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Corporate political influence and its impact on growth

Corporate political activity can have both positive and negative effects on economic growth. On the one hand, it can be beneficial for politicians and officials to consider information from companies when developing and implementing policies. On the other hand, corporate influence can contribute to the creation of entry barriers and distorted competition. From a growth perspective, it is particularly problematic if companies with low productivity can maintain their profitability through political influence.

Based on the international research literature, this report highlights and discusses corporate political activity and its impact on growth. We find that there is limited knowledge about this relationship in the Swedish context. The report also discusses how the role of the state can be developed to harness positive effects and avoid negative outcomes, as well as to improve the state of knowledge.

It is primarily large profitable companies that influence politics through a range of channels with influence via media and social media appearing to have increased. Interest organizations are a common indirect channel of influence, and their organizations can cost-effectively provide politicians and civil servants with valuable information and contribute to a level playing field. However, in some cases, resource-rich companies have significant influence over the agenda of interest organizations, creating a bias in favor of established interests. In the research literature, there is concern about so-called astroturf lobbying, which involves interest organizations or companies establishing a false grassroots movement to create the impression of broad public support for the issues they advocate for. This behavior can mislead politicians and the general public, but is also believed to potentially harm the trust in the business community.

In Sweden and the EU, there has been a perception that corporate political influence is not as significant of a problem compared to the US, where campaign financing and political contributions play a larger role. There has also been an image that the risks associated with lobbying are not so great in Sweden and the EU because both politicians and business representatives are oriented towards collaboration and concensus and there is a willingness to compromise. However, new research shows that companies can gain advantageous regulations and increase the likelihood of receiving state aid through lobbying even in the EU. This indicate that corporate political activity can impact economic growth even in the Swedish context where influence primarily occurs through information sharing and relationships rather than political financing.

We observe that individual companies' political influence has become more common in the EU, and this seems to apply to Swedish companies as well. At the same time as corporate political activity has increased in EU there has also been an increase in corporate concentration and a decline in productivity growth. Our review of the literature indicates that concentration, particularly in certain markets and sectors, is attributed to increased entry barriers that may have resulted from political influence. In other markets, concentration appears to be primarily driven by the increased efficiency of certain companies, due to investments in intangible assets and digitalization.

Even at the national level, corporate political activity has likely become more common. In Sweden, there are significant productivity differences between different industries, and it cannot be ruled out that political influence has contributed to reducing productivity growth in certain sectors. However, in general Sweden has a well-functioning structural transformation where the least productive companies either increase their productivity or cease to exist. This suggests that it is not a pervasive problem in Sweden for the least productive companies to maintain their profitability through political influence. However, it cannot be ruled out that low-productivity companies may do so within certain industries.

Even so, it is important to remember that also productive companies can influence politics in a way that creates entry barriers or makes it difficult for other companies to increase their productivity, which can ultimately result in reduced aggregate productivity. We highlight that over time it has become more challenging for low-productivity companies in Sweden to increase their productivity, particularly in digitally intensive sectors. Against this background, we emphasize the risks associated with political influence that contributes to reduced knowledge diffusion. This can involve influence that hampers access to data or limits the opportunities to develop intangible assets. However, some researchers argue that the political influence of companies can eliminate bureaucratic obstacles and shape regulations in a way so that they can increase their productivity, thus contributing to improved resource allocation in the economy.

One way for the government to reduce negative effects related to corporate political influence is to promote competition and structural transformation. High competition forces companies to become more efficient, and it also becomes more difficult for individual companies to gain advantages through political influence, as competitors can also influence politics. As already mentioned, political influence can enhance companies' opportunities to access state aid and rescue packages. Under certain circumstances, state aid efforts may be justified. However, there is a risk that state aid efforts distort competition and hinder structural transformation. In other words, it is important for state aid interventions to be directed towards companies or industries where they make a difference, which may not necessarily be the companies that lobby the most. This challenge is particularly relevant as the EU recently relaxed its state aid regulations.

Other measures that can help reduce negative effects related to corporate political influence are efforts to increase transparency, inclusion, and integrity. A common measure is transparency registers, which do not exist in Sweden today. This measure is recommended by both the OECD and the Council of Europe's anti-corruption body, GRECO. We argue that, if correctly designed, a transparency register may benefit economic growth by creating a more equitable economic environment. Other potential measures could include investing in information and education targeted at politicians and civil servants concerning the opportunities and risks related to lobbying. For instance, in the Netherlands, there are specific provisions about lobbying in the governmental code of conduct. At last, we can conclude that there are several challenges related to studying the effects of corporate political activity on the economy. In the Swedish context, one of the main obstacles to this type of research is access to national data concerning corporate political activity.


Corporate political influence and its impact on growth

Serial number: Rapport 2023:10

Reference number: 2022/137

Download the report in swedish Pdf, 676.4 kB.


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