In April of 2010, a coal dust explosion at an underground coal mine in West Virginia killed 29 miners, constituting the worst mining disaster in the U.S. since 1970. An independent, state-led investigation of the accident concluded that regulatory capture was one cause of the tragedy. Political clout that the mine owner, Massey Energy, gained over time by lobbying and donating to political campaigns, allowed the company to flout safety and health regulations despite receiving hundreds of citations and millions of dollars in fines from the Mine Safety and Health Administration (MSHA).
This type of regulatory capture can generate significant costs for society and the economy. In 2007, workplace injuries were estimated at $250 billion in medical and productivity costs—about half of that year’s expenditures on defense or social security. Yet, we don’t have any systematic evidence about the link between firms’ political influence and occupational safety and health outcomes. I address this knowledge gap in a recent study, “Mining for Favors: The Impact of Political Influence on Regulatory Enforcement.” I use data from the U.S. mining industry—one of the nations’ most dangerous occupations—to examine whether political influence, proxied by lobbying, allows firms to systematically shirk on safety and health efforts. Using data on coal, metal, and non-metal mines in the U.S. between 2000 and 2018, I find that lobbying (and political influence more generally) has allowed firms to reduce regulatory compliance costs.
Mining firms have used political influence to affect the stringency with which MSHA implements safety and health regulations. Influence can be exerted through various channels. For example, company executives can contact their congressional representatives to complain about regulations or the way in which they are carried out. If the firms are important political constituents, congressmen will often pick up the phone and call the regulator to express concern about the regulator’s behavior. Research has shown that politicians who want to be reelected are very receptive to their constituents’ needs, and that regulators who want to be reappointed are quite receptive to politician’s complaints and suggestions. These self-interested motivations can ultimately lead to regulatory capture. This is what appears to have happened in West Virginia. As the state’s investigation reported, “… the perception that … an intervention [by an official] is possible can create a chilling effect for inspectors trying to do their jobs” and “many politicians were afraid to challenge Massey’s supremacy because … [the] CEO … was willing to spend vast amounts of money to influence elections.”
It is important to establish a causal effect in studies like this, rather than simply look for correlations. Establishing causation between political influence and regulatory compliance is tricky because the choice to engage in activities like lobbying and campaign contributions is likely to be related to the regulatory pressures that firms face. To resolve this challenge, I take advantage of variation in the demand for lobbying that is related to firms’ state-level representation on congressional committees.
Occupational safety in the U.S. mining industry is overseen by the Mine Safety and Health Administration (MSHA). MSHA inspectors conduct frequent mine inspections, noting the details of every observed infraction, and then cite and fine the violators. Violators are expected to resolve their violations and pay their outstanding fines promptly, but they also have a right to contest citations and fines with which they disagree before administrative law judges (“ALJ”) employed by the Federal Mine Safety and Health Commission (the “Commission”)—an independent agency set up to provide adjudicative review to regulatory disputes in mining safety and health. Detailed records of the entire regulatory process, from inspection to the contest outcome, are part of the public record.
I merge these records with federal lobbying information that firms are required to file under the Lobbying Disclosure Act and its amendments to identify mine owners that engaged in lobbying activities related to safety and health issues during my estimation period. I then compare regulatory outcomes for firms when they engaged in lobbying to the outcomes for these same firms when they did not lobby. I look at firms’ compliance outcomes at each stage of the regulatory process: inspections, citations, fine assessments, contests, and payment. I also examine whether a firm’s safety and health record changes after lobbying.
I find that when firms lobby, they receive fewer citations, obtain larger fine reductions, and pay fewer of their outstanding fines. The average regulatory cost savings for a firm in my sample comes to more than $100,000 per year. Importantly, after lobbying, mines owned by the lobbying entity record higher death rates—a tangible cost to society.
An interesting element of my findings is that a significant benefit of lobbying comes in the form of fine reductions, granted when firms contest their citations. Contests are reviewed by an ALJ of the Commission. ALJs are, by design, meant to be isolated from political influence and lack the type of careerist aspirations that affect politicians and regulators. However, because politicians can set the regulatory tone and expectations, the influence of politicking can still permeate judicial rulings.
These results have important implications for the U.S. economy. Political influence does not come cheap. Every year firms spend billions of dollars paying lobbyist salaries and making campaign contributions. If firms can successfully use their political capital to sidestep safety and health (and other) regulations, they will be able to transfer some cost of workplace safety to society and distort the distribution of resources and opportunities within industries.
Anastasia Shcherakova is an Assistant Professor at Texas A&M University, Department of Agricultural Economics
This post is adapted from her paper, “Mining for Favors: The Impact of Political Influence on Regulatory Enforcement” available on SSRN.
Therefore, we predict that the presence of politically connected managers. In particular he found that local politicians’ support for the national policy might have signaled.