are counted as spent. Rest 49 people get to keep their unrepresented vote for later use. In the next elections, 49 people will have 2 votes each and 51 will have one vote each. It is easy to see that with 98 votes, these 49 people will we able to easily get their representation.  

Given 65 years of life expectancy and 18 years as voting age, people get to vote around 10 times in their life. If the number of political parties is less that or equal to 10, even some 10% of the population will get a chance to form a government during their life time. To make this work with even larger number of parties, we will need to either have more frequent elections or allow inheritance of "political value", just like property and money.  This makes it possible for any arbitrary group of people to eventually form a government, perhaps once in few hundred years. 

It is easy to see that this method of counting representation leads to representation of all people over time. It will probably help stop the madness around "winning" elections and all that goes into it. Why? Because if you win, you make it easy for others to win the next time. If you loose, you chance of success increase over time. 

From what I could reason about, the system has two equilibriums. One: If people are cleanly partitioned into groups, over time each group gets representation and world becomes fair in terms of representation. If the groups are greedy, they will choose policies which advance their own groups. Sadly, the same strategy will be used by each of the other groups. Sad, but fair. 

The second equilibrium, would be towards enlarging or growing the size of these groups. Essentially, if the two groups can sort out their differences and work towards what is common and important for them, we get one less group and hopefully policies which work towards welfare of all the people in this larger group. The recursive logic will bring us to some manageable number of groups or even just one.  We might even see groups getting split when they cannot reconcile their differences, but that still leaves the process fair, just and representative. 

No matter which way the wind blows, we can always be sure that everyone is getting represented over time. If nothing else, it reduces the cost of running political parties and hopefully that is the money which can be used for advancement of the country and providing public goods. 

Criticism is most welcome!  

People Futures

I don't know if the title does justice to what I am about to say. The other two I considered were "Investing in people" and "Partial Slavery".  "FDI in people" was another contender. I am not going to talk about future of people in the sense we usually do, but instead the "future" here refers to ones used in financial markets.

Labor doesn't have a future. Again I mean in the financial sense of the term to avoid any Marxist connotation. The question is what if it did? Let's say any person could sell upto "49%" stake in himself subject to investment. Just to simplify implementation, lets say income tax of the person will be used by government to pay dividends to the "share holders" and in case of death of the person, they automatically get assets of the person (bank balance, property, etc) in proportion to their shares. Further assume that these shares are traded on a stock market so that other people/corporations can trade them.

Now that we have defined the model, lets try to see if it helps us in any ways.

Obviously anyone who made investment in Amitabh Bachchan or Sachin Tendulkar or Shah Rukh Khan would be making tons of money. In theory at least some investments could be handsome.

Consider education. Let's say the retirement fund of a teacher is exclusively or at least heavily influenced by the future income tax of the students he teaches. May be even his salary. Does this gives a teacher an incentive to educate the children to best of his abilities?

Consider education again. Does an industry benefits by investing in students which will be part of its labor force tomorrow? May be industry doesn't realizes this, someone else with money does.

Consider sports other than cricket in India. If their is any possibility of someone winning a medal in Olympics and possibly signing up for brand endorsements, would someone invest in players of these games?

I don't know what would this all really mean. But I do know that people are the future of any possible future we have. May be if that future is invest-able,  some people might invest in it. If nothing else, it gives us some measure of "human capital" vs "other capital" so that at least we are clear on what we as a generation believe is the "future".  May be this brings some reality (funny that speculation is what I propose as real?)  to the over simplified model of people as commodity.