Perfect Market Interpretation of Elections

Elections are the most definitive characteristics of a democracy. The typically loud and noisy months leading up to the elections portray the real picture of the country by accentuating the real aspirations of the people. The fundamental underlying principle is that people vote for who they perceive to be closest to their own political thought. Thus, elections project the economic, political and social mindset of the people.

Sociologists and analysts study elections to document the behavioral trends of individuals. For instance, does an endorsement from a person of repute carry sufficient influence? There has, however, been limited analysis of elections from various economic perspectives besides the generalized economic-verdict-of-elections analysis. Is economic ideology the main voting criterion for people or are there other criteria like nationalism or ethnicity that get preference over economics?

Indian elections, with their uniqueness and vastness, symbolize nothing less than a market interaction between buyers (candidates) and sellers (voters) with the buyers attempting to secure or buy votes through electoral manifestos and promises. This gigantic exercise is a carefully planned procedure that is overseen by an independent and fair Constitutional body – the Election Commission.

In fact, multiple aspects of Indian elections can be correlated with the economic concept of Perfect Markets. By juxtaposing a few characteristics with those of Perfect Competition (the collection of several conditions defining perfect markets), an interesting theory can be developed on the nature or economic interpretation of elections.

Multiple buyers and sellers

Indian elections are defined by the interaction between a large number of voters and often a large number of candidates. The electorate comprises of more than 800 million voters. There are more than 1650 political parties registered with the Election Commission. Out of these six are classified as national parties and many more as state parties, subject to the Election Commission’s decision on party statuses post the 2014 national election. Thus, there are multiple buyers and sellers operating in the market with the buyers targeting the maximum market size (voter share) in order to win the election and form the Government. Hence, the first condition of a large number of buyers and sellers is met.

Free entry and exit

There is a limited set of criteria that need to be fulfilled for individuals to be able to either cast their vote vote in the elections or stand as candidates. These conditions are: being an Indian citizen (common for both with candidates also requiring to swear an oath to the Indian Constitution), being over the age of 18 in order to vote (should not be less than 25 years of age to stand for elections to the Lok Sabha), be of a sound mind (common for both) and not convicted of certain crimes (candidates must be “undischarged insolvent”). The candidates are also required not to hold an office of profit and not violate the Representation of People Act.

In addition to that, individuals must deposit a certain sum of money with the Election Commission in order to contest elections. The money is usually refunded but, if defeated by a huge margin, the deposit is forfeited. Thus, there is no free entry into the elections. Hence the free entry principle of perfect competition is not applicable. However, individuals are free to exit i.e. by not voting (voting in national elections is not compulsory in India) or by not standing/withdrawing their nomination for elections.  Thus the condition of freedom to exit is met.

Perfect factor mobility

This condition of perfect competition is only partly met in the Indian elections as individuals can contest elections from a maximum of two constituencies. If they win both, they can represent only one and thus have to vacate the other. This limitation on the number of constituencies and even the rigidity in the layout (as decided by a Delimitation Commission constituted by the Central Government) of the constituencies prevents the perfect mobility of land. Candidates can stand for elections from any two constituencies in India and in order to vote one must be a resident of a constituency or at least figure in the electoral rolls of the region. Hence, people in transit might often not be able to vote in elections due to issues with inclusion in the electoral rolls. Thus labor, or individuals in this case, is also not mobile. There is also a ceiling limit on the campaign funds that can be used by the candidate on rallies and other promotional activities.  Giving monetary gratification to voters is illegal. Hence, even the perfect mobility of capital is not there. However, entrepreneurs, or political parties in this case, are allowed to spend as much money as they want to on their candidate and can also change their constituencies even if they had won the seat in the previous election. Parties can also decide to not field candidates from certain constituencies and therefore there is a perfect mobility of entrepreneur or political party.

Perfect Information

The Indian Elections do not have a system of perfect information; that is to say, not every voter has complete information about the candidates from his/her constituency. Electorates often find the wealth of their representatives has increased sharply while in office. Political parties also do not provide information regarding their funding and their utilization of the money. The recent Indian Election of 2014 highlighted the power of the media, as one political party was able to create a massive support base for its leader by going on a public relations blitzkrieg.

Recent elections have been symbolized by the massive PR and advertising campaign political parties have engaged in to get the desired momentum. Thus, elections in India result in heavy spending on advertising resulting in jokes doing the rounds on the massive profits accruing to advertising companies. Hence, there is a transaction cost involved in this election.

Profit maximization

Each political party aims to get the maximum number of seats possible on its own and thus tries to avoid the perils of a coalition government. In economic terms, this is referred to as profit maximization.

Uniformity in Product

Elections are carried out for seats in the Lok Sabha. Each constituency in the country is allotted one seat of the Lok Sabha. Thus, though the broad product, i.e. Lok Sabha seats, is homogeneous  in nature in terms of powers and functions, there are multiple differences amongst the seats when analysed from a micro level. These differences range right from the geographic location of the seat to the economic and socio-political situation in the constituency. Thus, there exist differences in the product at a micro level.

Correlation between returns and scale

Parties with the maximum seats form the government and even those with the smallest number of seats exercise credible control in a coalition government. This is greatly different from the economic principle of non-increasing returns to scale ensuring sufficient firms in the market.  Thus there are always multiple parties contesting elections with public acceptance being the sole determinant of a party’s functionality.

Regulations and logic

Elections in India are based on an established set of rules and regulations with the winning candidates being vested with all the powers and functions of the Lok Sabha seats. Thus, there is a form of property rights at play here with the provision of the losing party having the right to challenge the decision in a court of law. Therefore, the functioning of Indian elections is recognized as being by the rule book.

Voters are expected to be rational while casting their vote with considerations like caste, gender and creed playing a decisive role in who wins the elections. However, Indian elections have been the anti-thesis of this sentiment. This is attributed partly to the fact that dynasties have become an intrinsic part of Indian politics with children of former political representatives having a higher chance of getting elected. The 2014 Indian Elections are praised by many as a decisive vote by the electorate in favor of good economics over all other forms of influence. However, it is yet to be seen whether the Indian electorate has become rational or whether the 2014 elections were an anomaly.

The decisions of the government have a major bearing on the party’s chances of forming the government and getting the same number of seats or more again. Thus, Indian elections involve externalities with everybody’s decision having an effect on everybody.

To conclude, Indian elections seem to be far from the traditional concept of a perfect market. Multiple fallacies exist in the current system preventing this evolution. However, a move to a perfect market form of elections is likely to come with its own set of pros and cons. Therefore, any further assessment of the pros and cons of a perfect market election is a topic for a future essay.

About the Author

picDhruva Mathur

Dhruva is a 20 year old fresh graduate from St. Xavier’s College, Mumbai with Majors in Economics and Political Science. He blogs at An Indian Youngster  and tweets at @Dhruva_Mathur and is followed by Kevin Rudd, Foreign Affairs and European Council on Foreign Relations among others. In his spare time, he enjoys reading and debating. He is a Social Liberal with a Right tilt for economics oriented towards development.

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