Political parties and the theory of the firm

MacDoctor has this to say on the current problems in the ACT party:

It was utterly inevitable that the schizophrenic nature of ACT (Law and Order vs Economic reform) would lead to it imploding, and, sure enough, it did. Garrett’s demise merely underlines the fact that Rodney Hide lost his way years ago, undoubtably out of his depth trying to run a party with such diverse people. He could have managed a re-emergence of ACT into the party of economic reform, but instead, in true zombie fashion, was attracted more to the semblance of life with the bright, shiny and noisy populist law and order plan.

And MacD has a point. One of the most basic things that the theory of the firm has to say on ownership of a firm is that it will be given to a homogeneous group. It doesn't matter who that group is, it can be investors, workers, suppliers, consumers, as long as they have a homogeneity of interest. As an aside this helps explain why so many firms are in fact investor owned because investors are a group with a (largely) common interest: maximising profits. Thinking of firm as a political institution when ownership is widely held some form of voting mechanism must be used for decision making. But political representation preforms poorly, relative to markets, when there is any significant conflict of interest among the participants.

This is the lesson Rodney Hide needs to take on broad. Trying to run a party with the diverse interests, law and order versus economic reform in particular, of the current ACT party simply will not work. ACT needs homogeneity of interest, it can either go down the law and order path or the economic reform path but trying to get the conservative law and order group to mesh with a more liberal (in the classical sense) economic reform group just isn't going to work.

"Ownership" of ACT need to be clearly determined. ACT needs to workout what it really stands for or it will just continue on its current road to oblivion.