Business Politics

Businesses & Election Influence

In order to understand how businesses affect elections, one has to understand the source: how politics affect a nation’s economy.

In the last 30 years or so, researchers have done extensive studies in a field of economics known as “political business cycles.” This field analyzes the results of elections — electoral outcomes and what policies the party in power will implement — and the resulting performance of the economy.

There are two kinks of studies being conducted on this area of economics. One monitors how the controlling parties impact the performance of the economy; the other type of research looks at it from the other side —- how the economy’s performance impacts which party wins and electoral race.

One of the stronger findings in studies conducted is the fact that the gross domestic product (GDP) tends to rise in the first half of administrations under Democratic rule. (There is evidence in favor of this finding in the form of Rossen Valkanov’s and Pedro Santa-Clara’s 2003 paper “The Presidential Puzzle: Political Cycles and the Stock Market”, in which the writers monitored excess returns utilizing data gathered from 1927 to 1998. They found that, on average, returns are 9% higher when Democrats are the controlling group. The authors also noted that a greater difference in returns is from the fact that smaller business entities seem to thrive better when the Democratic Party is in power.)

Although the paper “The Presidential Puzzle: Political Cycles and the Stock Market” doesn’t explain about what possible catalysts are in the background for bringing about the difference in GDP between Democratic and Republican rules, there seem to be a persistent trend in the Democrats being more concerned about unemployment than their Republican counterparts. Due to this fact, Republicans seem to portend economic recession. (This is in some ways supported by the economic trend that has been emerging under the rule of several US presidents: deficits escalated sharply under Reagan and Bush, lowered under Clinton — who was a Democratic president — and is once again a pressing issue under the administration of the younger Bush. Also, when Bush was re-elected, bond yields heightened; a sure sign that investors expected deficits to rise.)

Mark Thoma, an associate professor of economics practicing at the University of Oregon, states that the difference in stock returns arises not so much from investors expecting an augmented economic flow than them expecting favorable treatment from those in power. He further states that the behavior of the current (Bush) government has done nothing to improve investors’ opinion about the administration.

One example of how voters — and the powers they vote for — affect businesses is what transpired on November 7, 2006 when voters submitted several initiatives that substantially affected the cost of businesses in California, Michigan, Missouri, Montana, Arizona, Ohio, Colorado, and Nevada.

Other analysts have vehemently protested against making comparisons between Democratic and Republican rule however, saying that performance of the market is in no way connected to politics. Still, the robust practice of several businesses in supporting one or both parties refutes this.

Some corporations do funnel funds to politicians that they think will hold greater authority. More than a decade ago, companies split their donations more or less evenly between the two parties. However, when the Republicans gained dominance, all these changed. The companies shifted most of their donations to the ruling power in the government. It was only in 2006 that big companies shifted considerable amounts of funding to the Democrats, a sure sign that business entities believed that the Democrats will be more influential in Washington after the 2006 midterm elections or the 2008 presidential contest.

Funding has a very large impact on elections as it is one of the factors that have substantial weight in whether a candidate is successful in his campaign — and the advocacy programs and initiatives that support it. Barack Obama for example, has invested so far a total of $154,767,643. $59.3 million of this sum was spent on broadcast media, $2.3 million on print media, and $3.4 on Internet media. Hillary Clinton has spent $135,828,257 on her campaign and $33.6 million of this was spent on broadcast media. Over $17 million was spent on travel expenditures while $18.7 million covered salaries and benefits.

With these humongous figures, it is difficult to miss how donations will substantially assist a candidate.
It’s a full circle: politics affect the economy and consequently, businesses. Similarly, big corporations support those they think will promulgate and/or support policies that will be beneficial to their operations and in effect, maximize the probability that certain politician of their choosing will win and guarantee them favorable economic scenarios in which to conduct their operations.