How the Republicans and Democrats Maintained Their Market Share

In this era of vigorous economic competition, oligopolies like the Big Three automakers and the three major television networks have seen their market shares slip. In a free market, the same fate might befall the two-party duopoly. But the politicians have a plan to prevent that.

Back in the mid-1970s, the two parties and the three big networks were riding high. ABC, CBS, and NBC commanded 91 percent of the primetime viewing audience in 1976. The Democrats and Republicans did even better: they received 98.3 percent of the vote in the 1976 elections for the House of Representatives.

But those towering market-share figures concealed a lot of dissatisfaction. Popular unrest over Vietnam, Watergate, and a stagnant economy had driven both parties’ approval ratings down, and many people were calling for the creation of a new party.

Simultaneously, increasing affluence and the cultural revolutions of the 1960s fractured the television audience. Many people wondered why Americans were largely restricted to three networks, all seeking the lowest common denominator of viewing interest.

Both the parties and the networks worried that their comfortable oligopolies might soon be eroded by such popular discontent. Of course, the politicians had better tools available to deal with the challenge than did the network honchos.

The politicians declared that what people were upset about was the fundraising excesses of the 1972 Nixon campaign, so they passed strict new regulations on campaign finance. The 1974 amendments to the Federal Election Campaign Act limited contributions to any candidate for federal office to $1,000 per person per election (primary and general elections counted as separate elections). They also limited political action committees — which pool the donations of many individuals — to $5,000 per candidate. Many members of Congress were clear about their aim: to strengthen the two-party system in the face of popular outrage.

Several other provisions were later struck down by the Supreme Court: a limit of $25,000 in personal spending by a candidate, a limit on what independent committees could spend, and a ceiling of $70,000 in spending by House candidates.

But the contribution limits served their purpose. Despite all the dissatisfaction with the two major parties, no viable independent or third-party challenge emerged. The two-party share of the House vote remained at virtually 100 percent — rising a bit to 98.8 percent in 1988, dropping to a nail-biting 97.4 percent in 1996. Deprived of the chance to raise seed money from wealthy and strongly committed individuals, no new party could get off the ground.

Contribution and spending limits mean less competition for incumbents.

Even within the two parties, no presidential nominee as independent of the party establishment as Barry Goldwater or George McGovern has been nominated since 1974. Both Goldwater and McGovern, like unsuccessful challenger Eugene McCarthy, depended on seed money from wealthy supporters to launch their campaigns.

Compare the success of the political strategists with their network counterparts. The networks couldn’t pass a law limiting their competitors’ access to money. Try as they might to develop attractive programming, they saw their market share decline steadily: from 91 percent in 1976 to 83 percent in 1980, to 61 percent in 1988, to 46 percent in 1996.

Just imagine how things might have been different if the networks had been allowed to control the rules for the television industry, the way Congress can make the rules for congressional elections. Imagine that the networks had passed a law in 1974 saying that anyone could start a new network, but that no company could spend more than $1,000 to advertise on it. With revenues restricted like that, would we be watching Fox, CNN, ESPN, AMC, USA, Lifetime or other new networks today? No, in that case ABC, CBS and NBC might still have 91 percent of their market.

Government regulations often backfire; they often create unintended consequences. But not always. In the case of campaign spending controls, the consequences were clearly intended. The establishment politicians set out in 1974 to protect their market share, and they succeeded beautifully.

But today, the politicians are worried again. Congressional reelection rates ranging from 98 percent in 1990 to a low of 90 percent in 1994 (with 95 percent in 1996) just aren’t good enough. After all, that means some members of Congress aren’t reelected — and what incumbent can be happy with that situation?

So there’s discussion of still stricter limits on campaign finance. One favorite “reform” is to limit overall spending on congressional campaigns. The much-touted McCain-Feingold bill would limit total spending to $500,000 in House races and a cap in Senate races based on population. How did they come up with those particular limits? Well, in 1996 every House incumbent who spent less than $500,000 won reelection, while only 3 percent of challengers who spent that little were successful. And every senator who spent less than the McCain-Feingold limits in both 1994 and 1996 won, while every challenger who spent less than the limit lost. What a coincidence.

Contribution and spending limits mean less competition for incumbents. The market-share leaders in every industry would like to have such restrictions on potential competitors. So we have an easy choice to make: do we want our political campaigns to be as competitive as, say, our television choices, or as uncompetitive as, well, our current political choices?

David Boaz is executive vice president of the Cato Institute and author of Libertarianism: A Primer.