Politics & Business

When the market is connected with power

The relevance of political connections on European companies: from the fall of the Berlin Wall to the 2008 crisis

by Carlo Bellavite Pellegrini, Laura Pellegrini and Andrea Roncella

21 April 2026

3' min read

Translated by AI

Versione italiana

3' min read

Translated by AI

Versione italiana

In October 1518 in Augsburg between Martin Luther and Tommaso de Vio, who went down in history as Cardinal Caietani, a clash of titans took place from which the legate of Leo X emerged culturally victorious. As a great Italian gentleman, what Caietani had not foreseen was the peasant cunning of Luther who, when cornered, fled. In this way, Luther turned the tables in favour of Germany and against the papacy.

Five centuries later, in the spring of 2025, while Tesla's profits plummeted by 71%, Elon Musk sat at the top of SpaceX - the beneficiary of more than 22 billion in federal contracts - and at the head of DOGE, the Department of Government Efficiency, which he himself conceived. A contiguity rarely so explicit, closed, as sometimes happens, with an abrupt exit.

This was not an anomaly, but the ordinary functioning of capitalism.

From this evidence comes our volume, Governance Under Influence. The Role of Political Connections in the Esg Transition, published by Palgrave Macmillan, and presented by Lorenzo Ornaghi, Angelo Panebianco, Nicola Rossi and Maurizio Dallocchio on Tuesday 31 March at 6pm at Università Cattolica, Milan. Our research has measured and not only described the relevance of political connections on European companies: from the collapse of the Berlin Wall to the 2008 crisis.

The literature has dealt with this phenomenon since the 1990s. Fisman (2001), studying Suharto's Indonesia, showed that the shares of companies closest to the president plummeted with every rumour about his deteriorating health. Faccio (2006) extended the analysis to 47 countries: the phenomenon does not only belong to authoritarian regimes.

In Rome, the societates publicanorum - private enterprises that contracted the collection of taxes, military supplies, road construction - prospered or collapsed depending on their connections with the Senate. Cicero defended them in court, Caesar reorganised them, Augustus tamed them. Their value did not lie in capital or efficiency: it lay in their connection to political power. Not differently, in the clash between Robespierre and Barras, it was the latter's rampant business acumen that defeated the former's intransigence and incorruptibility, again changing the course of history. Fisman proved this about Suharto two thousand years later, with stock market data instead of wax tablets.

Our work tests this over three decades of European capitalism - Italia, France, Germany, UK: from privatisation to the great crisis, connected capitalism replaces state capitalism with less visibility, but just as much persistence. The measurement is rigorous: databases built from scratch, thousands of politicians and managers cross-referenced manually, fixed-effects and random-effects econometric models.

The numbers speak. In France, during the period under analysis, connected companies accounted for 10.8% of the sample, but 15.6% of Euronext capitalisation and almost 13% of GDP. They are not the antechambers of power, but the heart of the production system.

The most relevant result does not concern profitability. Connected companies earn less and are less efficient, but they have more market power. The channel also matters. In Italia, the ownership connection - a relevant shareholder in parliament - weighs on market power and access to credit, while that through board members affects accounting performance.

How will political connections interact with the ESG transition? Connected companies redefine criteria for their own benefit - they did it with privatisation, they will do it with sustainability. Connected capitalism does not disappear. Only the form changes.

Our study examines connections that could be described as 'polite', quite different from the current ones that use tools of war, manipulate the market for their own benefit and are appropriating currency through cryptocurrencies. This, however, is yet another story!