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The Benefits of Cost: Politics and Signaling Theory

Jonathan Hassid*Bartholomew C. Watson*

Jakub Wrzesniewski*

*University of California, Berkeley Department of Political Science

Paper presented at the Political Science Graduate Student ConferenceUniversity of California, Berkeley

May 2, 2007

DRAFT VERSION—PLEASE DO NOT CITE OR CIRCULATE

ABSTRACT:

The Balkanization of political science has too often circumscribed scholars into narrow, restrictive andeven isolated camps, stifling dialog and preventing cross-fertilization. Opportunities for synthesis oftenemerge outside traditional doctrinal boundaries, and in recent years social scientists have found fertiletheoretical ground in concepts adapted from the biological sciences. One concept of special note notentirely novel to political science, though previously rather underdeveloped and ill-defined, has thepotential to support boundary-spanning work across some of the internal divisions of comparative politics –costly signaling. We will analyze this broad topic in the context of two examples from contentious laborpolitics: the contemporary Chinese government’s apparent toleration of multiplying protests and theunexpected breakdown of union wage negotiations in 1970s Britain.

Costly signaling describes interactions in which there exists an incentive for deception and likewise anexpectation of deceit for the party receiving the signal. The incurrence of cost by the signaling partybecomes a means of demonstrating sincerity or commitment. The same strategic logic that underpinsevolutionary selection mechanisms in a biological form exists in political behavior in a social form. Thestudy of politics is fundamentally about this strategic interaction – between individuals and at higher levelsof aggregation, such as social groups, political actors and, ultimately, states.

This article seeks to demonstrate the fruitfulness and versatility of the costly signaling approach as anintegrating idiom across comparative political science, one general enough to provide a commonframework yet intellectually robust enough to provide the conceptual grit to deal with some of the mostinteresting problems, in matters including but not limited to loyalty norms, deterrence and escalation issues,and amends and reconciliation situations.

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Introduction

The Balkanization of political science has too often circumscribed scholars into

narrow, restrictive and even isolated camps, stifling dialog and preventing cross-

fertilization. One reason for this fragmentation has been the lack of even the most basic

consensus surrounding common themes and terminology of the discipline. Opportunities

for synthesis often emerge outside traditional doctrinal boundaries,1 and in recent years

social scientists have found fertile theoretical ground in concepts adapted from the

biological sciences. One concept of special note not entirely novel to political science,

though previously rather underdeveloped and ill-defined, has the potential to support

boundary-spanning work across some of the internal boundaries of comparative politics:

costly signaling.

Costly signaling describes interactions in which there exists an incentive for

deception and likewise an expectation of deceit for the party receiving the signal. The

incurrence of cost by the signaling party becomes a means of demonstrating sincerity or

commitment. The paradigmatic case for evolutionary biology is the existence of the

peacock’s tail – males incur costs in growing and maintaining an elaborate, functionally

useless ornament in order to provide females with accurate information about their

reproductive fitness. The same strategic logic that underpins this evolutionary selection

mechanism in a biological form exists in political behavior in a social form – sexual

competition among animals features much of the same sophistication and intensity as

political competition within human communities. The study of politics is fundamentally

about this strategic interaction – between individuals and at higher levels of aggregation,

such as social groups, political actors and, ultimately, states. The profusion of diverse 1 Cf. Kuhn (1962).

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and often incommensurable scholarly approaches to problems at these different levels has

been a difficulty bedeviling the field – costly signaling offers one possible means of

making intelligible the commonality of these diverse research agendas.

Although there are hopeful signs that this concept is being applied in the

international relations subfield and has been, in a highly stylized, implicit way, a

transplant into the formal modeling community, comparative politics has not taken

advantage of its application. This article hopes to demonstrate the fruitfulness and

versatility of the costly signaling approach as a unifying idiom across political science,

one general enough to provide a common framework yet intellectually robust enough to

provide the conceptual grit to deal with some of the most interesting problems at the

forefront of comparative politics.

Costly signaling has surprisingly broad applicability - in matters including but not

limited to loyalty norms, deterrence and escalation issues, and amends and reconciliation

situations. In order to gain traction within these broad categories, this paper will limit

itself to a particular strategic interaction: labor relations. Two cases, drawn from stylized

modern Chinese labor demonstrations, and historic English union culture will speak to

each other through the language of costly signaling. By picking these cases, this article

hopes to demonstrate both commensurability and the utility of costly signaling as a

unifying concept.

A Review of the Costly Signaling Literature

Costly signaling theory arose independently in economics and evolutionary

biology, though our article draws more from the biological context because of its richer

exploration and more extensive literature. Simply put, a costly signal is “a signal whose

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reliability is ensured because its cost is greater than required by efficacy requirements;

the signal may be costly to produce, or have costly consequences.”2 This theory was

developed in response to the problem of determining how animals evaluated the honesty

of potential mates or rivals’ signals. In short, the costs incurred in sending a signal

demonstrate the fidelity of that signal when there is potential advantage in deception if

instead the signal were costless.

A costly signal differs from what Maynard Smith and Harper term an “index,” in

that the latter is an unfakeable signal. An example is taken from Thapar, who notes that

tigers scratch as high as possible on trees that mark the boundaries of their territories.

Because smaller tigers cannot physically mark as high, this sign of tiger fitness cannot be

faked.3 Likewise, costly signals themselves can be further subdivided into efficacy costs

and strategic costs; 4 the former refers to the costs needed to transmit information

unambiguously even when the transmitter has no incentive to lie. An example is that of

the male nightingale, which can lose five to ten percent of body mass singing to females

flying high overhead. The simple act of communicating across such distances requires

high inherent costs.5 Strategic costs, however, are the additional price paid to

communicate honesty in order to ensure the continuing integrity of a signaling system.

Strategic costs themselves are not necessarily one-dimensional, and

counterintuitively, can demonstrate either strength or weakness. As a demonstration of

fitness, male stalk-eyed flies grow massively long eye spans, even though such a

2 Maynard Smith and Harper (2003), p15.3 Thapar, Ziesler and Rathore (1986).4 See Guilford and Dawkins (1991).5 Thomas (2002).

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phenotype is actually detrimental to male lifespan.6 An example of some weakness is

provided by seabirds which approach opponents with a risky “breast-to-breast display”7

in resource contests over pieces of food to demonstrate the sincerity of their need. This

type of costly action to demonstrate immediate need for resources or “weakness” is

similar to the Chinese examples presented in the next section.

Signaling models in economics appeared at roughly the same time as biological

signaling models, starting with Spence’s (1973) investigation of how costs can send

signals in job markets.8 The utility of such models were quickly recognized and

expanded, with Riley (1979) as a notable example. Riley also explored the role of

strategic costs in creating informational equilibriums in markets. One difference between

these models and early economic forays into the territory of signaling is the final burden

of costs.9 Because economic approaches focused on the role of advertising in final

pricing, economics viewed any costs incurred in advertising as eventually paid for by the

buyer, not the seller. Imagine if the female peacock were somehow forced to pay for the

cost of the male’s tale once she had selected her mate! Needless to say, despite similar

methodological approaches, these early models failed to develop any cross-disciplinary

traction.

However, later challenges to economic models focusing on the selection of

equilibrium within signaling games pushed the methodology of both approaches.10 These

questions primarily focused on the possibility of a potential equilibrium outside that

6 Maynard Smith and Harper (2003), pp33-34.7 Ibid., p8.8 Much like in evolutionary biology, costs incurred in education and obtaining degrees provide honestsignals to employers about applicants, such as productivity, intelligence, or willingness to work.9 See Graffen (1990).10 See Cho and Kreps (1987) and Banks and Sobel (1987).

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observed by a model. For example, how would consumers respond to a level of

advertising not seen by any firms at equilibrium? Grafen (1990) sees this economic

puzzle as directly applicable to biological models in which males advertise on multiple

dimensions. He argues it is unclear how females will receive males who choose

combinations of advertising not on an equilibrium path. Even given these difficult

methodological problems, at present, costly signaling theory has been widely accepted as

a useful framework for analyzing a variety of economic problems involving

informational exchanges.11

Although the concept originated in economics and evolutionary biology, a few

political scientists, mainly in the international relations (IR) subfield, have picked it up as

well in recent years. Perhaps one of the most prominent proponents has been James

Fearon, who emphasized its importance in international crisis bargaining as early as 1992

in his Berkeley Ph.D. dissertation.12 Somewhat more recently, he has argued that during

a threatened international conflict, “To be credible, a threat must have some cost or risk

11 For a particular example on altruism that includes a review of the relevant literature, see Millet andDewitte (2006).

Cites:

Millet, Kobe and Dewitte, Siegfried, "Altruistic Behavior as a Costly Signal of General Intelligence" (April2006). KUL Working Paper No. MO 0606

Banks, J. and Sobel, J. (1987). “Equilibrium selection in signaling games. Econometrica 55, 647-663.

Cho, I. K. and Kreps, D. (1987). “Signaling games and stable equilibria,” in Quarterly Journal ofEconomics, 46, 179-221.

Graffen A. (1990). “Biological Signals as Handicaps,” in Journal of Theoretical Biology, 144, 517-546.

Riley, J. (1979). “Informational equilibrium. Econometrica 47, 331-359.

Spence, A. M. (1973). “Job Market Signaling,” in Quarterly Journal of Economics, 90, 225-243.12 Fearon (1992).

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attached to it that might discourage an unresolved state from making it.”13 And the

concept has indeed gotten a bit of traction throughout IR, with scholars lining up on

either side of the costly signaling debate.14 In comparative politics, however, its

application has been unfortunately limited.

A Chinese Protest Puzzle

One of the more straightforward applications of costly signaling theory comes,

interestingly enough, in China, a country not known for straightforward politics. By

official statistics, China had 74,000 “mass incidents” in 2004, up from 10,000 only ten

years earlier.15 The increase over time has been striking, especially in a country that does

not hesitate to use force to suppress anything or anyone the Chinese Communist Party

(CCP) sees as a threat.16 So why then is the CCP willing to tolerate this huge increase in

the number of these “mass incidents”? Why not simply cow would be protestors into

submission or create an environment of such coercion that protests are severely curtailed?

And, relatedly, which protest tactics incur the central government’s ire and which

succeed in helping to resolve activists’ complaints?

Peter Lorentzen has offered an important part of the solution as to why Beijing

tolerates protests with his theory that such “mass incidents” serve as an information

source on events in the distant periphery.17 He argues that Beijing accepts protests for

two reasons: “First, tolerating protests enables it to identify and deal with discontented

groups of citizens before they turn to more extreme counter-regime activities. Second,

13 Fearon (1997), p69.14 E.g. Powell (1999)’s assertion that “that a costly signaling formulation fits the data on deterrence successand failure better than traditional … arguments do” (p102) versus Sartori (2002)’s claim that some of thearguments along this line have been “problematic” (p124).15 Lorentzen (2006), p1.16 The 2005 shooting of protesting villagers in southern China is a good example. See Kwok (2005).17 Lorentzen (2006)

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citizen protests provides [sic] a useful device with which to monitor local governments,

controlling corruption.”18 Although his model is elegant and intuitively plausible, the

addition of costly signaling is an important one. First, it helps to improve the model’s

generalizability, allowing expansion to a larger realm of political situations and

applicability outside a strictly Chinese context. Second, costly signaling does help solve

a few of its lingering problems, especially the earlier model’s reliance on the

government’s accurately gauging protestor motives and intentions. Finally, and

importantly for social movement theory, costly signaling provides a link between the

both the government and protestors’ actions, thereby achieving both analytical rigor and

parsimony across realms that often remain analytically unlinked.

As Lorentzen notes, “The idea of an authoritarian government lacking

information about the society over which it rules might seem implausible,”19 and yet

Beijing clearly suffers from a lack of accurate information about conditions in the

periphery or in its own state-owned enterprises (SOEs). With a Transparency

International Corruption Perceptions Index (CPI) rank dropping from 57th in 2001 to 70th

today,20 China’s corruption is by all accounts worsening despite numerous state anti-

corruption efforts. And as O’Brien and Li have argued, local cadres often feel free to

ignore central directives that are not accompanied by extensive monitoring and so-called

“hard” targets.21

This lack of accurate information is due to a number of structural constraints built

into the Chinese system. First, and most obviously, China is an extremely large and

18 Ibid., p2.19 Ibid.20 Transparency International, http://www.transparency.org/policy_research/surveys_indices/cpi/2006,accessed 4/7/2007.21 O'Brien and Li (1999).

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relatively poor country, conditions which almost automatically limit Beijing’s ability to

accurately assess local conditions. Second, the fact that in all but a relatively small

number of Chinese villages local cadres are appointed by higher-ups means that the

citizens with the most knowledge of local conditions have little or no input on the

selection or retention of local leaders. The importance of this knowledge is shown in

those villages which do indeed have elections of village cadres, for elected village

representatives seem to be more likely to act in their village’s best interest, rather than

exclusively their own.22 SOEs, however, are usually still controlled by unaccountable

party apparatchiks appointed by superiors in the party/state bureaucracy. Third, the court

system is still poorly institutionalized, often preventing aggrieved groups from pursuing

claims.23 And finally, as a general rule the media are effectively controlled and co-opted

by the state, preventing the emergence of a neutral “fourth estate” which can keep honest

tabs on local state and SOE conditions.24

In the absence of adequate mechanisms of information transmission, Beijing thus

allows local protests to occur on a mass scale because it has no other way of efficiently

obtaining knowledge of problems in the periphery or deep inside its own SOEs. With

China’s “disorganized reform foster[ing] the emergence of despotism at the point of

production,” the very subsistence of large number of Chinese workers is increasingly

threatened.25 And as Feng Chen and Snow, et al. have demonstrated, serious protests are

more likely to happen in the face of a subsistence crisis.26 If the spread of individually

small but serious subsistence crises were allowed to continue unchecked, Beijing might

22 Li (2001).23 Liebman (2005).24 This picture of the media is a little simplistic, but serves as a general model. See Hassid (Forthcoming).25 Lee (2002), p218.26 Snow, Cress, et al. (1998), Chen (2000).

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some day face more massive action by workers united by nothing more than their

frustration at a central government that is unaware of their plight. In other words, by

allowing small scale protests, the government is able to gain information that will let it

forestall a much larger, more serious protest. Lorentzen puts it best: “In a sense, allowing

74,000 small-scale ‘mass incidents’ allows the government to avoid one ‘Tiananmen

Incident.’”27 A protest, then, serves as a “fire alarm,” telling the government something

is deeply wrong.

But why does Beijing tolerate some protests and not others? Here Lorentzen’s

model benefits from costly signaling theory. After noting that “A crucial assumption of

the model is that the government can distinguish between protests and beginnings of a

revolution,”28 he glosses over potential difficulties in distinguishing between these

groups. Lorentzen here argues that “loyalist protests follow strict rules in their demands,

their rhetoric, and their actions. Revolutionary protests, on the other hand, go past these

boundaries.”29 In practice, however, distinguishing between the two requires some

degree of inferring intentions – a difficult proposition at best, especially if the two groups

have “objectively” similar circumstances and conditions. The task for the central

government of distinguishing is made more difficult by the fact that protestors are usually

very careful to couch their protests – even when making “transgressive” claims – in the

language of “contained” claims.30 That is, contentious actors are aware that the state will

not tolerate revolutionary or radical change, and thus they tend to cloak the wolf of

27 Lorentzen (2006), p3.28 Ibid., p16.29 Ibid.30 McAdam, Tilly and Tarrow make this distinction, emphasizing that contained contention occurs within“well-established means of claim making,” while transgressive contention does not (among otherdistinctions). See McAdam, Tarrow and Tilly (2001), p7.

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potentially subversive claims in the sheep’s clothing of redress and loyalism, aiming for a

kind of “boundary-spanning” contention.31 For example, “young man from Suiping

county used a megaphone to acquaint his fellow villagers with the Organic Law of

Villagers’ Committees (1998) and central directives prohibiting excessive taxes and

fees,”32 contention that on its face was certainly not revolutionary, but perhaps presaged

increasing claims on “rights” in the Chinese countryside that the government never

intended to be exercised in the first place.33 If the CCP is to be able to accurately glean

information about local problems, it must have some way of gauging the reliability of this

information, rather than simply attempting to see if protestors are “loyalist” or

“revolutionary.” This is where costly signaling theory comes in.

Costly signaling theory was originally developed from an evolutionary biology

context, but a Chinese labor protest provides an excellent application of theory. Consider

the peacock. Likewise, the CCP can easily judge the depth of problems and honesty of

grievance with an evaluation of the costs incurred by protestors. Protestors who have

incurred more costs – whether self-incurred or inflicted by an agent of the state – are

likely to have a more “genuine” grievance than protestors unwilling to bear such costs.

After all, if a contentious act is likely to be particularly costly, would-be protestors should

necessarily have a very strong incentive before attempting it.

This fact – that costs demonstrate honesty – has not entirely escaped the attention

of Lorentzen and others, but few scholars have yet analyzed this phenomenon in a

31 Boundary-spanning contention, like rightful resistance, pushes the envelope a bit with what the state iswilling to tolerate, but does so in strategically acceptable language and tactics. See O'Brien (2003) for adefinition and further discussion.32 O'Brien and Li (2006), p108.33 For example, the Chinese constitution guarantees all sorts of rights that have never been allowed inpractice.

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systematic way. Lorentzen writes, for instance, that “groups of citizens who are more

able to instigate a successful revolt will engage in more-costly protests and will receive

larger transfers, all else equal.”34 In a statistical analysis of protest activity in Yiyang

City, Hunan Province,35 Xi Chen has found that the costlier the aggrieved groups’

actions, the more likely they were to receive favorable government intervention.36

And potential protestors seem to understand this logic. Many SOE workers’

strikes were very unlikely, Chen writes, because “most workers who participated in

petitioning are either retired, got laid-off, or stopped working because their enterprises

are going bankrupt or being transformed into another enterprises [sic]. In other words,

most petitioning workers were not assuming tasks needed by the enterprises, and

consequently it [was] meaningless for them to go on strike.”37 Because their protests

entailed little sacrifice (at least by Chinese standards), the workers themselves seem

aware of the futility of such actions. On the other hand, “self-inflicted suffering has some

advantages [that] appeal to petitioners,”38 meaning that aggrieved citizens understand that

costs can have benefits – but the costs must necessarily be relatively high.

And the data indicate that the government understands this logic too. Chen details

a case where a worker from a state-owned farm came to a government office and cut off

his own finger in protest. The state immediately took his costly – and highly visible –

protest very seriously, with officials as high as the Premier instructing “the government to

handle this case seriously.” As a result, his “commonplace grievances had been

thoroughly redressed,” an unlikely result were Beijing not convinced of the honesty of his

34 Lorentzen (2006), p9.35 The 902 events in Chen’s dataset apparently had a large percentage of labor protests.36 Chen (2007).37 Ibid., p20.38 Ibid., p16.

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complaints.39 It should be emphasized that a costly signal of commitment “does not

require deliberately chosen suffering,”40 however. Perseverance in the face of

government repression can also serve as a proof of honesty, a situation probably more

common in the Chinese context.

Thus not only does costly signaling theory improve Lorentzen’s model by

demonstrating why Beijing might privilege responding to one set of grievances instead of

another, it also has relevance for helping predict which particular tactics potential

protestors are likely to employ. Costly signaling theory, then, can provide insights into

both government and protestor action in a relatively straightforward way, bringing

together two sides of an equation not often reconciled. This interaction is captured by the

model detailed below.

The Chinese Case Modeled

Let us first start with a simple normal form game derived from the Chinese protest

example described in the previous section. The game below adapts one designed by

Maynard Smith (1991). The following game has two players: peasants and the

government. The choices for each side are two-fold. The peasants may choose to protest

or not protest while the government may choose to transfer a resource or not transfer a

resource. To begin, for the sake of simplicity, we will assume that revolution is not an

option, but that the players are tied together through the notion of “inclusive fitness”

(Hamilton, 1964), wherein each players utility function includes their partners state of

health times r. While this notion was originally developed to model overlapping gene

sets, it is plausible to believe that each side in our game has a vested interest in the others

39 Ibid.40 Biggs (2003), p20.

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survival. The value the sides place on the survival of the other player will vary with r,

which can be viewed as the prominence of the relationship between the two. More rural

provinces may rely on the government less while at the same time the government

worries less about their health.

The respective health of each player is as follows:

If Resource Transferred Not Transferred

Govt. 1-d 1

Peasants

In need 1 1-a

Healthy 1 1-b

If the peasants choose to signal, their chance of survival is reduced by c, the cost

of their protest.

Costly signaling theory tells us that an equilibrium (where the peasants only

signal when in need and the government transfers in response to a signal) will occur only

when the signaler has an incentive to send an honest signal and the receiver has an

incentive to respond positively to sent signals. This means there are four incentive

compatible conditions that must be met in order to have a costly signaling equilibrium:

the peasants must signal (protest) only when they are in need. This means the payoff for

not signaling when healthy must be larger than the payoff for signaling and receiving a

transfer and the payoff for signaling when in need must be higher than not signaling:

So:

(1-b) + r(1) > (1-c) + r(1-d) or

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b < rd + c and

(1-c) + r(1-d) > 1-a + r(1) or

a > c +rd

For the government, the utility of giving the resource when the peasants are in

need must be higher than doing nothing and the utility of not transferring must be higher

when the peasants are healthy:

So:

(1-d) + r(1) > 1 + r(1-a) or

a > d/r and

1 + r(1-b) > (1-d) + r(1) or

b < d/r

These results already provide a slightly different understanding of the problem

than the incentive compatible constraints derived by Lorentzen. For example, the second

of Lorentzen’s constraint’s ensures that “citizens who have received a high status quo

outcome (θ = xH) also do not protest” and simplifies to:

t(λ) ≤ λ xH

This means that the government’s transfer level must be less than or equal to the

cost of protesting for the higher status quo group. This is to ensure that well-off (or

“healthy”) groups do not protest.

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The corresponding constraint derived from our simple model shows that b < c +

rd, i.e. the cost of protest plus the proximity of the group to the government times the size

of the tax on the government must be larger than the deviation from the ideal for healthy

groups. This ensures that healthy groups do not have an incentive to signal as well.

Direct comparison is not possible, as our model assumes costs are fixed across groups

and in Lorentzen’s cost is a factor of protest level and groups. However, when we note

that the difference between the status quo and final state of a healthy group who received

a transfer is b (i.e. 1 – (1 – b)) then we see that b < c + rd is actually very similar to the

constraint derived by our model is actually very similar to Lorentzen’s. The only

difference is that the transfer can actually be reduced based on how much it will tax the

government and the proximity of the peasants to the government. While this may not

make sense in the Chinese context, in bargaining games in which the two sides are

partners in repeated interactions, this additional wrinkle linking the two sides may prove

useful.

The simple model above is just one possible formalization of the costly signaling

approach. Lorentzen’s more sophisticated model also matches the tenets of costly

signaling, as spelled out in Zahavi (1975). Simply put, in order for a set of evolutionary

stable strategies to develop, (ESS – see Maynard Smith, 1982) signals must be honest,

they must be costly to signalers in a strategic manner and they must be costly in a way

that relates to the quality they are revealing. All of these conditions are met in

Lorentzen’s model. In equilibrium λ* and t* represent an honest signal about health and

a transfer in response accepting the honesty of this signal. Protesting more costs more

and these costs are strategic in that they extend beyond what is needed for efficacy

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reasons. Finally, the marginal cost of protesting more is greater for higher status quo

groups who need the transfer less, and the advantage gained by increased protesting is at

least as great for the low status quo peasants. It is interesting to note that this equilibrium

does not exclude the possibility of lying (i.e. a higher status group village protesting

more), but that lying is not advantageous. The same can be said for the government. It

stands in the government’s best interest to assume the honesty of the signal being sent

and respond with t*.

Signals as Symbols: 1970s British Labor Politics

So far, we have discussed the costly signaling mechanism in the context of

strategic interactions, as a means of two adversarial parties reaching an acceptable

outcome concerning scarce resources. This has foregrounded the objective function

served by costly signaling, but this elides certain problems that arise in applying the

paradigm to specific cases. While signaling serves an objective function in terms of

resource contestation, in the case of human social behavior the signaling mechanism is

embedded in cultural practice, as has been pointed out by signaling specialists.41 Further,

as self-conscious agents, the decisions taken by human beings, individually and

collectively will be inspired not entirely by materialist or evolutionary considerations but

also by the complex of values and symbols arising from their specific worldview42 – to

fully flesh out a signaling scenario an appreciation of the ideational factors at work is

necessary, as is demonstrated by a quintessential signaling case, the National Union of

41 See Maynard Smith and Harper (2003). The penultimate chapter gives a lengthy description of primatesignaling, with cases taken from observed behavior of chimpanzees.42 Put in slightly different terms, an interpretation of signaling behavior through a rational choicemechanism needs to be supplemented by an attempt at a Weberian verstehen sensibility to culturalspecifics.

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Mineworkers (NUM) strike that brought down the Conservative Heath government in the

UK in 1973.

The wage negotiations between the NUM and the Heath government in 1973 took

place under very particular conditions. Earlier in the cadence of the Heath government,

as part of a program to regularize industrial relations and move away from the double

curse of inflationary wage pressures and perpetual labor disruptions, Parliament had

passed a comprehensive incomes policy43. This was to be enacted over a number of

stages – the 1973 round of wage bargaining took place in Stage Three of the incomes

policy, which called for a statutory cap on wage increases of 7%. Provisions for wage

normalization, bonuses for the high cost of living in London and productivity incentives

provided a limited amount of flexibility in the government’s position44.

The union’s initial position demanded considerable higher increases – in its

general conference in July of that year, it had passed demands for pay increases of 22-

47% (the variance is for different categories of mineworker)45. Although these demands

were far in excess of the limits established by Stage Three, there was considerable hope

for a satisfactory outcome of the initial negotiations – the union was self-conscious that it

was making unusually high demands, and it understood the enormous political cost to the

Heath government of offering a wage package breaking its own Stage Three policies46.

Further, despite the mismatch between a Conservative Prime Minister and the decidedly

proletarian NUM, there existed a strong personal report and mutual respect between

43 A number of close analyses of the Heath administration have come out recently. For a generaldescription of his personal politics and program, see Laing (1972). For a more detailed analysis in thecontext of British industrial relations, see Taylor (1996b).44 See Taylor (1993)45 The memoirs of the chief NUM negotiator, Joe Gormley, offer remarkable specifics as to the unionposition – see Gormley (1982).46 Ibid.

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Edward Heath and Joe Gormley47. Both were committed to reaching an acceptable deal,

and Gormley had the political sensitivity to suggest to Heath a means of increasing the

government offer without formally violating Stage Three – in a secret, one-on-one

meeting at number 10 Downing St., Gormley suggested that bonus pay for unsocial

working hours would be a technical loophole giving the government cover for increasing

its wage offer.48 The outlines of an agreement were visible – using the unsocial hours

provision and the other instruments built into stage three, the government could go a

considerable distance towards meeting the mineworkers’ wage demands.

There was a precedent to this backroom, personalistic deal-brokering. In 1951,

the NUM communicated to the Churchill government (another Tory administration) that

it was willing to settle at a 10% wage increase, a figure acceptable to the Cabinet. The

NUM’s formal demand was 18%, with the government accordingly offering 8%. After a

few weeks of wrangling, the deal was struck at 10%.49

However, the Heath government, through the National Coal Board, made a

serious miscalculation in its negotiating strategy. Believing that an understanding had

been reached with Gormley and seeking to avoid the costs of protracted negotiations, the

representative of the NCB, Derek Ezra, presented immediately what he considered to be

an acceptable, and final, offer – an increase of 13%, with a further upwards adjustment of

up to 3.5% based on productivity increases.50 Gormley considered this to be satisfactory,

and sought to bring the offer to a pithead vote but, since this was the first offer made by 47 In his autobiography, Gormley himself emphasizes the high personal esteem he held for Heath (incontrast to the suspicion he harbored regarding the Labour leader, Harold Wilson Ibid.. The biographies ofEdmund Heath indicated that this respect was returned Laing (1972), Campbell (1993).48 Gormley (1982), repeated in Taylor (1993).49 This particular negotiation is treated in Taylor (2003)50 This account of the negotiations comes from Campbell (1993), and is essentially confirmed in Taylor(1996a). Gormley describes the offer in less flattering terms, but also indicates that it was good enough toput to a pithead vote. See Gormley (1982).

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the government side, the other members of the NUM executive believed a better deal

could be had and refused to bring the issue to the rank-and-file.51 What followed was a

bitter and protracted labor dispute that precipitated a general crisis of the British

economy. The government was sincere in its commitment to the Stage Three caps, and

was genuinely unwilling to offer a more generous wage package. The union misread the

government’s position, and in seeking a sweeter deal refused an acceptable bargain. By

breaking the conventions of British collective bargaining, the Heath government spoiled a

workable bargain – one which would have produced a better outcome for both parties –

and brought about its own demise.

This brings up one of the crucial problems of applying costly signaling theory to

human strategic interaction. Strategic rationality as a feature of animal behavior is robust

and unproblematic – it is assumed to be a result of evolved, fitness-enhancing instinctual

responses, and not as a characteristic of animal decision making.52 With human beings,

who possess self-awareness and impute meaning to their own behavior and that of others,

decisions taken in the strategic scenario arise not out of evolutionary selection, but also

the self-aware considerations of the human actors involved. These considerations include

the assumptions that underpin each parties’ assessment of its own bargaining position and

its reading of the information sent by the other. The negotiations taking place in Britain

were not entirely novel, one-off events – union bargaining, as a process, followed a well-

established pattern, one the effectiveness of which was based largely on its regularity.53

51 Laing (1972), Gormley (1982)52 In their synthetic summary of costly signaling, Maynard Smith and Harper are very clear about thistheoretical point. See Maynard Smith and Harper (2003).53 Negotiations between unions and management occurred frequently in the post-War period, generallyfollowing a recurring pattern – presentation of demands and initial offers by both sides; negotiation; jobaction or the threat of job action; and, finally, settlement. For detailed accounts of particular wagenegotiations, see Taylor (2003).

21

The ritualization of the union-management wage negotiation provided participants with

clear expectations concerning the meaning of each other’s behavior. As in 1951, in the

course of formal negotiations, both sides began with opening bids at a removed from the

consensus position, even though the parameters of an acceptable agreement had already

been communicated. This permitted the “ritual of wage bargaining” to take its course,

and for the process to be readily intelligible to all of its participants – negotiators,

principals, rank-and-file unionists and the general public. By seeking to pre-empt the

wage bargaining process by introducing a mutually acceptable settlement at the outset –

and not the culmination – of the talks, the Heath government sought to avoid the discord

and disruption brought on by lengthy labor negotiations.

Put differently, since the signals had been transmitted and received at the

leadership level, government negotiators were attempting to do away with the negotiation

costs altogether. This underlined a fatal misunderstanding on their part of the role of

labor action in the imagination of the union membership, both the delegates and the rank-

and-file. For them, wage bargaining followed a well-established script – union and

management presented demands, escalated rhetoric and direct action, and finally settled

on a compromise.54 This template had been developed over the course of a half-century

or more of union activism, with significant recent examples, including a successful strike

by the NUM a year earlier.55 The process had all of the hallmarks of a morality play – on

one side penny-pinching management, determined to keep wage rises to a minimum, on 54 Indeed, on the government side there were those who immediately identified Derek Ezra’s offer as a fatalmistake. A conservative biographer notes that “The ritual of wage bargaining – a trade union’s raisond’etre – demands that concessions must be wrung from an unwilling management. Offered so much sosoon, Gormley had no choice but to ask for more.” Campbell (1993). Douglas Hurd, a Conservative MP,went as far as to suggest that the negotiating blunder resulted in the government “being maneuvered onceagain towards the same fatal field, still littered with relics of the last defeat [i.e., the 1972 strike].”55 This sense of politics as ritual and performance is not restricted to a British context, but also hasrelevance for Chinese politics. See Esherick and Wasserstrom (1990).

22

the other the stalwart union membership, who could win great gains – politically and

socially as well as financially – through the correct use of solidaristic labor practices.56

The previous NUM strike had galvanized public support for the miners, and

represented a tremendous moment of triumph.57 The strike action produced a genuine

effervescence of solidarity among the workers, and legitimated and reinforced their

political and class identity.58 To remove from the union the opportunity to assert itself –

its social position, its vital economic role, its political muscle – in the bargaining process

by presenting a generous initial offer as a fait accompli violated the system of meaning

built up by unionists around the process. By failing to take into account the important

symbolic and strategic role played by the back-and-forth of the negotiations, the

government side made its offer (a first and final offer) unintelligible as a legitimate

settling point for the union side. The result was the breakdown of negotiations despite

the eventual acceptability of the initial offer. Sometimes a costly signal is just a signal of

resource contestation, but often it is also a culturally laden symbol, crucial in providing

meaning in the situation for the parties involved. While ultimately costly signaling

concerns resource allocation, observers discount the cultural embeddedness and symbolic

role at great peril.

56 In this sense, the strike activity plays a fundamental role in re-asserting and re-creating the workingclass’s sense of identity and political role, through a mechanism similar to the political theatre andsymbolic politics described by Geertz (1980). For the historical routes of the link between contention andworking-class identity, the source is, of course, the magisterial work by Thompson (1963).57 For a very vivid account of the extent of public support for the striking miners, see Gormley (1982).Unionist accounts are corroborated by both scholars and conservative historians – see as well Laing (1972)and Taylor (1996b).58 After observing the remarkable success of the new tactic of flying pickets, one union leader (ArthurScargill) gushed that “here was living proof that the working class had only to flex its muscles and it couldbring governments, employers and society to a complete standstill.” Taylor (1996a).

23

The British Case Modeled?

The previous section illustrates some of the difficulties in analyzing and modeling

costly signaling in social interactions. While it does not suggest disregarding formal

approaches, it does caution that scholars may need to gain a more in-depth understanding

concerning what signals are being sent and to whom in order to properly match

predictions and analysis with real world data.

To drive this point home, let us revive and briefly adapt the simple game used in

the Chinese labor context. One could imagine that Heath (and social scientific observers

at the time) pictured a simple resource game as follows:

If Resource Transferred Not Transferred

Govt. 1-d 1

Workers

In Need 1 1-a

Healthy 1 1-b

Workers may choose to signal (protest) when they feel they are getting a deal

incommensurate with their position. Similarly to the first game, we can imagine this

being “in need” state. If they are provided with a fair deal in wage negotiations, they

should accept it and move on. Why then did the workers protest when they had gotten an

ostensibly good deal (when they were healthy)? The thicker analysis above shows that it

was our (and Heath’s!) misunderstanding of the game being played.

24

Given a better understanding of the game, could Heath have avoided the chain of

events that followed? Where one formal model failed, one more attuned to the specifics

of the situation may lend valuable insights. While complexity of a process intertwined

with cultural significance may deter simplistic attempts at formal modeling, it should be

noted that work on signals as handicaps within the costly signaling literature has

anticipated this scenario. Grafen (1990), building on the work of Zahavi

(1975,1977,1987) creates a model where costs incurred through advertising fitness ensure

honesty and create an evolutionary stable equilibrium between honest signalers and

receivers who perceive these signals, which matches well with the game anticipated by

the workers. Unlike the basic costly signaling resource game assumed by Heath, union

workers saw a strategic choice handicap game where the bargaining process allowed

workers an opportunity to honestly advertise their “fitness”, in terms of solidarity and

union strength, to the government.

While working through the specifics Grafen’s model will add little value on top of

his thorough analysis, it may be helpful to highlight some of its insights to reflect back on

why workers refused an ostensibly good offer from the government. The essential

elements of Grafen’s strategic choice handicap model include: signalers with quality q, a

level of advertising a, which is an observable quantity and also a function of quality A(q),

and receivers who develop a perceived value p of the quality of the signalers based on

their level of advertising using the function P (a).

Deriving conclusions from these elements, we see that higher quality (more “fit”)

signalers, which matches the state of the unions in 1973, tend to signal more, incurring

greater costs, but more than make up these costs through the affect of their advertising on

25

the preferences of receivers (the Government). In addition, as signalers work to improve

receivers’ assessments of their traits (in this case the strength of membership and the

level of solidarity), the fitness of signalers, or their ability to succeed within a given

institutional framework, improves as receivers better perceive their traits.

Restated in the context of our example, the unions felt that they were involved in

a game in which showing their solidarity would incur costs, but would return gains

beyond these costs. In addition, the best way to improve their position was to make the

government aware of their high level of solidarity, something they would be unable to do

without bargaining. Given this logic, turning down an initial deal, even a good one,

makes rational sense. Workers expected that through a costly display of their solidaristic

traits, their perceived fitness would improve, improving their final outcome. More

importantly, they felt that they needed to advertise their strength in order to play their

best response strategy A*, which had been developed over years into a signaling

equilibrium with the government. However, Heath, believing he could perceive the

strength of the union in one-on-one negotiations with Gormly, chose not to understand

union qualities through their level of advertising, P*, disrupting the equilibrium.

Conclusion

As these labor politics examples demonstrate, costly signaling theory has great

potential for application in comparative politics. Despite it long history in evolutionary

biology and economics and its obvious utility, it has yet to gain a foothold outside a

limited realm of the IR subfield. Our article aims to demonstrate the usefulness of this

elegant concept, especially in resolving apparent paradoxes in what appear to be non-

26

rational actor choices. As we briefly touched up on in the introduction, we see great

potential in applying costly signaling theory to such common political topics as loyalty

norms, escalation analysis and situations involving amends and reconciliation. Most

importantly, this scholarship should not be limited to formal approaches, as its very social

embeddedness means that formal models often miss all but the most superficial nuances.

Analysis of these topics often may be better served with appropriate attention to historical

and cultural contexts.

27

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