Study Ranks States on Softer Strategic Measures, but Can Those Measures Equate to Profitability?

A new study of how states can excel in the “new economy” attempts to turn on its head the conventional wisdom about what makes states attractive. And it ends up endorsing the business climates of many high-cost states while denigrating the pro-business credentials of many low-cost states.

June 26 2014 by Dale Buss

The 2014 State New Economy Index ranks states on “a series of measures that analyze the economic environment for success in the 21st Century,” according to the Information Technology and Innovation Foundation (ITIF), a nonprofit, supposedly non-partisan think tank that promotes policies to advance tech innovation around the world. The categories considered were: number of knowledge jobs, extent of globalization, economic dynamism, the digital economy and innovation capacity.

“This study ranks the economic environments of the structure of the economy in each state and how well it’s oriented to supporting success factors that companies need today to do well,” Rob Atkinson, president of ITIF and lead author of the study, told CEO Briefing. ITIF has conducted the study every few years since 1999.

The top five states in this year’s index are Massachusetts, Delaware, California, Washington and Maryland. Those five states each place relatively poorly in many other measures of economic-development competitiveness because of their high labor costs, high taxes and exacting regulatory environments.

In the new Chief Executive “Best States/Worst States for Business” rankings, for instance, Massachusetts ranks No. 46; Delaware, No. 23; California No. 50 (in other words, the worst state for doing business); Washington, No. 33; and Maryland, No. 41.

Meanwhile, the five worst states in the ITIF study for 2014 were Mississippi (No. 37 in the Chief Executive ranking), West Virginia (No. 35), Oklahoma (No. 20), Arkansas (No. 29) and Louisiana (No. 9).

Atkinson argued that traditional business-climate studies “were more valid 25 years ago when companies competed on costs more than today, and more production was cost-based. But much of that production has gone out of the country today, to Mexico or China.”

Ideally, he says, a state “should work hard to be business-friendly, but at the same time, that doesn’t mean offering rock-bottom taxes and services. They need to tax firms less than people and use revenues to invest in advanced public services such as research universities.”

Access the study here.