Economic influence activities

• DOI: http://doi.org/10.1111/jems.12249
• Published date: 01 October 2018
• Date: 01 October 2018
• Author: Davin Raiha

830 © 2018 Wiley Periodicals, Inc. wileyonlinelibrary.com/journal/jems J Econ Manage Strat. 2018;27:830–843.

Received: 3 March 2017 Revised: 7 February 2018 Accepted: 21 March 2018

DOI: 10.1111/jems.12249

ORIGINAL ARTICLE

Economic influence activities

Davin Raiha

IveyBusiness School, University of

WesternOntar io, London, ON, Canada

(Email: draiha@ivey.ca)

Abstract

Firms frequently make operational and strategy decisions to gain political influence.

They locate plants, expand workforces, or choose suppliers, with the aim of affecting

the economy and the electoral success of politicians. This behavior constitutes a non-

traditional form of influence, which I refer to as economic influence activities (EIA).

In this paper, I show how such activities influence policymaking and why firms may

prefer it to more traditional influence activities such as campaign contributions. What

distinguishes EIA is that a firm's strategy choices affects the state of a local economy

and, in turn, the evaluations that voters make of the performance of an officeholder.

I show how firms can use this capability to extract subsidies and policy favors from

incumbent officeholders.

1INTRODUCTION

It is frequently observed that firms make investments,initiate projects, or take other economic actions in order to gain influence or

favors from political decision-makers. Firms demand subsidies, tax breaks, and other benefits in exchange for locating facilities

or investments within a particular jurisdiction. Some firms move plants over borders or strategically select suppliers to induce

policymakers to lower or remove impeding trade restrictions. Sometimes these strategic choices are made even though they are

at odds with the firm's broad market strategy and are not operationally efficient. For example, in 2008 Airbus publicized plans

to open significant production facilities in the United States (despite all of their existing production being located in Europe) in

order to gain U.S. based allies to help resolve their trade litigation problems with the United States, and improve their prospects

of winning a large U.S. government contract for military refueling jets (Hepher, 2008). Examplessuch as this illustrate that it is

not only money and information that firms use to influence politicians and their decisions, but also their economic wherewithal

as firms.

In this paper, I examine how a firm's strategy and operational decisions can constitute a form of influence that differs from

traditional influence activities—such as campaign contributions or informational lobbying. I show how the use of firms' oper-

ational decisions, through their effect on the economy, can influence voters and help incumbents win reelection. Because it is

the economic impact of this activity that distinguishes it from other influence channels, I refer to these activities as Economic

Influence Activities (EIA).

Empirical work in recent years has studied circumstances where firms attempt to wield their economic influence for political

ends. Bertrand, Kramarz, Schoar, and Thesmar (2007) find that politically connected CEOs, in France, exhibited high rates of job

creation and lower rates of job destruction in election years. Moreover,the results were more pronounced in more politically con-

tested districts. Carvalho (2014) finds that Brazilian firms expanded employment in politically attractive and contested regions

before elections, in exchange for favorable borrowing from public banks. Bonardi and Urbiztondo (2011) similarly show large

U.S. firms reducing layoffs in periods preceding elections, but increasing layoffs afterward. Finally, Bandeira-de Mello (2018)

finds that Brazilian firms systematically located new projects and investments in municipalities where mayors were politically

I thank Dave Baron, Steve Callander,Alejandro Francetich, Guy Holburn, Ig Horstmann, Ken Shotts, Al Slivinski, several seminar audiences, as well astwo

especially helpful referees for comments and advice.