30 Jun 2010
Congressional Pork Is Bad for Businessby Roger ThompsonTopics:
The passing on June 28 of Sen. Robert Byrd of West Virginia at 92, after a 51-year career in the Senate, triggered an outpouring of remembrances, positive and negative, of his long service on Capitol Hill. Serving in a variety of leadership roles, including most recently as chairman of the Appropriations Committee, Byrd was a master at bringing home the bacon for his constituents, prompting one watchdog group to denounce him as the "King of Pork." By one estimate, he steered $2.26 billion to West Virginia between 2000 and 2008. While Byrd, no doubt, viewed this as an unalloyed good, recent research by three HBS professors suggests otherwise.
The research project began with the premise that as a state's congressional delegation grows in powerful committee assignments, businesses back home benefit from the increased flow of earmarks for local projects. It turned out quite the opposite. Professors Lauren Cohen, Joshua Coval, and Christopher Malloy discovered to their surprise that increased federal spending causes local companies to lose sales and cut back on research, payroll, and other expenses. Indeed, reports HBS Working Knowledge, in the years that followed a congressman's ascendancy to the chairmanship of a powerful committee, the average firm in his state cuts back capital expenditures by roughly 15 percent, according to the trio's working paper, "Do Powerful Politicians Cause Corporate Downsizing?"
The research strongly suggests that bringing home the bacon isn't good for business, something to keep in mind next time you hear politicians promising earmark reform.