March 16, 2009

Talk is cheap

Quico says: Probably the most debilitating aspect of Venezuela's political crisis is the conviction that there is no serious alternative to chavismo.

As the government careens from one insane policy to the next, on the other side we find an utterly unconvincing opposition political elite. Stumbling from one haplessly misconceived photo op to the next, the Ramos-Borges-Barboza-Rosales axis can't seem to get any traction can't seem to put across a coherent program and can't seem to convince even its natural base of support that they can lead a credible challenge to chavismo.

In fairness, the oppo party leaders are well aware of it.

Their reaction? To talk. To say all the right things and do very little. Because make no mistake, when Julio Borges says "we must build a solid unity, a movement that transitions from opposition to alternative, and commits itself to representing a jump to the future, not the past," or when Ramos Allup says that "it's not right that [the main party leaders] sit inside four walls to discuss and solve problems because the image that sends out is that of a closed group," they are absolutely right.

But it doesn't matter. Right as the words might be, the signal is all wrong. And it's wrong for a simple reason: talk is cheap.

That's more than just an aphorism. Believe it or not, there's a cottage industry within the economics profession dedicated to teasing out its implications. Beginning with this classic 1973 paper by Michael Spence, economists have been busy working out the farthest implications of "costless signalling" (a.k.a. cheap talk) in strategic interactions.

It all gets incredibly abstract very quickly, but the basic intuition is simple enough.

Imagine you go to a used-car lot. The salesman comes out all smiles and wide lapels and polyester pants, quickly points you to a grubby old 1984 Chevy Impala and launches into his sales pitch. "She's a beaut!" he enthuses, "only 20,000 miles, and just one owner: a little old lady who only used it to drive to the store. It's in mint condition! can't do better than a good ole chevy!"

You know in your gut that you should disregard a sales pitch like that. What signalling theory does is provide a theoretical framework to explain precisely why you should disregard it.

The short answer is information asymmetry. The salesman knows more about the car than you do, but his underlying interest - selling the car - is different from your underlying interest - buying a good car. It costs him nothing to make extravagant claims about the Impala. Even if the car's a crumbling hunk of junk, he has every reason to try to convey the impression that it's a great car because after the car is out the door, he won't see you again - what does he care if it breaks down at the first traffic light?

But you're not stupid. You realize that the signal he's sending is information-poor. So you disregard it.

If you want an information-rich signal about the car's quality, you'll ask about the warranty. Warranties are costly. If the car breaks down, it's the salesman who's out of pocket. Talk is cheap; warranties aren't. That's why warranties reveal more about a car's quality than sales pitches.

In general, people have no problem grasping that costly signals carry much more information than costless ones. Proposing to your sweetheart with a two-carat diamond sends her a much stronger signal about your commitment than proposing with a cheap knock-off. Showing up to a job interview with a bachelor's degree carries a lot more information about your willingness to buckle down and work than any number of promises about how you "learn fast" and "are very dedicated". Graduating college has a cost - in terms of time, money and effort - that making promises just doesn't have. And Victor Kiam's famous sales pitch for Remington electric razors - "I liked the shaver so much, I bought the company" - was effective because the signal it conveyed was costly. Kiam had shelled out cold hard cash for Remington. His talk was anything but cheap.

This is a lesson Venezuela's opposition party leaders seem unable to learn. It's been years since they've given us a costly signal, since they've shown themselves willing to make real sacrifices in order to help get rid of Chávez. It's no wonder that so many of the opposition's radical supporters increasingly assume people like Borges, Rosales and Petkoff are on Chávez's payroll.

These days, those of us who stand against Chávez are coming to the morale-sapping conviction that our party leaders are about as trustworthy as used car salesmen. We intuit that their interests - staying at the head of their parties - diverge from our interests - replacing Chávez with something better. We sense they have strong incentives to lie to us. And under those conditions, we're not minded to believe them, even when they're telling the truth!

Our opposition leaders may in fact be telling the truth, just like in our example it could be that the salesman is telling the truth and the Chevy really is a great car. But the structure of the interaction makes it impossible for you to take his word for it. Without a warranty, you'd be a fool to believe him.

I think we anti-chavistas should ask for a warranty from our party leaders, too. If opposition party leaders want us to take them seriously, they need to understand that costless signaling just won't cut it anymore. Nobody's going to take them seriously until they start sending out costly signals about their commitment to the cause.

In recent weeks, this blog has called for the resignation of the main "inamovible" party leaders: Barboza, Ramos Allup, and Borges. In politics, resignation is the quintessential costly signal. There's no real tradition in Venezuela of asking for, or expecting, the resignation of failed political leaders: a fact that, in itself, speaks volumes about our political culture, about its structural inability to do accountability.

My preferred option - merging the opposition chiripero into a single Political Party with true national reach - would be even costlier than a spate of resignations. It would reduce the number of coveted Party Leader posts by 75%. But just imagine the signal it would send, the Seriousness of Purpose it would convey, if the Big Four oppo parties stopped fooling around and merged!

Less dramatic but still costly signals could also start to change anti-chavistas' perceptions of our party leaders' commitment in the fight against chavismo. They could completely distance themselves from the 2002 coup (costly in terms of social awkwardness) or just tell us the unvarnished truth about how many voting tables actually had opposition witnesses in the last two elections (costly in embarrassment). They could make a concerted effort to move party organizers out of the middle class enclaves in the big cities and get them to organize the countryside and small cities where we always get creamed at election time.

Such moves would not be as immediately effective as costlier, more dramatic signals, but they would at least prove that not everything that comes out of oppo party leaders' mouths is weightless paja. They would send out a credible signal that the opposition parties are serious, something too many of their "natural followers" don't accept right now.

Venezuela is in a lot of trouble right now. It is lead by a psychotropic-al leader, its economy on the verge of an epic collapse, and generally we're very far up a creek with no paddle in sight. In times like these, the country desperately needs a credible sign that the opposition...gets it. An information-rich signal that they've turned a corner, que se enseriaron, chico, that they're serious about the fight against chavismo.

But talk is cheap. For that signal to be credible, it has to be costly.