Donald Fry: Reading business surveys’ mixed signals

By Donald C. Fry

When the issue of Maryland’s competitiveness as a place to locate or expand a business comes up, as it did last week at the Maryland Economic Development Association’s annual meeting in Cambridge, the discussion invariably gets around to how our state fares on a variety of published business rankings.

Every year, news organizations, academic institutions, and policy-related nonprofits across the country issue dozens of surveys and reports ranking the states on a wide range of issues including traffic congestion, air pollution, and crime, as well as business climate.

But public policy advocates are particularly drawn to state business climate rankings because key elements of such rankings relate directly to local policies such as tax structure and regulations – tangible things that, presumably, are easier to get our arms around as opposed to broader long-term issues like transportation infrastructure, weather patterns, and criminal behavior.

Top Ten lists have become a media staple. Business climate rankings from sources such as Forbes magazine, The Tax Foundation, CNBC, the Kauffman Foundation, and Site Selection magazine, gain coverage in hundreds of print, television, radio, and online outlets when they are published and for months thereafter.

Politicians tout their state’s high rankings and dismiss low rankings. State and local economic officials put both the high and low rankings to effective use. They make sure that prospects are aware of both their states’ high rankings and the low rankings of competing states.

But anybody looking to such rankings to definitively resolve the question of which state has the best business climate quickly realizes that they are engaged in an exercise in futility. A run through the business climate studies can be mind boggling and numbing.

An examination of 10 widely-circulated recent business climate surveys shows Maryland rankings ranging from 3rd to 45th. For example, on “Best States for Business” surveys Maryland ranks 12th on the Forbes list, 27th on Chief Executive magazine list,” 42nd on the list.

Meanwhile, the Kauffman Foundation ranks Maryland 3rd on its “New Economy” ranking that measures information and technology resources, but the Tax Foundation ranks our state 45th for overall business tax climate.

In the 10 surveys we studied, Maryland gained two rankings in the top 15 and two rankings in the bottom 15, with all other rankings falling somewhere in the middle.

How can rankings vary so much? The reason lies in the criteria, categories, and sub-categories on which various surveys base their rankings, and how the criteria are weighted in each study.

For instance, both Forbes and Chief Executive Magazine include taxation, regulation, workforce, and quality of life as key determining factors, but they weight them differently. The rankings are, in themselves, compilations of other rankings – in a way, averaging the averages.

The Kauffman Foundation’s survey measures knowledge jobs, “economic dynamism,” and technological innovation, while The Tax Foundation looks at corporate, individual, sales, unemployment, and property taxes.

No two sets of criteria used by any of the surveys are alike. Even similar category rankings within the surveys show wide inconsistencies. For instance, in the “workforce/labor” category, Forbes’ 2009 study ranks Maryland 8th, while a 2009 CNBC study ranks Maryland 35th for the same category.

Amid these kinds of inconsistencies, however, some key strengths and areas of concern for Maryland emerge from the business climate rankings as a whole. Maryland consistently shows strength in growth prospects, technology and innovation, workforce education, knowledge and wages, and “new economy” resources. Consistent areas of concern include comparatively high corporate and individual tax rates (though other states are catching up), utility costs, crime rates and cost of doing business.

What can Maryland do to impact overall rankings? Probably not a lot, because rankings are, by definition, subjective and measure a wide variety of indicators in different ways. Almost any state will rank high on some lists and low on others.

But what Maryland can, and should, do is decide specifically who we want to be as a competitor for business location and expansion. The business community and policy makers in Annapolis could work to achieve a consensus on what key business development policies and business climate elements are important to achieving the goal of making Maryland the best possible competitor for economic growth.

Then, we must ensure we enact policies that reflect our consensus and that deliver robust economic growth. Our primary desired outcome isn’t to score well on surveys, it’s to nurture job growth, business vitality and a high quality of life.

We can take a lesson from the legendary UCLA basketball coach John Wooden, who didn’t scout his opponents. His thinking was “if we do what we do well, then no one will beat us.” That’s what Maryland needs to do: decide what it wants to be as a business location, focus on it, and do it well.

If we accomplish that, the survey rankings will take care of themselves.

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