The business world frequently states that uncertainty is the last thing they need.  Often, the default response to this uncertainty is to invest in lobbying to try and shape the direction of change rather than be victims of it.

For instance, a 2016  study made the understandable connection between the levels of uncertainty in the economy and the levels of spending on lobbying. As you might expect, the more concerned a company is that it might be on the receiving end of a politicians whims, the more they invest in trying to influence those outcomes.

Of course, lobbying doesn’t just help to shape the policy agenda, as new research from BI Norwegian Business School also highlights how it can be a lucrative source of new contracts.   The research found that companies who donate to the governing party, perhaps unsurprisingly, end up not only earning more contracts, but secure a higher price for them.

Private donations

It’s possible for companies to donate directly to political parties in countries such as Germany, the UK and the Czech Republic, despite the inevitable concerns around corruption, conflicts of intereest and favoritism.

The researchers examined the effects of corporate donations on the distribution of government contracts, and found that there was a clear correlation between the amount donated by a company and the value of contracts that company was subsequently awarded by the government.

The authors believe that a company donating to the governing political party could see their government contracts grow in value by around 0.6%.  This is often via smaller contracts that have fewer restrictions on them, and therefore often have fewer bidders.  This allows them to bid above the estimated cost of the contract.

While this distortion of the procurement process may be viewed as smoothing out some of the bureaucracy, it’s more likely to result in cronyism and poorer quality and value for money for the tax payer.