The Value of Political Business Connections

• In Event: Political Connections and Policy Influence

Abstract

The perceived extensive links between business and government are of increasing salience to voters, scholars, and civil society groups. This is possibly due to the measured rise of economic inequality in many economies -- highly-developed and developing, according to Milanovic (2018) and Piketty (2014) -- in addition to the common experiences of slowing wage growth (Machin 2016), a decline in the labor share of national income (Autor et al 2017), a decline in effective tax progressivity (Saez and Zucman 2019), the rise of tax avoidance via offshore havens (Zucman 2015), and a lack of competition (and concomitant consolidation) in many leading industries (Shambaugh et al 2018). To explain this phenomenon, much of the scholarly attention on business-government connections has thus far been focused on campaign contributions, lobbying efforts, and the “revolving door” through which government officials receive lucrative private sector positions upon leaving office, while key policymaking positions are given to prominent business actors. We focus on another channel through which businesses can develop influence – direct connections between governments and firms. We develop a new global dataset on transnational political-business connections, in which firms are considered to have a political connection if they have members of legislatures and/or cabinet officials in their boardrooms or if such politicians are major shareholders. We test whether increased industry-level concentration, regulation, and reliance on government procurement increases the value to firms of political connections because under these conditions connections can more easily translate into policy concessions and direct sales. In doing so, we contribute to an important literature on whether, how, and to what effects business interests influence policy in the global political economy.

Authors

• Sarah Bauerle Danzman, Indiana University

• William Kindred Winecoff, Indiana University