Companies donating to political parties get more contracts, less competition and better pay.

Benny Geys and Vitezslav Titl have investigated the connection between political donations and public procurement contracts in the Czech Republic between 2006 and 2014. Companies have on average increased the value of their contracts by USD 100 for each dollar donated. According to the researchers, this indicates that the public authorities act strategically to benefit donating companies.

When public authorities announce tenders they give price estimates to communicate what they expect a project will cost. Small tenders are subject to fewer requirements and less supervision than larger tenders which often are more open and strict.

Geys and Titl show that public contracting authorities where possible set cost estimates below the boundary which distinguishes between small and large contracts. At the same time, they can set very strict requirements (for example special permits) which hand donating companies an advantage over companies that have not donated. Donating companies also win contracts with offers significantly above the price estimates.

Despite a clear connection between political donations and procurement contracts, private companies in the Czech Republic donate relatively small amounts to political parties. Most companies do not donate at all. Research suggests that companies do not see donations as ‘quid-pro-quo’, but rather as long-term investments in their relationships to political parties.

Favoritism in procurement processes can nevertheless cause significant damage by making the processes less efficient. According to the researchers, it is therefore possible to make the argument that capital interests should be isolated so that they do not influence decisions made by public authorities.

This can be done by introducing stricter requirements for procurement processes, or stricter requirements for political donations from private companies. Businesses in many countries are free to donate directly to political parties, although the amount donated varies. In the Czech Republic around 10 percent of the income for parties on the left, and between 23-33 percent of the income for parties on the right come from private donors.

Source:

Vitezslav Titl, Benny Geys, Political donations and the allocation of public procurement contracts, European Economic Review, Volume 111, 2019, Pages 443-458, ISSN 0014-2921, https://doi.org/10.1016/j.euroecorev.2018.11.004.

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