New research is upending the idea that as a state’s congressional delegation grows more powerful, the windfall of increasing earmarks it’s able to secure helps grow private business in its home state.
The research from a Harvard Business School study, “Do Powerful Politicians Cause Corporate Downsizing?” examined earmarks and other federal expenditures over a 40-year span in states where members of Congress rose to powerful committee positions.
The researchers found that in the year after members of Congress assumed committee chairmanships, earmark spending in their home states increased up to 50 percent.
However, despite the influx of federal money, companies in the home states cut capital expenditures and reduced research and development, the researchers found.
“In the year that follows a congressman’s ascendancy, the average firm in his state cuts back capital expenditures by roughly 15 percent,” the study found.
“It was an enormous surprise, at least to us, to learn that the average firm in the chairman’s state did not benefit at all from the unanticipated increase in spending,” said one of the researchers, Joshua Coval, to the Harvard Business School Working Knowledge newsletter.
Lauren Cohen, another author of the Harvard study, said in a phone interview that one message from the study is that when gauging the increase in economic activity from government spending, “you have to see how the private sector responds.”
Scott Hodge, president of the nonpartisan Tax Foundation, a Washington-based research group, said he’s not overly optimistic that news of the study will change behavior in Congress.
“I’d like to think that empirical research could affect the behavior of politicians,” he said, “but they’re just so motivated by parochial incentives to bring home that bacon.”
Earmarks account for a tiny fraction of the federal budget but have garnered scrutiny for projects such as Alaska’s “Bridge to Nowhere” that critics see as symbols of federal waste and abuse.
For fiscal 2010, earmark spending dropped by 15.5 percent, to $16.5 billion, according to the Washington-based Citizens Against Government Waste.