What do Brazilian firms get for contributing money to politicians? More money.

Businessmen are not running charity organizations; They are pragmatic and calculating;  They wont’ give you money for free. For every dollar they give you, they will at least recover the costs. Last time I covered an academic paper about Thai elections, which shows that businessmen-cum-politicians reap huge benefits after they get into power. This is true for Brazil too. Let me show you a recent study.

Stijn Claessens and  Luc Laeven (World Bank) and Erik Feijen (University of Amsterdam) examine political campaign finance in 1998 Brazilian elections and find that elected politicians might  be  able to feed back to their financial supporters by directing more banks credits (presumably from state-owned banks) to them.

Every investor in Brazil (I would say it is more the case in Italy where everything is about politics) understand such game; As a matter of fact, we find that stock prices of those listed firms that contributed to politicians rose sharply over  election days.

A further question I would like to ask is: if the rule of the “game” is so clear, why do some firms contribute while the others do not?  Well, certainly I don’t believe that those who don’t contribute are cleaner in their conducts. But why don’t they contribute?

In many developing countries, those who contribute to politicians are actually the least connected. Politicians in Brazil routinely request kick-backs or "monthly-payment" from the business community. A tape revealed that Waldomiro Diniz (an advisor to the Minister Jose Dirceu) was extorting the gambling mafia of Rio de Janeiro to gain funds for Worker's Party political campaigns. These mafias are just underdogs. Those who are truely connected sit on corporate boards.

Those tycoons who really hold de facto power don’t give a shit to these politicians: In January 2002, Celso Daniel, who had already been appointed coordinator of Lula's campaign for the October elections was murdered. Unless there emerges a strongman military dictator, it is more likely that the tail (business tycoons) will wag the dog (politicians)!

Does Campaign Finance Imply Political Favors? The Case of the 1998 Brazilian Elections

Abstract: This paper provides empirical evidence that campaign contributions are strongly associated with market expectations of future firm-specific political favors, including preferential access to external financing. Using a novel dataset, we find that firms in Brazil providing contributions in the 1998 campaign to (elected) federal deputies experienced higher stock returns following the election, even after controlling for industry-specific effects. This suggests that federal deputies were expected to shape policy to benefit these firms in particular. Consistent with such political favors, we find that these firms relative to a control group substantially increased their financial leverage in the four years following election, suggesting that contributions gained firms preferential access to finance.

For a review on campaign finance's role in Brazilian politics, please read Professor David Samuels' article: Money, elections, and democracy in Brazil