Tuesday, 9 September 2014

Insider Trading

As a self-confessed competition geek, I've been puzzling over the business of politics.

We like to think of politics as being highly competitive and in normal markets that would lead to innovation. Commercially driven innovation is usually aimed at developing market power of some form, such as a scientific or procedural discovery that takes rivals some time to mimic.

I think that's exactly the kind of innovation embodied in the business model exposed by Dirty Politics. National's aim was always to gain more control, more power in the (political) market. By succeeding, it has imposed three really big costs.

  • First is the opportunity cost. Political innovation should be aimed at developing a contest of ideas - an active and disciplined search for beneficial policies. But we never quite get around to this bit though, because the competing politicians are busy seeking power rather than progress. 
  • Add to that the direct costs of running the character assassination business itself, in the form of innocent people being trashed and good people being slowly corrupted. 
  • Then there is the incentive effect on other politicians. This is obviously a very successful innovation so (reverting to market analogies) you'd expect it to be copied. Then we're all at it, and its just the new way we do stuff, so rinse and repeat these costs ad infinitum.

If this makes sense as a problem definition, then we should respond by trying to kill the business model. Which means recognising the source of the market power that John Key's government has acquired: access to inside information. That is the scarce commodity being traded.

Insider trading is banned in financial markets because it corrupts the market and diverts activity/resources in the process. We should ban it in political markets too, though I'm not sure how we go about that in practice. My sense is that we need much better controls around the use of information by politicians and their staff.

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