Business Research that Makes for Smarter Public Policy

 
 
Just as researchers in the life sciences often target their work to tackle the most dangerous diseases, business scholars are using their research to make a difference in government policy.
 
 
by Michael Blanding

Academic business research typically travels one-way. From government agencies, scholars gather and process data—say on workplace safety or environmental pollution—perform analysis, and publish the results.

Rarely, however, do they take their findings back to the agencies from whence they originated.

“We are using data from regulators, writing studies, but seldom going back to the regulators to say, ‘This is what we learned,’” says Harvard Business School Professor Michael W. Toffel, whose research examines companies’ environmental and occupational safety management and compliance.

“When I went to Washington, I saw a tremendous need for fact-based analysis to inform policymaking”

Last spring, Toffel sought to change that by taking the unusual step of convening academics and government regulators in the same room for a daylong discussion about how officials could better use academic research—and how academics could better help improve the work of government.

The workshop is just one example of how HBS scholars are using their research to make a difference in government policy. Some, like Michael E. Porter or Federal Reserve advisor David S. Scharfstein, are well-known outside academic circles; others are working more quietly behind the scenes to effect change.

“The university is a nonprofit institution. It has a charter from the state, and it exists in large part to serve society,” says David A. Moss, the Paul Whiton Cherington Professor of Business Administration and founder of the Tobin Project, a nonprofit research institute focused on catalyzing scholarship on important governmental problems. “The question is how to do that. My teacher, the Nobel economist James Tobin, told me that it’s better to build our scholarship around pressing real-world problems than simply to fill little gaps in the literature, and I continue to think that was excellent advice.”

Just as researchers in the life sciences often target their work to tackle the most dangerous diseases, so argues Moss, social scientists can make progress focusing on major problems in society, “not just to come up with quick policy advice, but to actually try to deepen understanding of those problems through rigorous academic research, which ultimately can lead to new remedies.”

Outside of formal hearings, get-togethers between researchers
and regulators seem rare. ©iStock/Picsfive

That’s a role academics are uniquely suited to play, says Karen Mills, former administrator of the US Small Business Administration (SBA) and now a senior fellow at HBS. “When I went to Washington, I saw a tremendous need for fact-based analysis to inform policymaking,” she says. “Because of the pace and the demands of the job, having access to independent, high-quality research from outside sources can make a real difference both in developing good policies and in getting broad-based support for their implementation.”

Researchers and Regulators

The gathering of researchers and regulators sponsored by Toffel and Ginger Jin, of the Maryland Center for Economics and Policy, is just one example.

They invited regulatory officials from several leading federal agencies, including the Department of Agriculture (USDA), Environmental Protection Agency (EPA), Food and Drug Administration (FDA), and Occupational Safety and Health Administration (OSHA), to participate in a workshop with academics who study government regulation and industry compliance. The event featured a series of presentations by scholars sharing their research findings and regulators explaining their challenges and questions they wanted research to help address.

EPA senior attorney-advisor Jon Silberman says he attended with potential research questions related to the agency’s Next Generation Compliance initiative, which aims to take advantage of new tools and approaches, such as advanced emissions detection technology and electronic reporting, while strengthening vigorous enforcement of environmental laws. “This workshop was a gold mine of new contacts, information, and studies,” he says.

One paper that Silberman found particularly interesting looked at private-sector supply chain audits. In the study, coauthored by Toffel, University of California law professor Jodi Short, and HBS doctoral student Andrea Hugill examined factors such as whether it was more effective to send the same auditors back to a company or send new auditors with each audit. The answer: Audit teams revisiting the same suppliers generally found fewer violations.

“When you get a report with the credibility of a true academic analysis, it changes the entire environment”

“You would think that as [auditors] gain more experience they’d become better at identifying noncompliance, but Jodi explained that they found the opposite was true,” says Silberman, who also found the study to be a useful source of related research.

At the same time, Silberman and EPA colleague David Hindin, senior policy director for innovation and next generation compliance, urged the researchers to look more closely at issues such as how continuous monitoring—such as by putting an automated pollution meter at a factory’s fence line—compares to actual inspections in gaining compliance. Toffel agrees: “The question of which approach is more effective is a perfect one for scholars to pursue. I hope someone will take up that project.”

One side benefit to the workshop was that regulators shared knowledge among themselves as well as with the academics. “We tend to get siloed in our thinking,” says OSHA senior policy advisor Debbie Berkowitz. “We don’t really reach out to other agencies enough to see how they are struggling with the same issues.”

Even so, Berkowitz, like Mills, stressed the importance of having outside researchers analyze agency data. “You would be surprised at the limited resources we have to analyze the data, compared to the way that the academic community can analyze it for us.”

“The goal is not to turn around quick policy ideas, but to generate important and long-lasting research”

Among the issues she hopes researchers will address are whether a new requirement for companies to report workplace injuries has increased compliance with safety regulations; whether voluntary workplace injury prevention programs are successful; and whether money spent on outreach and education campaigns leads to fewer workplace violations.

Berkowitz says she experienced firsthand the power that an academic study can have with a 2012 influential research paper co-written by Toffel, UC Berkeley professor David I. Levine, and BU doctoral student Matthew S. Johnson. They found that OSHA inspections not only lowered injury rates but also saved companies money in the long run by cutting down on workers’ compensation costs.

“It was an important study to show that OSHA works and doesn’t kill jobs,” says Berkowitz. “The fact that it came from a business school gave it an enormous amount of credibility.”

Getting Smart on Data

The legitimizing power of academic research is something Karen Mills saw close up even before joining the Small Business Administration.

As chair of Maine’s Council on Competitiveness and the Economy, she advocated a cluster-based approach to economic development. When firms locate near each other they can benefit by sharing knowledge, pooling resources, and establishing relationships with local educational institutions that train potential employees. In the push to establish the program, she invited HBS’s Michael Porter, the Bishop William Lawrence University Professor—who had done extensive research examining the benefits of clusters—to speak to the governor’s cabinet and the legislature in support of the idea. “That was the real reason the legislature voted in the cluster program,” she maintains.

Later as SBA administrator, she received the same kind of pushback against establishing cluster development from White House national economic policy advisor Lawrence Summers, president emeritus and current university professor at Harvard University. Summers told her she needed to prove that economic clusters drive economic performance. Once again, she was able to rely on Porter, who along with Mercedes Delgado (Temple University) and Scott Stern (MIT), had just published a 2012 National Bureau of Economic Research working paper that found a significant “spillover” effect from economic clusters that boosted overall economic activity.

“I walked into Larry’s office and said here is the proof you asked for,” recalls Mills, who eventually went on to secure funding for 56 clusters nationwide. “It was a game changer.”

“When you get a report with the credibility of a true academic analysis, it changes the entire environment,” she says. “The work that is done at HBS is serious, and people respect it. This is not just a policy position with a few facts thrown in. This is real data and real analysis.”

Frustrated by the lack of hard data on other issues, Mills implemented a SBA program called “Smarter Data, Smarter Policy” to help provide evidence on matters of small-business financing—looking in particular about whether and how the financial crisis created a credit gap for small businesses. Despite gathering information, however, the fundamental question about whether the financial crisis had impaired credit went unanswered.

So when Mills left SBA to come to HBS, she did the research herself. The resulting 2014 working paper found that small business was experiencing a credit crunch, particularly in lending from banks, despite creating two out of every three new jobs in the United States. Recently, she went to Washington to present the paper to her former colleagues. “It turns out the working paper has been quite useful to regulators,” says Mills, who is working to convene policymakers and academics on a more regular basis to discuss how data can better be used to inform government financial decisions.

Analysts and Advocates

Sometimes it’s hard to measure exactly the impact that academic research has on government—or to tell in advance what kind of research will be useful, says David Moss.

“As one member of Congress I worked with told me, policymaking is a scrum where everyone is pushing,” he says. “You push where you can, but the outcome isn’t determined by anyone in particular.”

Moss had his own experience with that scrum. Several years before the 2008 financial crash, he had been working on a new MBA financial history course, focusing in part on financial crises and how governments had tried to address them. So a congressional panel overlooking the Troubled Asset Relief Program (TARP) called him to report on what successful regulatory reform might look like.

“Responding to this request, I took a close look at historical patterns and tried to come up with an inventory of what seemed to work in the past, and build on that,” he says. At the time there was intense debate about companies that were deemed “too big to fail,” and how they could be regulated in a way that limited excessive risk-taking, rather than encouraging even more of it. Moss advocated for creating a list of “systemically significant” financial firms that would face the strictest regulation—a move that some critics claimed would encourage companies to try to get on the list, believing it would guarantee government support in a crisis.

“There was a lot of debate about how to target those institutions,” says Moss. Ultimately when the scrum was over, the list was created, along with a new regulatory agency to monitor them. Rather than flocking to be on the list, firms have sought to get as far away from it as possible, as Moss predicted.

“It worked out the way I had hoped—no one really wants to be on that list,” says Moss. “It’s been somewhat effective both in deterring firms from areas of systemic risk that could land them on the list and, particularly, in subjecting those that are systemically dangerous to greater regulatory scrutiny. Nothing’s perfect, of course, and I don’t agree with all the decisions regulators have made about who is on or off the list. But no net, I think we’re better off than we were before.”

As part of the agreement to create the government report, Moss received permission to publish a version of his findings as a working paper to be of use to future academics and policymakers alike.

Ready When Called

Moss certainly didn’t research hundreds of years of financial history in order to weigh in on a future crash.

“It’s hard to anticipate what ends up being useful,” says Shane Greenstein, the MBA Class of 1957 Professor of Business Administration and faculty co-chair of the Harvard Business School Digital Initiative, who has studied academic influence on policy. The more important factor is being willing to weigh in when the time comes.

“It’s a privilege—that’s exactly the right word,” he says. “It’s an absolute privilege that society allows us to take time out of our day to understand something in depth.”

Greenstein also weighed in before Congress after the financial crisis, on the issue of investment in broadband infrastructure. Some advocates saw a broadband build out as a works program that would create jobs as well as grow the economy. Greenstein had researched the issue as a strictly academic question, looking at why GDP doesn’t take into account investment in innovation.

“That research has yielded tons of insights into entrepreneurial policy as an unintended by-product,” he says. In his testimony, Greenstein had to deliver the sober news that while creating a broadband network may be a laudable goal, it was a lousy way to spur economic growth. “There were advocates saying the economic benefits from such investment stretched into the hundreds of billions,” he says. “I knew the data well enough and the economics well enough to know that was wrong.”

At the broadest level, in government there are two roles academics tend to play, either as an analyst or as an advocate, says Greenstein, who has mostly played the first role. Besides testifying before Congress, he’s been asked to testify numerous times by several federal agencies, including the FCC to analyze digital merger deals. Oftentimes, he finds that while government officials understand business concerns, they don’t appreciate the nuances of large businesses versus small entrepreneurs in the implications of rules and agreements.

“Business is not monolithic,” he says. “In addition to government and large companies, there is at least a third interest in entrepreneurs. My job is to understand all the parties’ arguments, both pro and con. Lawyers aren’t trained to do economic analysis.”

While his own experience has been as an analyst, Greenstein doesn’t find anything wrong with academics serving as advocates—either because they are personally passionate or because they are being paid by a particular party to represent its interest.

“To the extent that there is bias, the antidote is having people in the room with different viewpoints,” he says. “We are all professionals and understand professional norms. As long as there is a fair hearing, it’s perfectly fine to get relevant information into the decision-making process.”

The most important thing for academics to keep in mind, says Moss, is not to check the rigors of their discipline at the door when asked about a policy problem. “Sometimes when the word ‘policy’ comes up, scholars feel they need to put on a different hat, which is much less rigorous,” he says. “But the truth is that the comparative advantage of scholars, in general, is in producing research, not just opinions. They can have tremendous impact when bringing that research to bear on vital problems facing the nation and the world.”

That is the aspiration of efforts like Toffel’s workshop on compliance or Mills’s efforts in cross-collaboration over financial policy that work to ensure that the kind of research academics are doing will be best position to provide insights in the future.

“At the Tobin Project, we try and bring policymakers into a research project from the very beginning,” says Moss. “We ask policymakers, usually members of Congress, to help us hone in on important problems to ground the research we are doing. The goal is not to turn around quick policy ideas, but to generate important and long-lasting research. Often, though, good policy ideas turn out to be a happy by-product.”

Those kinds of contributions can help ensure that academic research on policy advances from the ivory tower of academia to the marble halls of government.

About the Author

Michael Blanding is a writer based in Brookline, Massachusetts

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