The connections between politics, business and finance

History is replete with multiple examples of strong connections between politics, finance and economics not unlike what we are observing these days in autocratic regimes, such as China, oligarchic regimes, such as Russia, and even democratic regimes, such as the United States. However, if we focus our attention on the European context in the early 21st century, interesting evidence emerges on the nature and value of the connection between economics and politics in democratic institutional contexts and market realities.

Seemingly surprisingly, the parliament with the most political connections in the world is the House of Lords in the United Kingdom, reflecting the fact that connections to politics are developed over long periods of time and established customs.

The literature has defined as politically connected enterprises those in which a shareholder or member of the corporate bodies is simultaneously a member of a national elective assembly or government. This is a strong, clear and significant type of connection that excludes connections to elective assemblies and decision-making bodies of a local or regional character.

Also in this regard, the literature has highlighted how politically connected companies would be characterised, in principle, by greater market power, a higher degree of indebtedness and a lower level of taxation, while as far as accounting and/or financial performance is concerned, the literature does not come to unambiguous conclusions. It has been estimated, for instance, that Musk-owned companies would have benefited from $38 billion in tax benefits over the last 10 years.

These studies provide a useful benchmark for assessing the nature, magnitude and impact of political connectedness in the context of normal times. But we are not living in normal times. While the impact of political connectedness can be such that it can disrupt a nation's very democracy, a balanced and intelligent political connectedness would be most useful in building the sectoral European champions that Europe so badly needs right now.