I’m often skeptical of surveys that purport to rank states on some economic indices. These can be ways of simply touting a particular agenda (e.g. low taxes). However two recent rankings have come out that are likely to be useful for state and local policymakers.
The first, which I will touch upon very briefly, is the ITIF 2014 State New Economy Index. This is the 7th iteration of the report, which began in 1999. It continues to provide a solid look at state economies. I can quibble with the indices used and how the questions are phrased. For example, does state location of a patent really say anything about the innovation occurring in that location (or more about the location of the administrative units). And I have always had a problem with the use of number of patents granted as a measure of innovation. I would reiterate what I said about the 2008 report (and what the report itself noted) that we need new and better data on the “New” economy. Given the budget pressures that the government statistical agencies are under, I fear it is up to the academic community and the private sector to generate better economic indicators.
The second report is the Thumbtack.com Small Business Friendliness Survey done in partnership with the Kauffman Foundation. Thumbtack.com is a web-based services where consumers can go to find professional services. Now in its 3rd year, the report is based on the responses to a survey of businesses that use Thumbtack.com to reach customers. In a refreshing move, they readily admit the issues with their sample and the limitations of the answers — specifically bias toward the professional and nonprofessional services sectors. As they point out, “good quality infrastructure and friendly environmental regulations might be more important to a small manufacturer than to a web designer or a wedding planner.”
Still, the survey is generally representative (although not all states are included) and the answers are enlightening. For example, one of the findings is that the complexities of laws is of more concern than the amount of taxes or regulation (see a Christian Science Monitor story on this point as well). Awareness of state training and networking programs was also a significant factor in a positive rating.
The strongest factor correlating with self-reported perceptions of small business friendliness was the friendliness of licensing forms, requirements, and fees, followed by the friendliness of the tax code and tax-related regulations.
Interestingly, while those two factors had the strongest correlations to overall perceptions of small business friendliness, the factor with the weakest correlation coefficient was whether or not a license is required – this suggests that it isn’t the presence of a licensing regime but how easy it is to comply with such a regime that matters most to businesses. The level of taxation as measured by self-reported perceptions of the “fair share” of taxes also matters less than then friendliness of complying with a tax regime. Both of these may suggest that it is more important for business friendliness that a municipality make compliance simple and easy rather than eliminate a regulatory regime altogether.
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Business owners who said their state or local governments offered training and networking programs reported significantly higher overall state friendliness scores than business owners who were not aware of such training programs, and these business owners who were aware of training programs were much more likely to rate their local government as friendly.
These finding should be important guideposts for state and local policymakers.
Both the 2014 State New Economy Index and the Small Business Friendliness Survey have a lot more information. Both should be read carefully by policymakers and business leaders alike.