Applying Porter's Five Forces to Fix US Politics – Harvard Business Review

CURT NICKISCH:  Welcome to the HBR IdeaCast from Harvard Business Review.  I’m Curt Nickisch.

It’s a widespread opinion that the U.S. political system is dysfunctional.  Just look at the government response to the Covid-19 crisis, you’ll hear people say, or the protests against police brutality.  There is a tremendous disconnect between what people want and what politicians are doing to serve those wishes.

But our guests on the show today say the political system is working exactly how it is designed to work.  They’re from the business world and have applied competitive strategy frameworks and market analyses to the political sphere.  They argue it is not optimized to work for ordinary citizens, but instead to keep two political parties in power, and that’s what it does very well.  Think of the Republican and Democrat parties more like Coke and Pepsi, they say, two organizations that have sold a lot of cola over the decades and have been immensely successful at dominating the market.

Katherine Gehl is the former CEO of Gehl Foods and the founder of the Institute for Political Innovation.  And Michael Porter is a professor at Harvard Business School.  Together they wrote the book, The Politics Industry, How Political Innovation Can Break Partisan Gridlock and Save Our Democracy, as well as the HBR article, “Fixing U.S. Politics: What Business Can and Must Do to Revitalize Democracy.”  Katherine, thanks for coming on the show.

KATHERINE GEHL:  Thrilled to be here, Curt.  Thanks for having us.

CURT NICKISCH:  And Michael, welcome.

MICHAEL PORTER:  My pleasure, Curt.  Thank you.

CURT NICKISCH:  Now, Katherine, you came to the political arena through a business career, which is not unusual.  What makes your experience different?  How do you see politics different than many other business leaders who’ve gone on to political careers?

KATHERINE GEHL:  Yes, so I came to this way of thinking while I was working on my corporate strategy project using Michael Porter’s Five Forces.  And fortunately for us at our company, Michael Porter was the consultant on our corporate strategy project.  And so while we were working on corporate strategy, since I was deeply engaged in the political world and the policy world, I, in the back of my head, started running the Five Forces analysis on what I began to call the politics industry, and I found it to be fascinating

CURT NICKISCH:  W hat did you see?  Or what was your first conclusion?

KATHERINE GEHL:  The most striking thought that I had – actually, there are two, one is, the barriers to entry for new competition in the politics market are so high.  And then a second thing that really came out when we looked at the Five Forces is that, oh, well, the customer, which is to say the public interest, has no power in this industry.

CURT NICKISCH:  Is there, and Michael, maybe this a question for you, but is there a limitation to using this framework, which was designed for the business world – is there a limitation to applying this to political science?

MICHAEL PORTER:  Well, I would tell you, I didn’t know anything about applying it to anything besides business. What I find is, the framework proves to be incredibly powerful.  It makes it clear what’s actually going on here.

This what we call a duopoly.  This is an industry where there’s two dominant competitors.

CURT NICKISCH:  Yeah, the idea of a duopoly struck a chord with me.  I remember going to the European Union once, and a German lawmaker there told me, ah, yes, the U.S. two-party system, the minimum number of parties you need for a democracy…

MICHAEL PORTER: And there’s only been two dominant competitors for the last 100 plus years. These barriers to entry have largely been created in a collaborative way between the parties.  It’s interesting that they are bitter rivals, but they cooperate in setting the rules and structuring the game of competition in their particular industry.  Companies love to do that in for profit industry, too, but they usually can’t do it.

CURT NICKISCH: We do know that in competitive markets, two dominant players can work, like Coke and Pepsi can be very intensely competitive with each other, but generally you have higher profitability.  You have stronger producer surpluses.  You don’t have the most efficient market, and maybe not the one that’s the most innovative when it comes to choices and value and solutions for its customers.

KATHERINE GEHL:  Look, when there’s only two, neither party needs to deliver results in order to keep winning, because no matter how disappointed you, the voter, are, you still likely prefer what your side says they’re for, than what the other side says they’re for.  And so, you know, instead of results in the public interest, we get this gridlock and increasing polarization, because there’s no incentive for the two sides to come together to solve our problems in a sustainable, scalable way.

CURT NICKISCH:  And you give lots of examples of this, like immigration reform, any number of issues where you think a solution would be preferred by a majority of the population, but it’s just not in the interest of either party to compromise, because if it doesn’t happen, they can still complain about a problem and go back to their donors and raise money for candidates, and you know, wage an election campaign again.

MICHAEL PORTER:  The core competition in this industry is really captured by the word polarization.  That’s because the parties have divided up the voters into voters that are more left or voters that are more right, that are better limed up with their ideology.  And those kind of voters tend to vote in the partisan primaries.  So the partisan primaries become a critical part of this industry, as I’m sure we’ll talk about later.

Frankly, as a business strategy professor, I will tell you, this is very clever from their point of view.  This is very clever.  They are very good at optimizing the system for them, collectively.  And they are able to get away with not optimizing almost anything about it for the public.  And we have lots of issues in America.  Our business environment, lots of things to fix.  You said immigration reform, we have no infrastructure.  We haven’t had any improvements in that in decades.  We have education problems.  We have all kinds of issues in our healthcare system.

People had not been served with things that have enabled them to live a good life and to feel that they have opportunity and have a decent standard of living.  So the parties have been able to not perform on the things that are most important for citizens and not be held accountable.

And in most for profit industries that we look at, you know, you can’t sustain this.  If you’re doing a really bad job, then somebody comes in, and how do you think Uber got into the taxi industry?

CURT NICKISCH:  Yeah.  How would you fix the party primary system, then?  Let’s start with that.

KATHERINE GEHL:  So let’s illuminate the real problem with the party primary.  So they really are the reason why so many people show up at the general election and think, I don’t really like the choices that I have.  Most elections are really decided in the primary, especially in gerrymandered districts, and voters who turn out for the party primaries tend to be more ideological than the electorate as a whole.  So therefore, to make it through the primary, the candidates have to go further to the left or to the right than the voters as a whole really want.

But here’s the much bigger problem that we don’t always think about, which is that the influence of the party primary extends beyond the election to the legislative process, to decision making while governing.  So I want each of your listeners to imagine yourself as a politician.  You, as a politician, have an opportunity to vote yes on bipartisan landmark legislation, perhaps addressing one of our biggest problems in the country.  What are the questions that you ask yourself?  Maybe, is this a good idea?  Maybe, is this the right policy for the country?  Or perhaps, is this what the majority of my constituents want?

But the fact is, it’s none of those questions.  You have to ask, will I make it back through my next party primary if I vote for this?  And if the answer to that question is, no, and on all the big issues, it virtually always is for both sides, then the other important questions are virtually wholly irrelevant because the rational incentive to get reelected dictates that you vote, no.

MICHAEL PORTER: If you’re some hapless member of the House, and you voted against something that the party leaders in your party were for, they’re going to, they’re not going to forget.  They’re going to look at you, and they’re going to put a target on your forehead.  This person, we’re going to run somebody against that person in the next primary.  And so there’s the control of the party leadership is combined with the importance of the partisan primary, and it just reinforces these kinds of outcomes.  And the only time we pass anything lately is when the party – one party – can actually pass it by itself.

CURT NICKISCH:  Right, like corporate tax reform.

MICHAEL PORTER:  Corporate tax reform.  Zero Democrat votes.  All Republican votes.  And the tax reform that we got is very partisan. The corporate tax was lowered dramatically.  And if it had been lowered half as much, it would have been fine.  Every business would be happy.  But it got lowered even more, because it was a highly partisan tax bill, and so our budget right now is on very bad track.  I mean, it just really knocked up the deficit that we’re tracking right now.  So it’s, that’s what we’re talking about here.

CURT NICKISCH: What are some of the specific innovations you’re advocating for?

KATHERINE GEHL:  So there’s one major thing we need to do, and that is change how we vote.  Because how we vote is what drives the incentives.  First, we have to get rid of the broken party primary system.  And we replace that with a single, nonpartisan, top five primary.  So everybody will be on the same ballot in the primary.  You don’t vote in the Democratic primary or the Republican primary.  You vote in the nonpartisan primary.  And the top five finishers advance to the general election.

Then the second thing we need to do in the general election, we need to get rid of the plurality voting, and we need to move to ranked choice voting, where we can rank our choices, and in that way, we can allow for new competition.  When we do these two things together, we will now connect solving problems to the American people with a likelihood that they’ll get reelected, and we will create a pathway for new competitors, which is what drives accountability in any industry.

CURT NICKISCH: I want to ask briefly about ranked choice voting, which to many people who are listening in European countries will be familiar with.  It’s in some U.S. states.  But this is something that you advocate for in the general election, because it tends to arrive at somebody who’s elected who is supported by the broadest coalition of voters.  Is that a fair explanation?

KATHERINE GEHL:  Yes.  So the second important thing we need to change in how we vote is, we have to change how we determine the winner, which is that we need majority winners.  We need people that win with over 50% of the vote.  And an obvious reason is because it’s good to have majority support.  But the most important reason is because allowing winners to win with the most votes, but not necessarily a true majority, is the single greatest reason we never see any new competitors.

Now, that’s hard to understand, so I need to just spell it out.  Let’s look at an example.  In the spring of 2019, the widely respected, admired former CEO of Starbucks, Howard Schultz, said that he was considering running for the presidency as an independent.  But the Democrats believed that Schultz would spoil the race for the eventual Democratic nominee, because they thought he would take just enough vote away from the eventual Democratic nominee to essentially spoil the race for the Democrat and throw the race, therefore, to Trump.

And so they were viciously opposed to his run.  The Republicans, I promise you, would be equally viciously opposed to some well-known, well-respected candidate running who was considered likely to draw too many votes away from Trump, and accidentally, in a sense, make the Democrat win.

And neither party is wrong about that.  The way you get rid of the spoiler problem is by instituting ranked choice voting.  And what ranked choice voting is, you go into the booth on general election day.  You see your five choices that came out of the top five primary.  And you rank them.  It’s quite natural.  We do this with everything in our life.  This is my favorite flavor of ice cream.  My second flavor.  All the way down to, I hate that.  I would never eat that flavor.

And so you do that with the candidates.  You can rank as many or as few as you would like.  And when the polls close, you count the first place votes.  And if one candidate has over 50%, that’s fine.  The election’s over.  That candidate wins.  But if none of the five candidates have gotten support from the majority of voters, then the candidates who came in last place is automatically eliminated from the race, and voters who had selected that candidate, who’s now out, had their second choice counted instead.

We run the vote totals again for the four candidates remaining, and look for a winner to get over 50%.  We keep doing that until we get the true majority winner.  Think of it as a series of runoff elections, but you cast all your votes at once, instead of having to keep coming back to the polling place.

CURT NICKISCH:  So those are the innovations.  Then there’s a matter of getting the innovations to the market.  How does that happen?  What’s the strategy for that?

KATHERINE GEHL:  Well, the interesting thing is each of the states can change these rules at any time.  And so the strategy is to have leaders in the states, grassroots leaders, come together to create a campaign in their state to change these rules.  In half of the states, they can actually use direct democracy.  They can put final five voting as an issue on the ballot, and if they get a majority, we change to final five voting.

In the other half of the states, the legislature needs to pass a bill, and the governor needs to sign it, and so there, the citizens and the leaders in that state need to put pressure on their legislature and their governor to change these rules for how we elect people to Congress.  And that’s how we get it done.

And what’s really important is that we don’t need to get it done in all 50 states for it to begin to make a difference in Washington, DC, to begin to change the competition away from a competition of division and towards a competition to solve problems.  The benefits of competition are not about changing who wins.  They are much more about changing what the winners do.

So in any industry, you can have a new competitor that doesn’t end up winning in the marketplace, but they brought something innovative to the table, and then the existing behemoths maybe take that new innovation and add it into their products.  The customer ends up winning with healthy competition, regardless of which players actually win the election.  So we’re not against Democrats.  We’re not against Republicans.  We want whoever wins to have the freedom and incentive to solve problems for Americans.

CURT NICKISCH:  Michael, briefly, you’ve seen, you’ve advised businesses on how to sort of see the industry structure and figure out a way to create value for customers and compete. What do you think when you look at this, these Five Forces?

MICHAEL PORTER:  Well, it’s too bad that you couldn’t persuade one of the parties to their strategy.  That’s what you normally do in an industry.  You know?  You look in XYZ industry.  You say, this isn’t working.  You’re not delivering good service to the customer.  You’re losing share.  You need to start rethinking, you know, what’s your value proposition and how are you positioned?  What market segments can you serve?  And smart businesspeople who want to maximize value to the customer, that’s what makes them profitable, and makes them grow, they’ll do it.

And that’s the wonderful thing about business competition, is it’s rational in the sense that it’s tied directly to value to the customer.  Whereas in politics, it’s not.  dAnd we’ve got to around the parties.  You know, we can’t persuade one of them to change.  It would be great if we could have a new party.  But we tried that for a long, long time, and it doesn’t work, because there’s just too many barriers to entry.

So I think these things that Katherine described are the most, the two most powerful leverage points that would actually change the structure here in a way that would have a demonstrable impact on what happens.  And I think the big concern that we sometimes here is, oh, we’ll never get this done.  It’s too hard.  How could we get all these states?  How can we get a state legislature to do things?  How can we change the ballot initiative?

And the answer is, you know, answer number one is, well, actually, Americans, we did this once.  We had to do it.  A long time ago, in the 1880s, in the Gilded Age, we had a mess.  The mess was worse, even, than the mess we have today, and our citizens just, you know, decided they were, it was unacceptable, so they set out to do a lot of things. And our system made a dramatic structural change.

I think we also need, citizens, hopefully, if we educate them more and more, they’re going to understand that sticking to their parties’ ideology is a really bad idea.  If you want to be a citizen, and you want to advance your country, then thinking through everything through the lens of, you know, heavy conservatism or heavy liberalism, it’s not right, because those are not the right solutions to many of the things we need to change.

We need to synthesize the good ideas that exist in some of these ideologies to get the right solution.  So hopefully, citizens will not only do this innovation work, but they’ll also start to think differently about how they’re thinking, how they’re talking, how they’re voting.  You know, right now we have, citizens in this country have, don’t have a shared reality.  We don’t have a shared reality of what’s good for us.  Because we’ve been taught that these people think this is good for us.  You know, low taxes, and on and on and on.  And then this set of people thinks this is good for us.  And the parties have taught us that if they’re not on your side, they’re actually bad.  They’re the enemy.  They’re not just another citizen with another point of view.

So hopefully these other things, as I just described, if these can start to take root as well, I think that will make the actual reforms in the rules more feasible and more doable and hopefully will happen faster.  So it’s, that’s our hope.  That’s our dream.  And we’re getting a lot of people that are so anxious that our country gets in a better place that I think they’re going to join.  They’re going to be a part of this.

CURT NICKISCH:  Well, Michael and Katherine, you’ve given us a lot to think about.  But maybe more importantly, a new way to think about it.  Thanks so much for coming on the show to talk about this.

KATHERINE GEHL:  Thank you, Curt.  A pleasure.

MICHAEL PORTER:  Thanks for having us.

CURT NICKISCH:  That’s Katherine Gehl, founder of the Institute for Political Innovation, and Michael Porter, professor at Harvard Business School.  They wrote the new book, The Politics Industry, and the HBR article, “Fixing US Politics, What Business Can and Must Do to Revitalize Democracy.”

This episode was produced by Mary Dooe.  We get technical help from Rob Eckhardt.  Adam Buchholz is our audio product manager.  Thanks for listening to the HBR IdeaCast.  I’m Curt Nickisch.

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