Applying Porter’s Five Forces to Fix U.S. Politics | HBR IdeaCast

0:00Katherine Gehl:Hey Chicago, class it up with Crocs. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local Crocs store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up, it shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Crocs store today. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes.

0:47Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs.

1:10Katherine Gehl:Welcome to the HBR IdeaCast from Harvard Business Review. I'm Curt Nicken.

1:21Katherine Gehl: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's 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.

2:00Katherine Gehl: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. Catherine Gale is the former CEO of Gale 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.

2:39Katherine Gehl:Catherine, thanks for coming on the show. Thrilled to be here, Kurt. Thanks for having us. And Michael, welcome. My pleasure, Kurt. Thank you.

2:52Katherine Gehl: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 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.

3:44And I found it to be fascinating.

3:48Katherine Gehl:What did you see or what was your first conclusion? 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 the 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. Is there, and Michael, maybe this is a question for you, but is there a limitation to using this framework, which was designed for, you know, the business world? Is there a limitation to applying this to political science?

4:39Katherine Gehl:Well, I would tell you, I didn't know anything about applying it to anything besides business. What I find is this, the framework proves to be incredibly powerful. It makes it clear what's actually going on here. This is what we call a duopoly. This is an industry where there's two dominant competitors. I remember going to the... Hey, Chicago, class it up with Crocs. You know back to school is coming in fast. So why wait to find your new fave footwear? Step into a local croc store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up. It shows off.

5:21Katherine Gehl:First day fits handled. Walk out ready for whatever's next. Visit your nearest croc store today. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes. Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed Sponsored Jobs.

5:59Katherine Gehl: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. And there's only been two dominant competitors for the last 100 plus years. These bearish 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. We do know that in competitive markets, two dominant players can work.

6:43Katherine Gehl: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. 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, therefore, than what the one other side says, therefore. And so 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.

7:50Katherine Gehl:And do you give lots of examples of this, like immigration reform, any number of issues where 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 wage an election campaign again. 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 lined up with their ideology.

8:38Katherine Gehl:And those kind of voters tend to vote in the partisan primaries. So 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're 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.

9:20Katherine Gehl:We have education problems, we have all kinds of issues in the healthcare system. People have 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, this, you can't sustain this, if you're doing a really bad job, then somebody comes in, you know, and, you know, how do you think Uber got into the taxi industry? Yeah. How would you fix the...

10:00Katherine Gehl:Hey, Chicago, class it up with Crocs. You know, back to school is coming in fast. So why wait to find your new fave footwear? Step into a local Crocs store and step into your new Look, try it, style it, make it yours because the right pair doesn't just show up. It shows off. First day fits handled. Walk out ready for whatever's next. Visit your nearest croc store today. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes.

10:46Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

10:59Katherine Gehl:Party primary system then. Let's start with that. Yeah, 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.

11:48So 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.

12:43Katherine Gehl:So 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 don't 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 kind of outcomes. And the only time we pass anything lately is when the party, one party, can actually pass it by itself. Right, like corporate tax reform.

13:27Katherine Gehl: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 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 that's what we're talking about here. What are some of the specific innovations you're advocating for? So there's one major thing we need to do, and that is change how we vote.

14:13Because 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. Don't vote in the Democratic primary, 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 plurality voting and we need to move to ranked choice voting where we can rank our choices. And in that way, we can allow.

15:00Katherine Gehl:Hey, Chicago, class it up with Crocs. You know, back to school is coming in fast. So why wait to find your new Fave footwear? Step into a local Crocs store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up. It shows off. First day fits, handled. Walk out ready for whatever's next. Visit your nearest Croc store today. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications, and more. Spend less time searching and more time actually interviewing candidates who check all your boxes.

15:46Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs. For new competition. When we do these two things together, we will now connect solving problems for the American people with the likelihood that they'll get reelected. And we will create a pathway for new competitors, which is what drives accountability in any industry.

16:22Katherine Gehl:I want to ask briefly about rank choice voting, which to many people who are listening in European countries will be familiar with. It's in some US states. But this is something that you advocate four 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? 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.

17:11But 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 votes away from the eventual Democratic nominee to essentially spoil the race for the Democrat and throw the race, therefore, to Trump.

18:08And 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. Right. 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.

18:58This is my favorite flavor of ice cream, my second flavor, all the way down to I would never eat that flavor. And so you do that with the candidates, 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 has gotten support from a majority of voters, then the candidate who came in last place is automatically eliminated from the race. And voters who had selected that candidate who's now out have their second choice counted instead.

19:38We 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.

20:00Katherine Gehl:Hey, Chicago, class it up with Crocs. You know back to school is coming in fast. So why wait to find your new Fave footwear? Step into a local Croc store and step into your new look. Try it. Style it. Make it yours. Because the right pair doesn't just show up. It shows off. First day fits handled. Walk out ready for whatever's next. Visit your nearest Croc store today. When you need to build up your team to handle the growing chaos at work, use Indeed Sponsored Jobs. It gives your job post the boost it needs to be seen and helps reach people with the right skills, certifications and more. Spend less time searching and more time actually interviewing candidates who check all your boxes.

20:46Listeners of this show will get a$75 sponsored job credit at Indeed.com slash podcast. That's Indeed.com slash podcast. Terms and conditions apply. Need a hiring hero? This is a job for Indeed sponsored jobs.

20:59Katherine Gehl: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? 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 these 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.

21:50And 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, D.C., 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.

22:44And 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.

23:12Katherine Gehl: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 these five forces? Well, it's too bad that you couldn't persuade one of the parties to change their strategy. That's what you normally do in an industry. You know, you're looking at 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, how you position, you know, what market segments can you serve?

23:50Katherine Gehl:And smart business people 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. And we got to go around the parties. We can't persuade one of them to change. It'd be great if we could have a new party. But we've 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 Catherine described are the most, two most powerful leverage points that would actually change the structure here in a way that would have a demonstrable impact on what happens.

24:42Katherine Gehl:And I think the big concern that we sometimes hear is, oh, we'll never get this done. It's too hard. How can we get all these states? How can we get a state legislature to do things? How can we change a 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 decided 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 party's ideology is a really bad idea.

25:30Katherine Gehl: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.

26:08Katherine Gehl:We don't have a shared reality of what's good for us because we've been taught that 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 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.