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A. p1. P. Political Holes in the Economy. David Stark & Balazs Vedres. B. Business-to-business partnerships are a resource for economic action. Business-to-business partnerships are a resource for economic action. Firms can also make alliances with political parties. - PowerPoint PPT Presentation
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B
A
PPolitical Holes in the Economy
p1
David Stark & Balazs Vedres
Business-to-business partnershipsare a resource for economic action.
Business-to-business partnershipsare a resource for economic action.
Firms can also make allianceswith political parties.
But by making alliances with politicalparties, firms are engaging a different type of ally, operating according to a different logic of action.
But by making alliances with politicalparties, firms are engaging a different type of ally, operating according to a different logic of action.
Appointing politicians to corporate boards brings the logic of partisanshipinto the boardroom.
As firms reach into the field of politics, does the logic of political partisanship reach into the field of business?
As firms reach into the field of politics, does the logic of political partisanship reach into the field of business?
Does partisanship shape partnership?
Basic statement of the research problem
We are studying a simultaneous transformation of the economic field and of the political field.
We are studying a simultaneous transformation of the economic field and of the political field.
At the outset, the political and the economic are so tightly entangled that it is scarcely possible to separate the two.
The goal: a market economy of competing firms and a liberal democracy of competing political parties.
The means: separate state from market, sever political ties from the field of economic action.
But to compete, governing parties need to manage the economy, and all political parties need access to resources.
But to compete, governing parties need to manage the economy, and all political parties need access to resources.
Meanwhile, to compete, firms need access to government contracts and to timely information about government policies.
In political competition, parties compete for firms.
In economic competition, firms ally with parties.
Our question:
What is the relationship between political affiliations and business networks?
In particular, does political partisanship shape business partnerships?
Data & operationalization
Directly from the Courts of Registry, we collected the names of all • senior managers, • members of Boards of Directors, and • members of Supervisory Boardsfor the largest 1,696 companies in Hungaryfrom 1987-2001. Time in office recorded on monthly time frame.
The resulting dataset contains about 120,000 names.
Data: Economic Officeholders
Data: Political Officeholders
We also collect the names of every political officeholder in Hungary including • members of Politburo and Central Committee • members of Parliament • senior government ministers and their political deputies • mayors of municipalities and localities.
For every political officeholder, we recorded • party affiliation • and time in office (month/year).
By merging the two datasets, we can precisely identify whether a given company had an economic officeholder who was also a political officeholder.
We count a directorship tie between two companies when
• a senior manager of one company sits on a board of another company or
• when an individual sits on a board of each of the two companies.
A B
Company A and Company B have an economic partnership
A BI
Company A and Company B have an economic partnership
when Individual I sits on boards of each company.
We count a company as having a political affiliation when one of its economic officeholders is a current or former political officeholder.
B
A
B
A
P
B
A
P
Company A has a political affiliation
B
A
P
pCompany A has a political affiliation
when one of its economic officeholders
B
A
P
Company A has a political affiliation
when one of its economic officeholders
is also a political officeholder
p1
B
A
P
Company A and Company B share political affiliation
p1
B
A
P
Company A and Company B share political affiliation
when each has ties to the same political party.
p1
p2
P P
P P
P P
P P
P P
A company is politically balanced if it has at least one politician from each of the political camps.
“We want to have balanced political relations. We attempt to have a balanced and stable board. I think it’s common knowledge what the political preferences of our board members are. So and so are with the Free Democrats. Mr. __ is a former member of Parliament with the MDF. Mr. __ represents the MSzP from the APV Rt. We can prove that this concept is workable over time to defend us when governments change.”
(Executive of a large chemical company)
Our question:
What is the relationship between political ties and business networks?
Specifically, are business ties more likely within political affiliations and less likely across them?
business tie
The political cast of characters
SzDSz The liberals
“With a clean past for a clear future.”
MDF The conservatives
“Our home is Hungary, our house is Europe!”
MSzP
The Socialists
“For the future” “Development and security”
Fidesz
The Young Democrats
“Please choose”
Fidesz
The New Right
“System closing bash”
KDNP
Christian Democrats
“A clean past, a promising future”
“From whom I get the land is to whom I give my vote!”
The Smallholders
A politicized economy?
Our historical question:
If the economy is politicized, was this a legacy of state socialism?
or is it a function of the new systemof political party competition?
Our historical question:
If the economy is politicized, was this a legacy of state socialism?
or is it a function of the new systemof political party competition?
The answer will depend on the timingof politicization.
Model
Logistic regression of tie probabilities
Unit of analysis -- a dyad
Dependent variable – observed business ties
Independent variables:
Business logic variables size (absolute and relative) ownership (state, foreign) industrial branch (industry to industry) local network properties of dyad
(star-shaped vs closeable)
Political logic variables combinations of political coloring in the pair
absolute size of largest firm in the dyad
relative size of the firms in the dyad
Size
Both firms One firm
State-owned 1 2
Foreign-owned 3 4
Hungarian corporate owner
5 6
Reference category: private individual ownership
Ownership variables
AGRAgriculture
, food
ENEEnergy, mining
HEVHeavy
industry
LIGLight
industry
TRAWholesale
, retail
SERServices, transport
FINFinance
AGRAgriculture, food
1. AGR-AGR
2. AGR-ENE
3. AGR-HEV
4. AGR-LIG
5. AGR-TRA
6. AGR-SER
7. AGR-FIN
ENEEnergy, mining
8. ENE-ENE
9. ENE-HEV
10 ENE-LIG
11- ENE-TRA
12. ENE-SER
13. ENE-FIN
HEVHeavy industry
14. HEV-HEV
15. HEV-LIG
16. HEV-TRA
17. HEV-SER
18. HEV-FIN
LIGLight industry
19. LIG-LIG
20. LIG-TRA
21. LIG-SER
22. LIG-FIN
TRAWholesale, retail
23. TRA-TRA
24. TRA-SER
25. TRA-FIN
SERServices, transport
26. SER-SER
27. SER-FIN
FINFinance 28. FIN-
FIN
Industry pairings
Neutral Left Right Balanced
N
L
B
R
Political variables
N-PN-N
L-L L-R L-B
R-R
B-B
R-B
Neutral Left Right Balanced
N
L
B
R
Political variables
N-PN-N
L-L L-R L-B
R-R
B-B
R-B
Neutral Left Right Balanced
N
L
B
R
Political variables
N-PN-N
L-L L-R L-B
R-R
B-B
R-B
Neutral Left Right Balanced
N
L
B
R
Political variables
N-PN-N
L-L L-R L-B
R-R
B-B
R-B
Neutral Left Right Balanced
N
L
B
R
Political variables
N-PN-N
L-L L-R L-B
R-R
B-B
R-B
Findings
“Sooner or later everyone gets a political tag. Curiously, it depends on who fires you. If you’re fired by one party, then you can get picked up by another. It depends on who was fired by whom.”
-- Senior executive, major consulting firm (and former minister of finance)
“If the taste of the owner is red, the board is red. If the taste of the owner is orange, the board is orange. Management is colorless. I don’t even know the political affiliations of the manager. It doesn’t matter. But the boards are definitely political.” (Executive large conglomerate)
Q. What’s the significance of political ties in the economy?
A. “It depends on the industry. In our industry it is the unavoidable dark side.”
(Executive major electronics firm)
“It’s less and less that you can convince others and convince the market that you are neutral. Even just keeping your position can mean that you are with my enemies.”
-- Senior executive, major consulting firm (and former minister of finance)
Political variables Findings
Neutral-Political + ***
Left-Left + ***
Left-Right - **
Left-Balanced + ***
Right-Right + ***
Right-Balanced + ***
Balanced-Balanced + **
Ownership variables
Both state-owned + ***
One state-owned - *
Both foreign-owned + **
Significance * p < .1 ** p < .01 *** p < .001
See Table 1.on handout. Logisticregressionmodel, findings for 2001.
Political variables Findings
Neutral-Political + ***
Left-Left + ***
Left-Right - **
Left-Balanced + ***
Right-Right + ***
Right-Balanced + ***
Balanced-Balanced + **
Ownership variables
Both state-owned + ***
One state-owned - *
Both foreign-owned + **
Significance * p < .1 ** p < .01 *** p < .001
Political variables Findings
Neutral-Political + ***
Left-Left + ***
Left-Right - **
Left-Balanced + ***
Right-Right + ***
Right-Balanced + ***
Balanced-Balanced + **
Ownership variables
Both state-owned + ***
One state-owned - *
Both foreign-owned + **
Significance * p < .1 ** p < .01 *** p < .001
Political variables Findings
Neutral-Political + ***
Left-Left + ***
Left-Right - **
Left-Balanced + ***
Right-Right + ***
Right-Balanced + ***
Balanced-Balanced + **
Ownership variables
Both state-owned + ***
One state-owned - *
Both foreign-owned + **
Significance * p < .1 ** p < .01 *** p < .001
L-L
L-L
L-L
L-LL-L
L-LL-L
L-L
L-LL-L L-L
L-LR-R
R-RR-R R-R
R-R
R-R
R-R
R-R
R-RR-R
R-R
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left-left
Right-right
Political homophily shaping business ties
L-L
L-L
L-L
L-LL-L
L-LL-L
L-L
L-LL-L L-L
L-LR-R
R-RR-R R-R
R-R
R-R
R-R
R-R
R-RR-R
R-R
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left-left
Right-right
Political antipathy shaping business ties
Left-right
In the latter half of the 1990s, the Hungarian economy becamemore politicized.
0.25
0.30
0.35
0.40
0.45
0.50
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Fit of the business logic model
((-2LL baseline)-(-2LL business))/(-2LL baseline)
non-political dyads
political dyads
Business logic in political and non-political dyads
0.25
0.30
0.35
0.40
0.45
0.50
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Fit of the business logic model
((-2LL baseline)-(-2LL business))/(-2LL baseline)
non-political dyads
political dyads
Business logic in political and non-political dyads
Outcomes of elections led to increasing competition among parties for politically loyal firms.
0
20
40
60
80
100
120
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left
Right
Balanced
Number of firms by political affiliation
Left
Right
Balanced
0
20
40
60
80
100
120
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left
Right
Balanced
Left Gov’t
Number of firms by political affiliation
Left
Right
Balanced
Right Gov’t Right Gov’tLeft Gov’t
L-L
L-L
L-L
L-LL-L
L-LL-L
L-L
L-LL-L L-L
L-LR-R
R-RR-R R-R
R-R
R-R
R-R
R-R
R-RR-R
R-R
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left-left
Right-right
Left-right
The political divide
L-B
L-B
L-BL-B
L-B
L-B
L-BL-B
L-B
L-B
L-B L-B
R-B
R-B
R-B
R-B R-B
R-B
R-B R-B R-B
R-B
R-B
R-B
L-R
L-R
L-R L-R
L-R
L-RL-R
L-R
L-R
L-R
L-RL-R
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Left-rightLeft-balanced
Right-balanced
Brokering across the political divide
Firms with politically balanced boards seized a brokerage opportunity to occupy the political holes in the economy opened up by the growing division between left and right.
