Unintended Consequence: Federal Earmarks Decrease Private Sector Success

When federal money comes to town, you’d expect all businesses to benefit. That makes sense; more money in equals a more prosperous community. But that’s not the effect that three Harvard faculty found according to their whitepaper “Do Powerful Politicians Cause Corporate Downsizing?”

Researchers Lauren Cohen, Joshua Coval, and Christopher Malloy, Harvard professors, knew that when a state’s congressperson or senator ascends to the chairmanship of a large and powerful subcommittee, millions of dollars typically flow into that state. Those earmarks would translate into more jobs, growth and prosperity for the states involved, they thought.  Instead they found the opposite.

It turns out that when federal dollars begin flowing into a state for particular projects, other firms doing business in that state pull back, reducing research and development, physical spending and hiring. The result of this retrenchment is lower growth and stagnating sales. The researchers suggested several reasons for the pull back including the possibility that private firms had planned to perform the functions that the government stepped in to handle. Another possibility is that increased federal involvement in a community causes increased uncertainty and we know uncertainty is never good for business.

Don’t Roll Out Uncertainty

All of us should take pains to assure that business decisions designed to help don’t create uncertainty instead. A few suggestions:

• Point out the process: When communicating the reasoning behind a decision you’ve made, take care to point out the reasonable process you followed to arrive at the decision. This will help employees recognize that you are not rushing to a decision but instead have worked it through carefully.
• Explain other alternatives considered: Rarely is there only one way forward. Your employees will feel less uncertain if they know that you thoughtfully considered your various options. Even if you did not choose the option the employees would have preferred, knowing that you were aware of that option will be calming.
• Unveil the winning criteria: Hopefully you arrived at your wise business decision by analyzing each of your options against the criteria that were currently most important for your company’s success. If “low cost” won out over “ease of implementation” explain that. Just listing out the criteria that factored into your decision can serve as excellent modeling for future business decisions.

Each business decision you make has an impact on your organization. By taking steps to minimize the uncertainty surrounding business change, you can avoid creating unintended consequences.

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Jean Houston Shore works with organizations that want their people to work together better. She can be reached at 770-643-9724, by email at jean@thinkbusiness.com or through her website at www.working-together-better.com. Ask for your free copy of her book Working Together Better.

Copyright © 2010, Jean Houston Shore, Business Resource Group. All Rights Reserved Internationally. No portion may be reprinted or used without prior written permission.