The Politics of Business: How EU Firms Leverage Influence for Competitive Edge

The study by the World Bank and EU DG REGIO explores how private firms in the EU engage in political activities through business associations, lobbying, and political connections to gain competitive advantages. It highlights how political influence impacts firm performance, competition, and regulatory dynamics across different institutional environments.

The study conducted by the World Bank’s Development Economics Enterprise Analysis team, with support from the EU Directorate-General for Regional and Urban Policy (DG REGIO), explores the political engagement of private firms in the European Union (EU). The research highlights how businesses interact with political institutions, collectively and individually, and the advantages they gain from such activities. Using data from the World Bank Enterprise Surveys (WBES) across the EU-27, the study reveals that firms navigate complex regulatory environments by employing different strategies to exert political influence. With governance structures spanning multiple levels—local, national, and EU-wide—private firms must find ways to ensure their voices are heard in shaping economic policies.

The Rise and Role of Business Associations

Business associations have long played a significant role in influencing policies across Europe. Firms often engage in collective political action when the benefits outweigh the costs, particularly when the financial burden is spread across a wide group, reducing resistance. More than half of private firms in the EU-27 belong to some form of business association. However, membership patterns vary significantly. In Austria, Croatia, and Germany, chambers of commerce operate under a mandatory system, ensuring high participation rates. In contrast, voluntary membership in business organizations remains low in countries like Poland and Romania. Firms in mandatory membership countries often have a passive relationship with these associations and see less value in their services. Conversely, where membership is voluntary, businesses tend to engage more actively and appreciate the lobbying, networking, and regulatory guidance these organizations provide.

Political Connections as a Strategic Advantage

Beyond collective action, firms also cultivate direct political connections to navigate complex regulatory landscapes. The data reveals that approximately 4% of EU firms report having a political connection, defined as an owner, CEO, or top manager having held a political position. This number varies significantly across regions, often influenced by the relative attractiveness of public versus private sector jobs. In countries where private-sector salaries outcompete public administration wages, individuals with government experience often transition into corporate leadership roles, reinforcing political ties. Politically connected executives can help firms secure favorable regulatory conditions, win government contracts, or influence legislation. Such connections are particularly valuable in industries that are heavily regulated or rely on state funding.

The Political Influence Score: Measuring Engagement

To quantify firms’ levels of political engagement, the study introduces a Political Influence score. This score combines multiple indicators, including business association membership, lobbying activity, direct political connections, and exposure to corruption. Firms with higher Political Influence scores consistently demonstrate superior business performance, reporting higher sales, labor productivity, and investment in fixed assets. The findings suggest that firms leverage political engagement to create competitive advantages, gain better access to financing, avoid bureaucratic obstacles, and influence regulatory frameworks. The study also reveals that political engagement tends to be self-reinforcing—when firms in a given region or industry actively engage in politics, their competitors feel compelled to follow suit to remain competitive.

The Complex Relationship Between Influence and Corruption

A key aspect of political engagement is its relationship with corruption. The study finds that politically connected firms are less likely to experience direct requests for bribes or informal payments. This suggests that political influence can serve as a protective mechanism, helping firms avoid extortion and regulatory harassment. However, firms that engage politically are also more likely to acknowledge that informal exchanges such as favors and gifts play a role in business dealings. This underscores the fine line between legitimate lobbying and undue influence, raising concerns about transparency and fairness in policymaking. The research also finds that in countries with weaker institutional frameworks, firms exert greater political influence, using it as a tool to navigate unpredictable regulatory environments.

The Business Impact of Political Influence

The study examines the impact of political engagement on firm performance relative to industry peers. The findings reveal that firms with higher Political Influence scores than their competitors tend to outperform them in key business metrics, including revenue, productivity, and investment. This suggests that political engagement is not just a passive feature of business operations but an active strategy used to gain a competitive edge. In industries where political influence is prevalent, firms that do not engage risk losing out on policy decisions that could impact their growth. Furthermore, data analysis shows that firms in politically active sectors often mimic the behaviors of their competitors, reinforcing the cycle of influence-seeking.

As the EU continues to evolve, the role of political engagement in the private sector is expected to become even more significant. The growing influence of lobbying in Brussels and national capitals suggests that firms will intensify their efforts to shape policies affecting their industries. While political engagement can drive business success, it also raises important questions about fairness, transparency, and democratic accountability. Policymakers must strike a balance between allowing firms to participate in policy discussions and ensuring that corporate influence does not undermine fair competition or public trust. The study’s findings emphasize that political engagement in the EU is not merely an incidental business practice but a deeply embedded strategy that will continue to shape economic and regulatory landscapes in the years to come.