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Porter’s Five Forces Meets Washington DC

December 21, 2012

I am a big fan of M E Porter’s work on competitiveness. Applying his framework is something I do almost everyday in a business setting. Using that framework to view non-traditional settings is becoming a habit. Please indulge me on this.

This post is my attempt to apply the Five Competitive Forces to the politics (federal level) of this Nation. My hope is this causes the reader to view politics in the realm it really deserves to be included, economics. The goal of competition for political office at the federal level is to gain control over resources. Many would say influence. But the influence is sought as the lever for access to resources. The resources of this country are more and more influenced by the political parties and will only be more so tomorrow. Even though it is considered boring and inane to discuss economics within the political “tent”, it can be ignored only at the peril of our national security.

A refresher, the Five Competitive Forces are 1) Threat of new entrants 2) Bargaining power of buyers 3) Bargaining power of Suppliers 4) Threat of substitution and 5) Intensity of rivalry. There exists no rank or priority in their order. Each industry’s profits is impacted by each of these forces. Understanding the strengths of these forces allows the user to evaluate the profitability of that particular industry. The industry in this case will be federal politics.

Threat of New Entrants – Moderate

In a classic business example an industry where the barriers to entry are low enough to allow a participant with few to no resources enter with the prospect of moderate to high level of profitability will attract many new participants. The new participants with little capital at risk and anticipating attracting industry profits will enter with low prices, causing the incumbent participants to lower prices in an effort to protect market share. As the field increases participants, the profits of the industry can be drained. Consider the construction industry. From the end of the 1990’s to 2008 the profits in the industry were sufficient to attract many new entrants. Capital was cheap and easy to attain. Any metric of construction spending was parabolic in their charts. Until eventually there were too many participants and not enough profits to satiate the participant crowd.

Most campaigns are run on other people’s money. So little personal capital or resources will be committed to the endeavor. Other than certain citizenship requirements, there are no other requirements except age for various offices. A candidate does no longer is expected by today’s constituents to bring anything other than certain intangible attributes such as like likability, charm, appearance, and ability to speak at least clearly.  There is a famous example in this last election where one candidate was categorically caught lying about their race to gain advantage over others during their career. This habit of lying to gain an advantage was widely known and exposed and the candidate was rewarded with no less than a Senate seat. Obama prior to his Senate win was a community organizer. He had no executive office or power over any enterprise. His tenure in the Senate was one of the shortest and marked with his frequent absences. He ran in his first Presidential election against a man who was held captive by an enemy, tortured for years in a manner crippling him for the remainder of his life, and never surrendered to his torturers. That man went on to serve in the Senate for many terms and is known for his ability to work with the opposition and serve the national interest. With these facts the reader will agree, the barriers to entry are extremely low.

Bargaining Power of Buyers – Low

This is typically in the classical sense, customers. Those customers may be individual purchasers, businesses, or governments. The successful company offers a product or service with value equal or exceeding the consumer’s outlay. Depending on factors such as the life expectancy of the product or service, the cost of the product, and the availability of data to influence or reinforce choices, the bargaining power may be shifted to the buyer. For example,  jetliners are certainly very expensive and there are a limited number of potential purchasers. Given these two attributes, none of the qualified purchasers pay the MSRP for a jetliner.

Within national politics, there have evolved a different set of economies. It is dominated by the promise of something of greater value in exchange in for the support, vote or donation. Large donors can expect political favors in the form of favors (i.e. Ambassadorships, invitations to restricted political events, and other promises of potential influence). Those resources are used to convince the vast majority of constituents to vote for the candidate in a manner to accomplish the agenda and aim of the few well-resourced buyers.

This recent election cycle exposed clearly the swing state status as receiving the attention and focus of candidates. Expect those states to continue receiving sufficient benefits to maintain party loyalty. The electoral college guarantees this.

Bargaining Power of Suppliers – High

In a classical sense the suppliers who have the best bargaining power are those with access to necessary resources and their competitors are few in number. An example would be a natural resource supplier who has locked down access to the resource, and no one else has legal access to those resources. The result is the ability to dictate pricing and drain profits from its customer industry.

In politics, the bargaining power of suppliers is determined by the ability to supply resources; cash donations or aggregate cash donations, media coverage, and even flagrant biased media coverage. Media outlets who have unabashedly supported one candidate and smeared the other, will expect their influence to resources will be repaid for their acts. What resources you ask? How about legislation to protect their industry and interests. The major TV news outlets are owned by television companies who are competing to remain relevant in the digital 2.0 era. They depend on advertising revenues for their existence. With so many eyes being siphoned off to other media and entertainment channels, the TV industry will be looking to block or have their favored legislation succeed.

How about the really rich citizen who can write a check for millions of dollars to fund advertising? Or how about the glamorous movie star who host a party in their home and invite their friends to fling around $50,000 to join the party? Who do you think will receive the most attention? Ambassadorships and other political appointments/favors fall to those with the largesse to afford it.

Threat of Substitution – Zero

In industry there is always the threat of substitution. Consider the threat facing desktop computers from tablets and smartphones. Desktop PC unit sales have been declining since the launch of the tablets (iPad).

In national politics there is no threat of substitution. Meaning there is not an alternative form of government which can serve to cause the current form of government to compete by increasing the quality or cost of government. In fact, the monopolistic offering dictates the inefficient operations of government at all levels. Our nation began with a group of prominent citizens who one day wrote a document with the following words “When…it becomes necessary for one people to dissolve the political bands which have connected them with another…they should declare the causes which impel them to the separation.” Those words set this nation on its path to freedom from the British Crown and Parliament’s interference with those same gentlemen’s ability to gain economic parity and advantage. When later a geographic section of the nation used this as the basis for secession, the concept was ruled null and void by the other geographic section and the Civil War resolved the issue.

Intensity of Rivalry – Low

This nation has been dominated by a two-party political system for most of its 230 years. With only two competitors to choose from, an oligarchy exists, one step removed from monopoly. Consider the two parties public stances. Both are for a strong economy, high employment, world class education, and thriving economies. Yet we have none of those. Both parties are clearly against high crime, low education results, suffering economy and low employment with little hope for the average citizen to gain economic parity and advantage. There have been recent attempts to establish a third party with little to no success. So both parties can avoid the the boring debate about the HOW of taking the country to a competitive advantage against its rivals. No we are relegated to public debate about the personalities and racial identification with candidates.

Summary, national politics is indeed a profitable industry. Those profits are not under any political threat. And I would go on to say that the level of profitability is high for both parties regardless of which is in position.

Threat of New Entrants – Moderate

Bargaining Power of Buyers – Low

Bargaining Power of Suppliers – High

Threat of Substitution – Non existent

Intensity of Rivalry – Low

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