Thursday, May 27, 2010

More government and less private investment

Your senator or congressman gets a choice committee spot, or even becomes the chair. It's good for business in your district/state. Of course? No, surprisingly, not for business. An in-depth study was done: Harvard Business School & National Bureau of Economic Research - "Do Powerful Politicians Cause Corporate Downsizing?" They found that largess from the federal government goes up, but private investment, activity and jobs decrease. When the government decides the winners everyone else tends to look for a more even playing field - somewhere else.
"The central finding of this paper is that positive shocks to the seniority of a state's congressional delegation cause large and persistent increases in government allocated funding to the states, and significant retrenchment on the part of the corporations headquartered in the state. This retrenchment appears to be a response to the large and persistent increase in federal funding that the state receives following the shock. Following the appointment of a senator to the chair of a powerful committee, we estimate that his state experiences, on average, a 40-50 percent increase in its share of congressional earmark spending, and a 9-10 percent increase in its share of total state-level government transfers. At the same time, firms residing in the state cut their capital expenditures by 8-15 percent, reduce R&D by 7-12 percent, and increase payout by 4-13 percent. Employment and sales growth are also impacted, as corporations scale back employment growth by 3-15%, and sales growth falls by up to 15%."
Via Wash Policy Council

No comments: