Corporate Profits Follow Power

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Over the weekend, Tim Harford at Slate asked an interesting question: “How much do Republican-leaning corporations benefit from Republican political success?” His answer? “A lot!” Harford points to studies conducted by financial economists about the success of corporations with clear Republican and Democratic leanings. (The researchers defined a company’s party preference by whether the board of directors had members who were former members of Congress and/or served in an administration — all from one party.)

After narrowing the group of corporations they were looking at the researchers examined the share price of these politically partisan corporations at two points; the U.S. Supreme Court decision on Dec. 13, 2000 selecting George W. Bush the winner of the presidential race over Al Gore, and the May 2001 power shift in the Senate from GOP to Democratic control created by U.S. Sen. Jim Jeffords’ decision to leave the Republicans and become a Democratic-caucusing independent.

In the first case, economists found “Republican companies” beat the market by 3 percent over the week after Bush’s victory was secured, and the “Democratic companies” lagged badly.” In the second instance, when Jeffords’ decision switched the control of the Senate, Harford cites another study showing the share price of large corporations connected to the GOP took hits.

Fascinating stuff. Why is this? Are political connections this valuable?  Harford proposes one innocent explanation: The “intelligence and energy” that these former pols who now sit on corporate board used to propel their political career are also beneficial to corporate success. Or the more likely reason: political connections give companies the inside track to access over regulatory policy and procurement contracts.

That sounds more like the Washington we know. One of the studies does show that companies tight with the party in power do seem to get the best contracts. Harford called it disgraceful, “if not entirely a surprise.”  Meanwhile, check out FedSpending.org to confirm your worst suspicions.

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