Are political parties obsolete?

Bruce Yandle

This year’s struggle in both major parties — Democrat and Republican — to identify and rally behind a clear-cut presidential nominee tells us that there is more going on than just the action of unorthodox candidates.

Although confronting a “bridge too far” in gaining nomination, Sen. Bernie Sanders of Vermont has shown what social media funding mechanisms can do. He remarkably raised more money using crowd-funding techniques than his more well-established Democratic opponent, former Secretary of State Hillary Clinton.

On the Republican side, Donald Trump refuses to be painted with traditional GOP hues and colors. He has shown how a person with no previous experience in party politics, who never held public office, can self-fund a primary campaign and generate massive turnouts for rallies and votes. And he has done so without spending huge amounts on advertising — by using Twitter to communicate constantly with his supporters.

If people interested in holding office can communicate directly, at low cost, with millions of voters — and can use crowd-funding techniques or private wealth to fund their candidacies — are political parties really necessary?

In a 2011 Huffington Post piece titled “The Parties Are Over,” former presidential aspirant Gary Hart talked about the history of America’s party system and then, with a rush to the moment, had this to say: “In recent years, however, the parties’ entire role and therefore their power has been collapsing. If a candidate is clever enough and has something to say, he or she can get direct access to the media. As political entrepreneurs, most candidates now raise their own financing and depend on money from the parties less and less.”

The old party approach for identifying and bringing forth candidates may be becoming obsolete and for one simple reason: The old way may be too costly for the participants, relative to other available approaches.

But what do I mean by costly?

Writing in 1937, Nobel Laureate Ronald Coase explained that business and other firms, such as political parties, exist because it’s too costly for people who wish to organize production and marketing to contract on a daily basis with large numbers of individual workers and owners of capital. The firm, as we know it, organizes resources with low-cost, long-term contracts. Indeed, that it is the essence of the firm. It’s an intermediary between individuals with labor services and capital to sell and the market for final goods and services. By eliminating lots of transactions, the firm (or political party!) reduces costs.

Coase recognized that if transaction costs fall for other reasons, say because of smartphone technologies, then firms could become more temporary, or even nonexistent. Alternate approaches for organizing work would emerge. People might meet at Starbucks and organize business ventures (or another political party) while transacting on Facebook! (Next time you’re in a coffee shop, look around.)

But what about political parties? They are the counterpart of Coase’s firms. Until now, party leadership (and the ability of parties to gather resources) has been a lower-cost substitute for an individual candidate going it alone. But if the cost of gathering resources directly by candidates falls dramatically, relative to the old party mechanism’s costs, then market-savvy politicians will rely less on political parties. Party leaders and parties themselves will lose power unless they change their ways.

Let’s face it: Smartphone and social media technology have significantly reduced the cost of organizing political resources. But will parties go away completely? Hardly. Consider smartphone-supported Uber, which offers transportation services in lots of cities — but the old cabbies are still present, although they may operate differently.

Political parties are here to stay, but how they operate will change.

Bruce Yandle is a distinguished Mercatus Center adjunct professor of economics at George Mason University. This has been adapted from InsideSources.