'CORPORATE WORLD'S POLITICAL'

IT HAPPENS often enough that it scarcely elicits comment. After an election, some politicians leave government - only to reappear on the payrolls or boards of large companies.

Such firms argue that they need to understand the political process and to engage in lobbying so they can extract themselves from a tangle of red tape.

Tech giants, in particular, see themselves as champions of innovation and productivity within economies that have too little of either. But precisely because the biggest firms are increasingly dominant and profitable, the connections between the corporate and political worlds merit close scrutiny.

That such connections exist is nor necessarily a problem. Firms that use political influence to obtain relief from stifling rules may thereby contribute to growth.

UBER'S ride-hailing services often flouted the spirit, and occasionally the letter, of rules governing the hired-car business. To shield itself from legal action, it regulated influence.

To build that influence, it hired political operatives. Such ride-hailing services have increased  competition in many markets and improved riders experience.

But firm's political ties can also be used to weaken rules that protect customers and to squash competition.

In a new paper Ufuk Akeigit, Salome Baslandze and Francesca Lotti try to distinguish between such malign purposes and benign  ones in the case of Italy.

They combine datasets on employment, the performance of companies and the number of patents they issue, the outcomes of local elections and companies that hire local politicians.

To isolate the effect of  connections, they look at politicians in office who are hired by companies [as is legal in Italy] right before close elections.

In sufficiently tight cases, it is essentially a matter of chance whether a company's hire winds up in the political majority [and thus in a position to help]   or not.

Differences in companies performance after such elections thus provide evidence of the effect those connections have on the market.

If political influence were being used to cut through the red tape, rule-bound Italy would be  goodplace for a link between connections and higher productivity to show up in the data.

But the researchers find the reverse.

The Honor and Serving of the latest Operational Research on Markets and Practices and Companies continues. The World Students Society thanks The Economist.