A reader recently sent me a link to a ranking of U.S. states on the basis of how “business-friendly” they are. The more welcoming to business, the more likely to create jobs and experience economic growth–or so the organization doing the ranking asserted.
The organization doing this particular ranking was ALEC, the American Legislative Exchange Council. ALEC is dominated by corporate and libertarian interests, so it isn’t surprising that its definition of “business friendly” is heavily weighted toward low tax rates and corporate subsidies.
If you agree with ALEC’s priorities, I suppose having one’s state receive high marks is cause for celebration. If you don’t–and I don’t–their conclusions are pretty worthless, except, perhaps, as a cautionary tale.
City and state rankings are issued by a variety of organizations and publications; they’re the sorts of “report cards” that Mayors and Governors often brag about–conveniently overlooking the fact that virtually all of them paint a picture of how well their jurisdictions meet the sponsors’ priorities rather than providing accurate assessments of the comparative merits of the “rankees.”
I would call my critique of city and state rankings their “dirty little secret,” except it isn’t very secret: all of the various rankings–the ones I like and the ones I don’t– are inescapably a function of the values of the entity doing the ranking. (Take a look at those “best places to retire” lists. Their top choices tend to be places I’d hate, because the elements that make a community livable to me are clearly not among the criteria they’ve employed.)
ALEC finds Indiana moderately “business friendly” because our taxes are low, and it prioritizes low taxes over elements of state environments that many businesses find more important: an educated workforce, and such quality of life measures as good schools, convenient public transportation, affordable housing and well-maintained infrastructure. The presence of those elements, of course, depends upon the adequacy of the public dollars available to support them–and we raise those public dollars through taxation.
You see the problem.
It isn’t a mystery why states like Indiana lack the first-rate public schools needed to produce that coveted educated workforce, not to mention the well-maintained public amenities that factor into a high quality of life. Like ALEC, we’ve prioritized low taxes over the maintenance of our social and physical environment.
There is a fairly substantial body of business research that finds the availability of an educated workforce and those “quality of life” measures that attract and keep talented workers much more important to businesses seeking to relocate than the level of taxation. Not that taxes aren’t an important part of the mix, but they are rarely dispositive.
If you want confirmation of that research, you need only take a look at the qualities that Amazon has listed as important as it searches for a city in which to locate its second headquarters. Or talk to the people in your city or state who are charged with economic development.
A genuinely business-friendly environment is one in which people want to live and work. Unfortunately, that isn’t something that can be produced on the cheap.