My book project, entitled “Private Sector Politics: The Logic and Consequences of Businesspeople Becoming Politicians”, combines my interests in business-state relations and political representation. Active businesspeople abound in parliaments in China, Uganda, Thailand, and Bangladesh among other countries, but little is known about why economic elites pay the costs of winning elections and holding office. The book poses three questions concerning this distinct type of non-market strategy:
1) Why do some businesspeople run for elected office, while others do not?
2) Do firms benefit from having their CEOs serve as legislators while running their companies, and if so, how?
3) Do businessperson politicians behave differently in political office from their counterparts without private sector experience?
In the first part of the project, I argue that businesspeople run for political office when they cannot trust that the politicians they lobby or make contributions to will effectively represent their interests. Directly occupying a legislative seat then is the only viable avenue for achieving their desired policies. I develop a theory that predicts that the probability of politician shirking will depend on whether competing firms can solve a coordination problem. All firms would be better off if none of their directors personally ran for public office. However, if firms cannot coordinate and some directors run for office, the probability increases that indirect strategies such as lobbying will be ineffective. Professional politicians are more likely to renege on campaign promises to a given firm when directly represented rival firms can counter with superior offers. I show that both acute economic competition and weak political parties exacerbate firms’ inability to coordinate on not running for office.
Evidence to support my argument comes from an original dataset of businessperson candidates in Russia. I first compiled information on 41,471 candidates to 83 regional legislatures from 2004-2012, gathering demographics such as birthdate, gender, and place of employment. Next, using a Python algorithm to mine a database of firm registrations, I identified all firms that these candidates managed at the time of their campaign. In all, I was able to successfully match nearly 7,000 businessperson candidates on name, birthdate, and region to over 11,000 affiliated firms. I then collected financial data on the entire universe of two million Russian firms, which was used to generate both firm-level and sector-level variables, such as between- and within-sector competition. To examine alternate explanations, I built a dataset of region-level variables, finding little support for variation in businessperson candidacy depending on democracy, natural resources, or the strength of business associations. Lastly, I marshal evidence from experimental vignettes placed on a survey of 2,400 Russian citizens as well as over 40 semi-structured interviews in three Russian regions with businesspeople, politicians, and experts.
I then use this dataset in the second part of the project to examine whether firms connected to businessperson politicians fare better as a result of direct representation. Using a regression discontinuity (RD) design, I compare performance outcomes between firms whose directors narrowly won or lost close elections. I first find that a connection to a winning politician can increase a firm’s revenue by 60%, and profit by 15%, compared to one managed by a losing director. I then collected data on several possible mechanisms driving these results, including information on seven million state procurement contracts from 2007-2012. I find that the improvements in firm performance stem from connected firms’ stronger ties with state officials and reduced bureaucratic pressure, rather than alleviated credit constraints or tax relief. Lastly, I show that the value of winning office is more valuable for firms where democratic institutions are stronger, in richer regions, where natural resources are present, and when directors are members of the ruling party.
In the third part, I explore the implications of businesspeople simultaneously working in the public and private sectors. I test whether businessperson politicians govern differently from other types of leaders using data on over 25,000 Russian mayors and regional legislators. Analyzing both a close election regression discontinuity and panel data, I find that electing a politician from the business world does not reduce the size or efficiency of government, as measured by lower total expenditures or smaller budget deficits. Instead, businesspeople reap savings from downsizing some agencies in order to increase spending on roads and cut corporate taxes, while leaving health and education expenditures untouched. Prioritizing economic over social infrastructure brings immediate benefits to the business community and opens opportunities for rent-seeking, while potentially holding back long-term accumulation of human capital. Businessperson politicians do more to make government run for business, rather than like a business.
The final chapter summarizes the main arguments made in the book, and then closes by discussing a number of policy implications that emerge from the analysis that could be of use in containing rent-seeking by these individuals in power. One commonly discussed initiative involves requiring officials to submit financial disclosures; theoretically sunlight may work as the best disinfectant of rent-seeking. I draw on new empirical evidence to show that this type of transparency reduced the number of businesspeople from seeking elected office. Asset disclosures function as a type of personal tax audit that disincentivizes candidacy among individuals only interested in benefitting themselves and/or their firms. The conclusion also addresses the question of external validity by drawing in examples of similar phenomena from other countries around the world, both developing and developed, that are experiencing significant interest in political office from businesspeople.
Overall, the book provides insights into an important type of corporate political strategy, one with potentially wide-ranging implications for how corporations are able to articulate their interests in politics. Winning elections empowers firms with a more direct way to acquire political knowledge as well as to potentially alter legislation to prioritize private over public goods. My findings have implications for policies designed to regulate campaign finance and lobbying and our understanding of the buying of political influence.