{"id":4009,"date":"2024-09-02T11:26:18","date_gmt":"2024-09-02T09:26:18","guid":{"rendered":"https:\/\/www.rivistaeco.com\/?p=4009"},"modified":"2024-09-02T11:26:18","modified_gmt":"2024-09-02T09:26:18","slug":"the-dangerous-relationship-between-business-and-politics","status":"publish","type":"post","link":"https:\/\/www.rivistaeco.com\/en\/2024\/09\/02\/the-dangerous-relationship-between-business-and-politics\/","title":{"rendered":"The Dangerous Relationship Between Business and Politics"},"content":{"rendered":"
\"\"
Source: Ufuk Akcigit, Salom\u00e9 Baslandze, Francesca Lotti 2023 “Connecting to Power: Political Connections, Innovation, and Firm Dynamics,” Econometrica 91: 529-564. In their analysis, the authors considered and grouped data from various Italian companies from 1993 to 2014.<\/figcaption><\/figure>\n

Companies have always sought to influence political actions. In many cases, they do so with little transparency and illicit means, which carries negative consequences for democracy. However, even when contacts between businesses and the political world move within the bounds of legality\u2014resulting in regulatory simplification and increased system efficiency\u2014they can prove counterproductive in the long run for both the companies themselves and the economy as a whole. This is because having too strong political connections for self-protection can reduce competition and incentives to innovate, diverting entrepreneurial energy away from achieving results in their primary activities.<\/span><\/p>\n

The graph shows the relationship between the market share of companies belonging to each sector of the Italian economy, innovation intensity, and the intensity of political connections. For the first dimension, the top twenty companies per sector are considered, classified based on their percentage of employees relative to the total in the sector. The average indicators related to the two intensity dimensions (innovation and political connections) are then calculated concerning companies occupying the same position in different sectors: thus, the average of companies in the first position, the average of companies in the second position, and so on up to the average of companies occupying the twentieth position in different sectors. It is important to specify that only sectors of the economy where each leading company has at least 10% of the employees are considered, as they are deemed to have the most market power.<\/span><\/p>\n

There are two vertical axes. In yellow on the left, is the intensity with which companies invest in innovation (measured by the number of patents filed per hundred employees). In blue on the right, is the strength of their political connections (measured by the percentage of managers with political ties; for example, registered with political parties, candidates, or elected to some office). As can be seen, the higher the market shares, the higher the intensity of political connection and the lower the level of innovation; while the exact opposite holds for lower market shares.<\/span><\/p>\n

Number of Patents and Political Connections<\/b><\/h3>\n

How to explain all this? The interpretation given by the authors of the essay (and the graph) is that, on average, companies that employ fewer employees than their competitors tend to innovate more, investing more in research and development to try to stand out and compete. Conversely, those already dominant tend to have more people within the company connected to politics and use these connections to maintain their market position. The result is that they do not need to innovate to survive and maintain an edge over competitors, explaining the low number of patents.<\/span><\/p>\n

Political connections thus appear to be a widespread condition for achieving success, serving as protection against competition. However, they can simultaneously stifle the company’s dynamism and flexibility, reducing its ability to adapt and innovate in response to market changes. If all companies were to focus on investing in stronger political connections instead of research and development, the market would suffer in terms of dynamism, competition, growth, and productivity.<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Companies have always sought to influence political actions. 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