Monday, 17 August 2009
This article at VoxEU implies that companies in Italy which are 'connected' with politicians make 5% more profit.
Could be true.
But an equally plausible story is that companies become less profitable around election time because they are spending 5% of their profits on subsidising politicians.
On this interpretation, contributing to political campaigns is seen as a cost of doing business, and depresses profits immediately before an election. Note that in the graphs shown in the article, the firms' profits take a dip in the year before the politician's term ends.
Far be it from me to impugn the Italians' proud record of rent-seeking and corruption - my Italian friends would claim they have a unique comparative advantage in this field, and lead the world in their craftsmanship (though there are some volume producers in Africa and Asia who compete for sheer scale of bribery). But I want to allow them the elegance of a convincing escape clause - which is, after all, an essential component of every perfectly balanced protection racket.