The Investment theory of party competition (sometimes called the Investment theory of politics) is a political theory developed by University of Massachusetts

University of Massachusetts

This article relates to the statewide university system. For the flagship campus often referred to as "UMass", see University of Massachusetts Amherst...

 professor Thomas Ferguson

Thomas Ferguson (academic)

Thomas Ferguson is an American political scientist and author who studies and writes on politics and economics, often within a historical perspective. He is a political science professor at the University of Massachusetts Boston and a member of the advisory board for George Soros' Institute for...

. The theory focuses on how business elites, not voters, play the leading part in political systems. The theory offers an alternative to the conventional, voter-focused, political alignment theory, which has been criticized by Ferguson, et al.

Overview

Definitions for this theory: Labor-intensive Labor intensity Labor intensity is the relative proportion of labor used in a process. Its inverse is capital intensity.... : Businesses or investors in which wages are a high percent of the value-added price Value added In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases... Capital-intensive: Businesses or investors in which capital Capital (economics) In economics, capital, capital goods, or real capital refers to already-produced durable goods used in production of goods or services. The capital goods are not significantly consumed, though they may depreciate in the production process...  is a high or only percent of the value-added price Value added In economics, the difference between the sale price and the production cost of a product is the value added per unit. Summing value added per unit over all units sold is total value added. Total value added is equivalent to Revenue less Outside Purchases... Realignment: When the economy changes (usually through a recession Recession In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way... ) and a new economic order is created, resulting in a change in political parties.

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 entirely for business interests, separated by the interests of numerous factors such as labor-intensive and capital-intensive, and free market

Free market

A free market is a competitive market where prices are determined by supply and demand. However, the term is also commonly used for markets in which economic intervention and regulation by the state is limited to tax collection, and enforcement of private ownership and contracts...

 and protectionist businesses. In rare cases, labor unions sometimes act as major investors such as with the creation of the Labour Party

Labour Party (UK)

The Labour Party is a centre-left democratic socialist party in the United Kingdom. It surpassed the Liberal Party in general elections during the early 1920s, forming minority governments under Ramsay MacDonald in 1924 and 1929-1931. The party was in a wartime coalition from 1940 to 1945, after...

 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

Democratic Party (United States)

The Democratic Party is one of two major contemporary political parties in the United States, along with the Republican Party. The party's socially liberal and progressive platform is largely considered center-left in the U.S. political spectrum. The party has the lengthiest record of continuous...

 is generally said to favor internationalist capital-intensive businesses (along with labor unions) while the Republican Party

Republican Party (United States)

The Republican Party is one of the two major contemporary political parties in the United States, along with the Democratic Party. Founded by anti-slavery expansion activists in 1854, it is often called the GOP . The party's platform generally reflects American conservatism in the U.S...

 favors nationalist, anti-union, labor-intensive businesses.

Labor-intensive investors

Labor-intensive investors made up much of the early political systems in the 18th and 19th centuries. Industries such as textiles, rubber

Rubber

Natural rubber, also called India rubber or caoutchouc, is an elastomer that was originally derived from latex, a milky colloid produced by some plants. The plants would be ‘tapped’, that is, an incision made into the bark of the tree and the sticky, milk colored latex sap collected and refined...

 and steel

Steel

Steel is an alloy that consists mostly of iron and has a carbon content between 0.2% and 2.1% by weight, depending on the grade. Carbon is the most common alloying material for iron, but various other alloying elements are used, such as manganese, chromium, vanadium, and tungsten...

 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

Laissez-faire

In economics, laissez-faire describes an environment in which transactions between private parties are free from state intervention, including restrictive regulations, taxes, tariffs and enforced monopolies....

 economy open to foreign competition.
These industries are also heavily against labor unions since unionization increases the price of their goods. This is said to be responsible for the anti-union policies

History of union busting in the United States

The history of union busting in the United States dates back to the Industrial Revolution in the 19th century which produced a rapid expansion in factories and manufacturing capabilities. As workers moved away from farm work to factories, mines and other hard labor, they faced harsh working...

 throughout much of the 18th and 19th centuries when these businesses controlled much of the economy.

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

Great Depression

The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...

. Industries such as oil

Oil

An oil is any substance that is liquid at ambient temperatures and does not mix with water but may mix with other oils and organic solvents. This general definition includes vegetable oils, volatile essential oils, petrochemical oils, and synthetic oils....

, bank

Bank

A bank is a financial institution that serves as a financial intermediary. The term "bank" may refer to one of several related types of entities:...

s, tobacco

Tobacco

Tobacco is an agricultural product processed from the leaves of plants in the genus Nicotiana. It can be consumed, used as a pesticide and, in the form of nicotine tartrate, used in some medicines...

 (and General Electric

General Electric

General Electric Company , or GE, is an American multinational conglomerate corporation incorporated in Schenectady, New York and headquartered in Fairfield, Connecticut, United States...

) along with labor formed the New Deal Coalition

New Deal coalition

The New Deal Coalition was the alignment of interest groups and voting blocs that supported the New Deal and voted for Democratic presidential candidates from 1932 until the late 1960s. It made the Democratic Party the majority party during that period, losing only to Dwight D. Eisenhower in 1952...

.

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 favor international competition and reduced tariffs which is said to have led to the Reciprocal Tariff Act

Reciprocal Tariff Act

- Reciprocal Trade Agreements Act of 1934 :President Franklin Delano Roosevelt signed the Reciprocal Trade Agreements Act into law in 1934. RTAA gave the president power to negotiate bilateral, reciprocal trade agreements with other countries. This law enabled Roosevelt to liberalize American...

 (in response to the Smoot-Hawley Act).

Applications

• Health care reform (2010), The final health care reform bill was not single-payer, and did not have a public health insurance option
  Public health insurance option
  The public health insurance option is a proposed government-run health insurance agency which competes with other health insurance companies. It is not the same as Publicly-funded health care. Called the public insurance option or public option, for short, it was a proposed health insurance plan...
  
   because business interests were against it, despite overwhelming public opinion for both those programs.

Comparison to other election theories

Comparison between the Investment Theory and Realignment theory Realignment theory Investment Theory Changes in political power (or realignment) Voters change their political views based on the performance of the party and vote differently. Economic changes result in shifts in power since political parties are subordinate to campaign donations Campaign finance Campaign finance refers to all funds that are raised and spent in order to promote candidates, parties or policies in some sort of electoral contest. In modern democracies such funds are not necessarily devoted to election campaigns. Issue campaigns in referendums, party activities and party...  which mostly come from wealthy investors and corporations. United States presidential election, 1932 United States presidential election, 1932 The United States presidential election of 1932 took place as the effects of the Wall Street Crash of 1929, the Smoot-Hawley Tariff Act of 1930, the Revenue Act of 1932, and the Great Depression were being felt intensely across the country. President Herbert Hoover's popularity was falling as... The severity of the Great Depression Great Depression The Great Depression was a severe worldwide economic depression in the decade preceding World War II. The timing of the Great Depression varied across nations, but in most countries it started in about 1929 and lasted until the late 1930s or early 1940s...  lead people to favor a welfare state Welfare state A welfare state is a "concept of government in which the state plays a key role in the protection and promotion of the economic and social well-being of its citizens. It is based on the principles of equality of opportunity, equitable distribution of wealth, and public responsibility for those... . 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 New Deal The New Deal was a series of economic programs implemented in the United States between 1933 and 1936. They were passed by the U.S. Congress during the first term of President Franklin D. Roosevelt. The programs were Roosevelt's responses to the Great Depression, and focused on what historians call... .

External links

• "Golden Rule: The Investment Theory of Politics". Documentary by Jonathan Shockley featuring Thomas Ferguson, Noam Chomsky and other thinkers.