Good Government in Corrupt Environment: Spurious Relationship Between Local Business Organisations, Politicians and Corruption

The most of the scholarly literature looks at the relation between businesses and politicians in terms of state capture, collusion and corruption. The businesses are pictured as powerful and malign interest groups who are able to change the rules of the game influencing politicians or bureaucrats in order to promote their interests even through corruption. However, more positive views on the role which local companies play in improving quality of government were, with few exceptions, inexplicably hindered. This article comes to fill this gap looking at the relation between economic interests and politics from different perspective by investigating under which conditions a negative institutional equilibrium can be changed. In other words, which mechanisms lead business into collaborative relations which enhance the quality of government without falling into collusive corruption? The central argument of my paper is that the positive cooperation of business leading to low extent of corruption is conditioned by their capacity to promote cross-sectorial coalition of diverse economic sectors which limit the corrupt free riders. In order to do so, I focus on non-corrupt cities in countries with higher incidence of corruption, trying to understand what stands behind the puzzling existence of good cities in bad corrupt environment. More specifically, using as my universe of analysis Italian cities, I pair them according to their economic structure and different level of corruption in order to compare the relative strength of business coalitions and patterns of interaction with political power which lead to this difference in outcomes. Results show that under certain organizational characteristics, business associations can channel government into better governmental performance.