How federal pork suppresses business

June 15, 2010
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An old axiom in Indiana is that the state suffers because Hoosier politicians bring home too little pork from Washington. If officials like Richard Lugar and Evan Bayh would just return more of those tax dollars, goes the wistful thinking, Indiana would have better roads to support business and better public spaces to attract knowledge workers.

However, a new Harvard Business School study suggests the truth is just the opposite: Federal money actually suppresses business investment and growth. In other words, be thankful that the dollars are not flowing to Indiana, at least not in massive quantities.

The researchers found a strong link between politicians’ rise to powerful congressional committee chairmanships—perches from which they could direct pork homeward—and a falloff in business investment.

A year after assuming a chairmanship, the chairman’s state on average received at least 40 percent more federal earmark spending, a level that endures until they leave the post.

In the year following the ascendancy, public companies in the politician’s home state cut capital expenditures about 15 percent, curtail research and development spending, and increase their dividends to investors. Companies also winnow headcount and see sales growth fall off.

The results held fairly consistently across large and small companies, and large and small states.

Indiana certainly sends more tax dollars to Washington than it gets back. The state, 14th-largest by population, ranks 32nd in earmarks. Only California, New York, Illinois, Ohio, Michigan and North Carolina get fewer earmarks on a per-capita basis.

A link to the study, which is quite readable, is here.

Why does federal largess suffocate corporate creativity? Purdue University finance professor John McConnell thinks local people put more energy into trying to land pork than doing productive work and creating jobs.

Look at West Virginia, McConnell says. It’s full of federally funded projects courtesy of long-time Sen. Robert Byrd, yet it’s among the most economically depressed states in the nation.

“Like many other opiates, federal pork creates an addiction that stunts creativity,” he says. “In this case, the addiction crowds out entrepreneurial activity of the type that creates value.”

McConnell adds that everyone would be better off with lower taxes and not having to beg to get it back.

Your turn. Is there an upside to pork?

  • extend concept to foreign aid
    I expect that similar research would show aid in 3rd world countries suppresses business and innovation there as wellâ?¦ Thus prolonging the inability of them to become self sufficient.
  • Amen to this study!
    Coming out of Harvard, an elite east coast school, it can't be seen as "right wing propoganda", but what a great study to have a dialogue about in the public forum.

    People are fed up with the pork process. In the West Virginia example, Roberty Byrd has seniority because he's been there for 50 years but he can barely walk and talk now in his 90s. Can anyone of either party think that is an ideal example of a highly engaged Senator or representative of the people?

    Entitlements and Pork: two types of government spending that by their name alone sound like the opposite of self-reliance, hard work and creativity.

    People are rightfully concerned about public spending, govt employee pensions, and debt levels.

    I hope this study will remain in the public debate.
  • Now what
    McConnell's last quote in the article sums up the sentiment of most taxpayers: "...everyone would be better off with lower taxes and not having to beg to get it back." The problem is that over 40% of the voters don't pay taxes, but still receive the benefits of pork spending or subsidies of various kinds. Therefore, even with this study or 1,000 like it our politicians will still reach for the earmarks and brag about what they get rather than vote for tax cuts so that they can keep getting the mass non-tax payer votes versus votes from the ever decreasing number of people who actually create wealth, create jobs, pay most of the taxes......
  • Pork
    Excellent words, Steve! A simple solution - cut spending accross the board by 20% and let the chips fall where they may. The ones that scream the loudest will be the voices for the "entitled". People like Jesse Jackson come to mind. Then the liberal lie fest about how this will kill old people, babies, and keep the poor from being educated. Where will it ever end?.....
  • but how....
    how is this federal pork spent? Who is it going to? How are these people spending the money received? From there, where does the money go?

    Basically, What is the road map of the Federal Pork? Is it directly to project which they give it right back and no one else benefits? Does it go to supplies, Products, and labor? What is the fiscal Trickle Down effect of the Federal Pork spending?
  • cuts
    Couldn't agree more Berwick Guy. Reference this article from Indy Star for proof:
    or how about this one:
    The fact of the matter is that it's much easier to squawk than it is to give up something that you've gotten for free for an extended period of time.

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  5. It is beyond me how anyone can think this was a "bad deal" for the state! If they could take the money back then, yes, but they can't! Protections were built in the agreement. Now, if they roll the roads up and take them away, I will agree that it was a bad deal. Otherwise, the only way to have paid for the infrastructure that was badly needed was for the state to issue bonds....that is a four letter synonym for debt folks!!