Duverger's law states that the "first past the post rule" (which is used in US elections) naturally results in a two-party system, while the proportional representation used in some European countries tends to give rise to multiple parties. This is because a proportional representation system gives 10% of the seats in parliament to the party that receives 10% of the vote. The reward for gaining 10% of the votes in a US election is almost certainly nothing at all. Each district is counted separately, and whoever receives a simple majority in that district is elected, with any other candidates achieving nothing.
Another reason for the two-party system in the United States is that there is less political disagreement in the United States than in many other countries. The Republicans and the Democrats are approximately aligned on most major issues. For instance, no one in either party seriously questions the basic premises of capitalism. The far-left of the Democratic Party, who are sometimes called socialists, would be mainstream social democrats in most countries. A two-party system where the two parties are not radically different gives the voters the chance to "throw the scoundrels out" when they feel a particular party has become corrupt and ineffective, while ensuring some continuity in the policies by which the country is governed. Political parties in Europe represent a much greater range of opinion, from far-right Nationalists to genuine Socialists.
The best system depends on what you value. A two-party system based on "first past the post" elections is more stable. It also allows for better regional representation, since politicians are tied more closely to the areas that elect them, rather than coming from a central pool of candidates. However, European-style proportional representation, with its coalitions between multiple parties, forces politicians to work together constructively for common goals which have been approved by an actual majority of the people, rather than permitted by an electoral fluke or gerrymandered borders.
There are two major factors in the American political system that have led to the development of a two-party system. These two factors combine to signal that the two-party system is likely here to stay unless changes are made to the American politic system.
The first reason for the two-party system is the fact that American elections are winner-takes-all. In this type of election the person who wins the election gains the position they are running for and the loser receives nothing. Even if the loser of an election were to receive a high percentage of the votes, say they are defeated 51%-49%, they do not gain anything from the outcome. This does not leave a lot of room for success for third parties outside of the major two to operate. Even if a third party has some level of popularity, they rarely gain enough support to actually win control of any significant political offices. Due to the historical lack of success of third parties, citizens are less likely to help them fund their campaigns to be more competitive, and they are also less likely to vote for third party candidates because they do not have a realistic chance to win. People are more likely to vote for one of the major two parties that are more likely to win than to vote for a third party and feel that they have discarded their vote.
The second major reason for the two-party system is the fact that often times elections do not require a majority of the total votes (over 50%), but rather they simply have to receive the most votes of any of the candidates. This means that even if a third party were to run and receive 20% of the votes, it is likely that one of the candidates from one of the major parties would receive a greater percentage of votes and still win the election.
In Europe there are a number of countries who hold elections using a proportional representation system. In countries like Germany, for example, people vote based on which party they support. The party puts forward a list of potential candidates if they were to win seats in the legislature. In the end the votes are tallied and each party receives roughly an equal proportion of percentage of representatives in the legislature as they did percentage of votes in the election. In a system like this more than two parties are likely to develop because people feel their vote is not wasted if they vote for a smaller party. Even if a smaller party receives only 10% of the vote, they are not totally left out of the process as they would be in American elections. In the instance that a German party received 10% of the vote, they would receive approximately 10% of the representatives in the legislature. This is an incentive for smaller parties to exist and also for citizens to vote for smaller parties.
The proportional representation system also forces parties to work together, because it often happens that no single party has enough of a majority to force through legislation without having support from other political parties. This often leads to the formation of coalitions between political parties and deals being reached between parties.
When looking at the different political systems one needs to consider the above in order to form an opinion on which system is better. In the German system smaller parties are more likely to have an impact in the politics of the nation and people are more likely to support them. In the United States voters often have a more direct connection to the representatives they choose, as they vote specifically for a representative and not simply for a party. There are certainly pros and cons to both systems and there is certainly room for debate regarding which system is superior.
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