One Question Quiz

NZIERSeptember 4, 2020

Why are Labour and National policies basically the same?


Our two main political parties are pretty similar. The NZIER public good team uses an economic tool called Hotelling’s law to explain why National and Labour are creeping closer together.

On October 17, we resident adults will elect New Zealand’s government to see us through the next three years, including what’s left of 2020 – a period most of us have pretty much written off. The election campaign is only just getting started, but the claws are already out: criticism of Covid-19 tactics, a debacle over the election date, graffiti on party posters; the list goes on. Judith Collins reckons it’s going to be a dirty election, and we’re ready to see it unfold.     

The way Labour and National are at each other’s throats, not just right now but all the time, you’d think their policies were polar opposites. Or, at least, you’d expect some clear differences worth fighting for. In some cases that’s true: for example, National would like to remove restrictions on foreign ownership of houses, while Labour would continue with restrictions (at least, they haven’t said otherwise). National would reverse the recent vocational education reforms, while Labour would continue them. 

But really, while there are some cosmetic differences, they’re actually sort of similar. Looking through Policy, it’s clear both Labour and National are happy to maintain benefits at the current level. Income tax rates are one area where you might expect to see real difference of opinion, but National’s policy is to keep them as they are, and Labour has no specific policy, suggesting it’s happy with the current rates. Then there are the areas where both Labour and National have no policies, like refugee quotas, immigration, freedom of expression, renting, and Te Tiriti o Waitangi. This either suggests they haven’t got round to it yet, or are both happy to endorse the status quo.   

How did we end up with two main parties that are basically pretending to do things differently? One economist, Harold Hotelling, wrote a paper all the way back in 1929 that helps explain why this happens. Luckily for us, “Hotelling’s law” (not to be confused with his “rule, or his “lemma) is best explained with ice cream.  

Two choices are before you. (Photo: Getty Images)

Imagine it’s a perfect summer’s day, and like any sensible New Zealander you’re at the beach. You’ve set up camp in your spot, and little clusters of other people are lounging in their respective spots. It’s weird to set up right next to another group when there’s a whole beach, so you’re all spread out pretty evenly.

You actually picked this beach because you’ve heard it’s the launch day for two new ice cream stands, both set up literally on the beach (we know it’s a bit weird two ice cream stands chose the same launch date, just bear with us). The ice cream stands are offering the same ice creams at the same prices (yes, we know, also weird), so since there’s no difference, you just go for the closer one. The two stands have positioned themselves so one is a quarter of the way along the beach, and the other is three-quarters along the beach. All the little clusters of people spread out across the beach don’t have too far to go to get to their nearest ice cream, and each stand picks up half the custom of the beach.  

You had such a great day at the beach eating ice cream, you go back the next day. Once again happy people are spread out across the length of the beach, enjoying the sun. The ice cream sellers are there again, but something has changed. The one on the left side of the beach has shuffled in a bit to the centre. Very savvy of them – they now pick up more custom, because by moving towards the middle, they’re still closest to those on the left, but also get closer to more people on the right. 

By lunchtime, the one on the right has realised it’s missing out and there’s a simple solution – it relocates towards the middle itself, reclaiming its customers.  

Basically, this process repeats until the two stands find themselves next to each other in the middle, with the one on the left picking up all beach-goers to the left and the one on the right picking up those on the right. It’s a shame, really, because they both get the same share of the beach as on the first day, but now some people have to travel the entire half length of the beach to get their ice cream. 

What’s this got to do with the election? 

You can probably see where we’re going with this. When there are two main political parties, they can undergo the same sort of process – both creeping towards the middle of the political spectrum in order to capture all the voters that sit on either side. People think that’s why many countries with two main political parties can end up with very similar-looking parties. There are other everyday instances of Hotelling’s law in action: for example, Burger King and McDonald’s are often found right next to each other. And academics once used it to explain why two airlines in the US had uncannily similar departure times.   

Just a minute – let’s talk about this ‘political spectrum’

Basically, this is a way of thinking about how political parties sit relative to one another. A person or party’s position on the left-to-right spectrum tends to be based on how they think the economy should be organised. A political spectrum is different to a beach in that there is no fixed midpoint – the spectrum can be centred around the “median voter”. By that, we mean if you line up all 3,772,100 voters in the country from the most left-leaning to the most right-leaning, the person in the middle marks the centre point of our political beach.

In general, the left side prefers when stuff (education, healthcare, postal service, factories, resources) is owned and managed by government. Basically, the more you want to be overseen by government, the further to the left you sit. On the right, people generally prefer private ownership, so the government takes a smaller role as you move outwards, until you reach a tiny government to oversee an economy that basically looks after itself. The labelling of the “far right” or “alt right” complicates things, as these ideologies basically have nothing in common with the economic right, but have a label based more on extreme social values. This is just one example of a one-dimensional political spectrum missing important information. People disagree about how relevant this spectrum is today, since there’s a lot more to parties than their economic policies. 

Current National leader Judith Collins and Labour leader Jacinda Ardern appear together on the AM Show in April 2017

That said, in New Zealand, people tend to agree that Labour sits just to the left of centre, while National sit just to the right. Of course, we also have an interesting dispersion of significant smaller parties ready to make up a coalition; the Greens sit to the left of Labour, Act to the right of National, and New Zealand First squeezes right in the middle. With several parties in the mix, there’s more of an incentive for each party to be a bit different from the closest one. With coalitions pretty much the norm, there are plenty of reasons to vote for a smaller party. But since we got the MMP system in 1996, every government has been led by National or Labour.

Obviously, we can’t completely boil down an election to ice cream selling. There’s a lot more going on. We have several parties to choose from, and a party cannot simply “position” itself to attract the most votes – it needs to be trustworthy, accountable to members, and actually want the policy. There are also many things affecting voters aside from policy, like leadership personality, individual MPs, or just voting the way your friends vote. But Hotelling’s law has certainly stood the test of time, and continues to explain how the two biggest parties tend to meet somewhere in the middle. 

Keep going!