Private Sector Policymaking

Candidates often tout their private sector experience when running for public office. Success in the business world, they argue, uniquely qualifies them for government work. In this paper, I test whether businessperson politicians govern differently from other types of leaders using data on over 25,000 Russian mayors and regional legislators. Analyzing both a close election regression discontinuity and panel data, I find that electing a politician from the business world does not reduce the size or efficiency of government. Instead, businesspeople restructure budgets and/or issue debt in order to increase spending on roads and cut corporate taxes. In turn, they leave health and education expenditures untouched. Prioritizing economic over social infrastructure brings immediate benefits to the business community and opens opportunities for rent-seeking, while potentially holding back long-term accumulation of human capital. Businessperson politicians do more to make government run for business, rather than like a business. ∗Author Affiliations: David Szakonyi, Assistant Professor of Political Science, George Washington University and the International Center for the Study of Institutions and Development at the Higher School of Economics. I gratefully acknowledge financial support for this project from the Basic Research Program of the National Research University–Higher School of Economics. Many candidates run on the strength of their business background. In countries around the world, businesspeople appeal to voters by citing their management skills and success earning profits as key assets for policymaking and governing. Campaign promises generally fall into one of two categories. First, businessperson candidates pledge to make government run like a business.1 By importing management techniques and eliminating wasteful spending, they vow to improve the quality and lower the cost of public service delivery. Budgets will be balanced and debt burdens lightened. Second, candidates from the private sector insist they will also make government run for business. In other words, electing a businessperson will put in place pro-growth policies that create jobs and improve standards of living.2 With their first-hand knowledge of the obstacles to economic expansion, businesspeople boast that they are uniquely equipped to identify areas for increased public investment, lower taxes and regulatory reform. Adopting pro-business policies also could opens up opportunities for businessperson politicians to directly help their own firms along the way; having a CEO occupy elected office can be especially beneficial for a company’s bottom line. Do either of these promises ring true? Answering this question has significant consequences for how we should evaluate the priorities and quality of politicians. Individual leaders have been shown to produce dramatic effects on policymaking and economic outcomes (Jones and Olken, 2005). Businessperson politicians that take office only for self-enrichment diverge from the preferences of the voters that elected them. Institutional incentives may need to be redesigned to ensure that the class of leaders selecting into political office acts in the public interest (Besley, 2005). This paper investigates whether businessperson politicians in Russia make different 1Both types of promises abound. For a number of examples from U.S. history, see Bump, Philip. 2017. “Trump’s Idea to Run the Government Like a Business is an Old One in American Politics.” Washington Post. March 27. Recent national leaders coming from the business community have made similar promises in Finland, Chile, Thailand, and Ukraine. Bershidsky, Leonid. 2015. “Can Finland Be Run Like a Business?” Bloomberg. April 20. 2Russian entrepreneur Boris Titov has built his 2018 presidential campaign around the promise of ensuring equal rights for businesspeople and protection against arbitrary state raiding. Vasilichuk, Tatyana and Vera Yurchenko. “Elections are Close” Novaya Gazeta, December 5, 2017.