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The politics and economics of horse-trading

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Lessons from Karnataka

I see you have Karnataka on your mind.

Absolutely. The market for equine assets has perked up overnight, given the hung nature of the electoral verdict there.

Is there a political and economic rationale for this?

You bet. More generally, almost all human actions have a political and an economic underpinning. And hard as it may be for you to acknowledge it on a day like this, elected representatives are human, too!

Sounds like a justification of political immorality.

Colour me cynical, but it’s more rational to deal with the world as it is, rather than as we want it to be. As former US President Teddy Roosevelt famously said, after an egregious instance of deal-making, “In politics, we have to do a great many things that we ought not to do.”

So it happens even in developed economies?

All politics is a House of Cards, if you know what I mean. In fact, here’s a reality-check on political morality for you. In the US, the 13th amendment of the Constitution, which banished slavery, was passed not because US legislators were morally persuaded by the nobility of the then President Abraham Lincoln’s intentions.

What then?

Lincoln had to get his administration to procure votes by “any means necessary” – which meant government posts and campaign contributions to get legislators to switch votes. As one legislator noted, “the greatest measure of the 19th century was passed by corruption aided and abetted by the purest man in America.” Framed in that context, the formation of a government in Karnataka is weighed down far less by morality. No wonder moneybags are having a free run.

So much for politics; what about the economics?

Negotiations are at the heart of all political deal-making of the sorts we are witnessing in Bengaluru today. And behavioural scientists have identified many cognitive short-cuts (called “heuristics”), rather than strictly logical constructs, that the human mind employs while making decisions. Behavioural economics, in turn, builds on concepts of normative decision theory, which is a foundational concept in traditional economics: it encapsulates the rules by which a fully rational individual makes choices.

How are parties invoking these theories today?

A 2013 report, Negotiating Agreement in Politics, edited by Jane Mansbridge and Cathie Jo Martin and others, frames the contours of successful political negotiations, in the context of breaking gridlocks, and commends pitfalls to avoid on that path, including ‘negotiation myopia’, which it defines as the ways in which negotiators fail to see their own advantage, which may sometimes be right in front of them.

How does this manifest itself?

For all its inherent instability and roots in opportunism, the Congress-JD(S) post-poll alliance, in which the Congress (which won more seats) yielded the Chief Ministership to the JD(S), avoids some of these pitfalls, particularly the ‘self-serving bias’, and the ‘fixed-pie bias’, two forms of negotiation myopia.

And what of the BJP?

Paradoxically, the BJP, as the single largest party and only a few seats short of a simple majority, cannot offer similar terms to the JD(S) – even if the latter were inclined to enter into an alliance. That’s because it can never match the Congress’ offer of the Chief Ministership to the JD(S), which has set the benchmark for negotiations here. But then, it has other levers to pull, not all of which can be found in political and economics playbooks.

A weekly column that helps you ask the right questions

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