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Econ 050: Buying political influence

Date:05 August 2019
Econ 050 is a podcast on the economics and business topics that matter to the Netherlands and the wider world, made by the Faculty of Economics and Business and the Northern Times.
Econ 050 is a podcast on the economics and business topics that matter to the Netherlands and the wider world, made by the Faculty of Economics and Business and the Northern Times.

What is the difference between lobbying and buying influence? Since 2002, it has been legal in the United Kingdom for sitting politicians to hold board positions at private companies, and serve on committees or propose legislation that could directly impact those companies. Assistant professor Swarnodeep Homroy looked into just how much a closer professional relationship between politicians and industry can be beneficial for those companies, and the implications of the rule change.

In this episode of Econ 050, Homroy discusses his research into the issue. His paper, ‘Bringing Connections Onboard: The Value of Political Influence’, by Homroy and Colin Green of NTNU, measured the performance of companies with directors who are Members of Parliament (MPs) in the UK, where almost half of the top 50 public firms have connections with a sitting MP.

The reasoning given for these political hires is that familiarity with the inner workings of an industry make them a better informed politician, and that the skills that many politicians develop – strong networks, working together with different shareholders – make them a good fit for corporate board membership. But as Homroy's research reveals, the companies that have a sitting MP on their board are likelier to have higher than average profits, and those that hire ex-politicians don’t experience the same bump.

You can listen to the full episode here. To read more about Homroy's research, see this blog.