We’re number 40!

Forbes magazine released its annual listing of the Best States for Business and Careers.

Wisconsin ranked 40th. That is an improvement from last year’s ranking, 43rd.

In the Midwest, Wisconsin trailed Iowa (1oth), Minnesota (15th), Missouri (31st), Indiana (34th) and Ohio (38th), and led Illinois (41st) and Michigan (47th). Utah ranked first and Maine ranked worst.

Business climate is a favorite subject of this blog. Whether a state is a good place to do business, or not, is important only to the 85 percent of Wisconsinites who do not work for government, because, particularly in an era in which businesses are more mobile than ever before, business climate affects people’s ability not just to get jobs, but to get better jobs and earn more income. There has been some improvement in some rankings (24th according to Chief Executive, and 25th in CNBC’s America’s Top States for Business 2011), but Forbes’ 40th ranking is closer to Development Counsellors International’s 38th ranking than Chief Executive’s or CNBC’s rankings. And any politician who thinks being a C state (Ball State University Center for Business Research) is sufficient should be fired by the voters at the first electoral opportunity.

Business climate rankings compare the states on the factors businesses use in deciding where to open new facilities or close existing facilities, as well as how businesses’ employees are doing, since if a business does well, its employees do well. Business climate rankings are therefore a measure of the success of both short-term legislative efforts to improve and long-term trends affecting a state’s portion of the national economy. Each ranking measures and weights different criteria, although there are several common measures. The key is to look at all the current rankings, not just one, to notice trends. To rank 24th and 25th is better than to rank, respectively, 41st and 29th, but to rank 38th and 40th and get a C grade is simply not good enough.

Forbes’ rankings are based on business costs (including labor, energy and taxes), labor supply (high school and college degrees, net inmigration over the past five years and projected population growth over the next five years), the regulatory environment (which includes Pollina Corporate Real Estate’s measure of business tax incentives and economic development efforts), a state’s economic climate (the past five years of job, income and gross state product growth, unemployment from 2005 to this year and the number of large publicly traded and privately owned companies in the state) and growth prospects (five-year forecasts of job, income and gross state product growth, U.S. Small Business Administration business startup and closing statistics, and venture capital spending), and quality of life (poverty and crime rankings, cost of living, school test performance, culture and recreational opportunities, the number of top-ranked colleges in Forbes’ top colleges listing, and the weather).

Quality of life was the only place where Wisconsin ranked in the top 10 (eighth, to be exact.) Wisconsin ranked 34th in business costs, 39th in labor supply, 35th in regulatory environment, 35th in economic climate, and 31st in growth prospects.

The worst statistic is Wisconsin’s growth in gross state product from 2005 to 2010: 0.2 percent, which compares unfavorably to the country’s Gross Domestic Product growth from 2005 to 2010: 6.8 percent. Anemic GSP growth would be the legacy of Gov. James Doyle and the Legislature of the late 00s, which featured a Democrat-controlled Senate and control of the Assembly split between Republicans and Democrats.

Forbes’ and other comparisons show that taxes are important, but taxes are not the only criterion affecting business climate. (For one thing, Wisconsin ranked fourth in state and local business tax competitiveness according to the Council on State Taxation, but that was before the 2009–10 Legislature raised taxes by $2.1 billion.) As of 2010 (and there’s no indication it’s any better now), Wisconsin continued to rank as a regulatory hell. As of 2010, there is no indication that the Doyle administration’s effort to push regional economic development efforts, such as the New North, has made the state’s economy noticeably better. And Wisconsin’s ranking in venture capital continues to be abysmal, which should give pause to those who condemn legislative efforts to promote venture capital.

Forbes previously did a top-10 ranking of the Best States for Jobs. As you might expect from a bottom-quarter state in business climate, Wisconsin isn’t on the top-10 jobs list. Forbes’ story demonstrates what states that are top-10 in job prospects do right, starting with the number one state, Texas:

Texas offers a low tax, business friendly climate with a surging population that offers a nearly unlimited supply of young labor. Texas ranks sixth in our look at the Best States for Business and Careers. The state has aggressively courted companies to come to Texas to take advantage of these attributes. “Everyone is singing from the same hymn book at the Austin Chamber of Commerce,” says Moody’s Analytics chief economist Mark Zandi. …

The state uses its Texas Enterprise Fund to sweeten economic development deals for companies that are looking to relocate or expand. General Electric, eBay, Electronic Arts, 3M and TD Ameritrade have all announced expansion plans this year with help from the Texas Enterprise Fund. …

Most of the states expecting strong job gains have one thing in common: all but two (New Mexico and Oregon) are right-to-work states. These states give employees the right to decide if they want to join a union or not. There are 22 right-to-work states.

Economist Arthur Laffer pulled together economic data on states as part of a new book, Eureka! How to Fix California, being published in February by California think tank Pacific Research Institute. Laffer found that in the past decade right-to-work states outperformed their union-shop counterparts in almost every metric. Gross state product growth was 53% versus 42%. Personal incomes rose 50% compared to 39% for union states. Job growth was 2.8 % versus -1.3% and the population increase was 12% opposed to 6%.

Companies are increasingly shunning union-shop states.

That last sentence is certainly inconvenient for a state where, as we’ve seen during Recallarama, unions are as strong as they are in this state. Cars and engines, built by United Auto Workers members, used to be constructed in this state. UAW abuses led to the bankruptcies of Wisconsin’s two car manufacturers, GM and Chrysler. And now the numbers of car and engine manufacturers in Wisconsin equal the contribution of unions to the state’s business climate: Zero.

Democrats’ general reaction to business climate rankings is to rhetorically shoot the messenger. Sen. Robert Jauch (D–Poplar) once called those who called attention to Wisconsin’s poor business climate “traitors.” (One would think that term would apply more appropriately to those who flee the state to prevent a vote, which included Jauch, but never mind.) The common general theme of the business climate comparisons is that those states that tax as much, regulate as onerously and fund government as large as they can politically get away with are the states that economically underperform. Since taxing as much, regulating as onerously and funding government as large as they can get away with are the three main planks of the Wisconsin Democratic Party platform, you can understand why Democrats don’t like their policy failures publicly exposed.

But if the economy of this state was doing well compared to other states even in this current national economy, 2010 voters wouldn’t have had several economic development studies to choose from that came to the same conclusion — that Wisconsin’s economy wasn’t doing well regardless of how it’s measured. (The most damning of the studies, the Wisconsin Policy Research Institute’s Refocus Wisconsin, noted that Wisconsin per-capita personal income growth has trailed the national average since the late 1970s.) Even Democratic gubernatorial candidate Tom Barrett didn’t attempt to defend his would-be predecessor’s economic record.

Given the timeline of the Forbes business climate comparison, it’s clear that the blame for the poor rankings lies with the Doyle administration and those in the Legislature (Democrats and Republicans) during the ’00s. That does not take the Walker administration off the hook at all. Creating the Wisconsin Economic Development Corp. to replace the (ineffective) economic development efforts of the state Department of Commerce was a positive step, but only a step. Reducing the net cost of government employees to taxpayers by making them pay more for their benefits was a positive step, but only a step.

It’s clear that Walker wasn’t aggressive enough — and needs to be more aggressive after he survives the stupid recall attempt — in reducing the size and scope of government and improving the state’s business climate. Something is clearly wrong when the state has spent far more than the per capita national average for decades on education without improvement in Wisconsinites’ incomes. Walker has done nothing to neuter the bureaucrats who have given this state a deserved reputation as a regulatory hell, and nothing to reduce the cost of government reflected in the 3,120 units of government in this state. Every dollar of taxes on business reduces a business’ ability to pay its employees, reinvest in itself, or provide dividends to its owners (which include half the households in the U.S.). Every dollar of taxes on individuals reduces an individual’s ability to spend money on the necessities or luxuries of life, both of which are reflected in economic statistics.

You cannot expect to meet job creation goals in a bad business climate. You also cannot expect to have solvent government finances in a bad business climate. And you cannot people to move into, or stay in, Wisconsin with a bad business climate.

 

6 thoughts on “We’re number 40!

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