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The Relationship Between Political Connections and the Financial Performance of Industries and Firms

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The Relationship Between Political Connections and the Financial Performance of Industries and Firms

Mercatus Center,

5 min read
5 take-aways
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What's inside?

Top executives of politically influential firms earn more than their peers at companies that spend less on lobbying.

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Editorial Rating

7

Qualities

  • Innovative
  • Eye Opening

Recommendation

Crony capitalism might be worse than you think. This eye-opening study from the conservative Mercatus Center says corporations that drop big bucks on lobbyists are no more profitable than firms that spend less to build political clout. But economic researchers Russell S. Sobel and Rachel L. Graefe-Anderson conclude that top executives of politically influential companies earn more than their peers at firms that lobby less actively. Alas, disappointment looms for readers hoping that the authors will name names; they don’t proffer a list of which executives at which crony companies make the most. Nevertheless, getAbstract recommends this report for its findings on who really benefits from government subsidies.

Summary

US firms spend billions lobbying federal officials, an outpouring that raises a critical question: Has the American economy turned into a paragon of crony capitalism, a place where political connections are more crucial to a company’s success than its ability to satisfy customers? That query gained steam after the 2008 financial crisis, when bailouts and stimulus injected huge sums of money into the economy. The 2008 Troubled Asset Relief Program, for instance, called for the federal government to allocate $700 billion among more than a dozen financial firms, including...

About the Authors

Russell S. Sobel is an economist and a visiting scholar at The Citadel, South Carolina. Rachel L. Graefe-Anderson is an assistant professor of business at the University of Mary Washington, Virginia.

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