Business and Politics

Politics enormously impacts business, both domestically and internationally. Aspiring entrepreneurs, seasoned business leaders, and strategists in heavily regulated industries should familiarize themselves with how politics shapes the world of business.

The relationship between business and politics is more complex than is commonly assumed and is undergoing a process of change. This collection of articles explores some of the factors that influence this relationship.

Interactions of Businesses with Government

Business and politics interact in many ways. Governments formulate the basic rules of the game for market exchange via general regulations, corporate taxes, and competition law. They also represent one of the main sources of commercial activity in modern democracies, sourcing goods, services, and public works from businesses via contracting activities.

Governments fulfill a number of responsibilities that significantly impact business, for example by protecting citizens and guaranteeing a base pay for employees. They also provide economic resources that benefit business, for example by offering tax credits and lowering regulatory burdens.

Many business leaders believe they have a role to play in politics. In a survey conducted by Leadership Now in 2019, a majority of business leaders agreed that they should be involved in politics. However, some believe that their involvement may lead to cronyism. This is a concern that has been raised in the past with regard to other industries, such as banking and insurance.

Influencing Government

Many government officials and scholars argue that businesses should not mix with politics because the cronyism that can result is anti-democratic. They also point out that business is primarily concerned with making money, while politics is about governing and representing citizens.

Others point out that realpolitik often requires buy-in from economic elites to pass laws that advance the public interest. These leaders should therefore have a right and a responsibility to use their resources to lobby government.

The authors in this collection suggest that the relationship between business and politics is more complex than is commonly believed. They also point out that this relationship is undergoing a process of change. This includes the rise of populist governments and the increasing polarization of political debates on issues such as economic nationalism and protectionism.

Responses by Businesses to Their Legal, Social and Political Environment

Politics significantly impacts businesses, both locally and globally. Aside from the need for a stable legal environment to operate and invest, business leaders face a host of other political issues including increasing public polarization, lightning fast news cycles and demands that they proactively take positions on social justice issues.

Among the competing narratives on business and politics is one that assumes that businesses in market economies exist to make a profit and return to shareholders, and thus should focus only on their economic objectives. This narrative also argues that politicians should not interfere with the market economy.

A more nuanced approach, informed by the literature on Varieties of Capitalism (VoC), is to understand business-politics relations in terms of business response strategies to their political challenges and constraints. To test this, this paper presents a typology of business-politics relations and then applies it to four reform episodes in the development of social programmes and codetermination in Germany: the introduction of work injury insurance in 1880s (adaptation), the introduction of unemployment insurance in the 1920s and the introduction of board-level codetermination in the 1950s (confrontation). The results show that different response strategies facilitate very different political outcomes.

Extend your reading

The Intersection of Politics and Business
Politics: The Art of Advancing in Your Career

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