Some commentators suggest that a referendum is a with us or against us, a yes or no instrument. It does nothing to foster consensus, or seek compromise. Whether or not this is the case depends on the situation in which the referendum is set.
In Switzerland, before an actual referendum arises, there is a great deal of debate amongst proponents as to what position to adopt for a referendum. For example a comprehensive ban on genetically modified organisms failed to win at referendum but a more modest proposal for a prohibition of GMO's in Swiss agriculture won. Initiative proposers will debate on whether to go all out for radical change and risk losing or to adopt a middle ground and potentially win. Once the proposal has been decided upon, there is further debate within parliament. Parliament's debate is conducted in the knowledge that a referendum may follow. In practice, they often come up with a compromise counterproposal acceptable to the referendums proposers.
Under a representative democracy, Parliament has the responsibility to weigh up different interests and enter into debate bearing in mind the interests of different constituencies. The decision reached is meant to have weighed up different lobbies and interests and steer a sensible course, trying to give everyone a little bit of what they want where possible. In addition, special interest lobbying and media coverage can affect the debate.
In the UK where we have a two party system, many issues tend to be addressed in what many see as an unhelpful fashion. Issues themselves move into second place as the resolution of that issue becomes either a stunning victory for the policies of one party or a resounding defeat for the policies of the other party. The relative position of a party vis a vis the other party tends to be the news. Why should referendums be any different the argument goes. The issue itself will get lost as the media and parties themselves turn the issue at stake into a battle ground along party lines.
The evidence from other countries shows us the problems and the solutions. There is some anecdotal evidence that voters in referendums have voted in a certain manner purely to give a party or a political system "a bloody nose". This happens in the same way that British voters often use by elections to 'punish' a ruling party they are dissatisfied with, but it only happens when referendums are the exception rather than the rule. Voters often express a dislike of the "pettiness" and "yah boo" of British politics. In a situation where referendums were held regularly, voters disassociate themselves from battlegrounds drawn by parties and the media and vote on issues.
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