Tuesday, September 17, 2013

Who pays the price of political business links?

The Economist recently published an article arguing that the influence of big business in politics was excessive. The appointment of individuals with a political past, or with political connections to the board of directors of private companies, is potentially one of the tools that businesses have available to them in order to influence public policy decisions. Of course, it can also be argued that some former politicians have other skills in addition to access to government and its decision-making channels. But the presence of political staff on the boards of directors of large private companies has become a concern regarding the functioning of our democracies and our corporations.
The extent of the phenomenon has been documented by systematic empirical evidence in countries as diverse as Indonesia, Germany (historically at the time of Hitler and also contemporaneously), France, and the United States (including the evolution of companies connected with former Vice President Dick Cheney and those connected with former Treasury Secretary Timothy Geithner). The phenomenon therefore has a huge international scope and is present in both developed and developing countries.
There is also anecdotal evidence for countries such as Chile and South Africa – where some of the main leaders of the African National Congress, the party of Mandela, have been co-opted by companies traditionally in the hands of the white minority. One surprising aspect is that in some cases there is a negative association between the presence of former politicians and business performance, while in other cases this association is positive. Acemoglu and his coauthors, in their study of firms connected to former US Treasury Secretary Geithner, suggest that factors driving this association to be positive include a weak institutional framework and high discretion in making political decisions (which is more common for example in times of crisis).
(The entire text, written by Pau Castells and myself, can be read here)

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