The Winning States’ Proven Formula

BW1“I would say in the life sciences, Boston is among the best,” Immelt told the Boston Business Journal. “Our bet is we can be a part of that, work with universities and make it happen in this town.” Immelt said that GE, which already has 5,000 workers in Massachusetts, will make 4,000 new jobs available in the state.

Similarly Scott Tariff, CEO of midsize Eagle Pharmaceuticals, a Woodcliff Lake, New Jersey maker of injectable medicines, said the primary reason for locating his nine-year-old company in the Garden State (aside from living nearby) was the state’s broad array of pharma talent. The tax and regulatory climate, although improved, is not where he would like it to be. Revealingly, Eagle does not make any of its products in New Jersey.

But a state’s talent pool can only take it so far. Few states are blessed with as benevolent a climate and a first-rate university system as California, yet it is consistently ranked last each year by CEOs. In 2014, it topped New York for the largest out-migration of people. Much of the reason lies with the perception that Sacramento has a hostile attitude toward business.

Joseph Vranich, president of Spectrum Locations Solutions, a site-selection consultancy based in Irvine, California, has tracked what he calls “California divestment events”—business decisions to avoid the state. These come in three types: companies that left the state entirely, companies that opted to expand in states other than California and companies that planned to grow in the Golden State but changed their minds. Vranich has identified 1,510 divestment events occurring in California between 2008 and 2014. He thinks this understates the complete total because for every incident that becomes public knowledge five go unreported. He estimates that the real total is probably closer to 9,000 divestment events for this period. Even this number may be low since the cost and compliance burdens of California’s taxes and regulations fall disproportionately on smaller companies that are less able to afford the teams of attorneys and accountants that mega-corporations can employ. Google, Apple, Intel and Cisco will likely continue to grace the Silicon Valley corridor, but notice that their server farms and fab plants are located elsewhere.

Another predictor of a state’s ability to compete successfully is whether it has passed a right-to-work law. Such laws secure the right of employees to decide for themselves whether to join or financially support a union. BW2West Virginia is the 26th state to do so, making RTW a majority among all the states. Nearly all the states in the top 10 ranking are RTW states. All of the leading 10 worst states at the bottom of the ranking are not.

States that wish to improve the perception of their competitiveness in the minds of business leaders should also consider rolling back the expansion of red tape and regulation that particularly hampers small businesses and, in turn, depresses job creation. Having limited working capital and fewer resources, smaller companies struggle with forms, permitting requirements and red tape. This is a major reason that small-company creation in the U.S. is running at its lowest level since the 1970s.

Even the center-left Economist noted that such concerns should not be “dismissed as the mad rambling of anti-government Tea Partiers. The burden placed on small firms by laws like Obamacare has been material. The rules shackling banks have led them to cut back on serving less profitable small customers. The pernicious spread of occupational licensing has stifled startups. Some 29 percent of professions, including hairstylists and most medial workers, require permits, up from 5 percent in the 1950s.”

Three Regions, Three Strategies, by Warren Strugatch

GDP GROWTH 3.4% 2013-2014
RANK 58 / 361
Home base for Microsoft, Amazon and Boeing, greater Seattle has enjoyed a balmy economy for decades. To defend marquee employers against corporate poaching, regional business, government and academic leaders united to devised a growth strategy over 10 years ago to leverage its major employers’ economic mojo, tap the brainpower at University of Washington and Washington State to catalyze R&D initiatives and train a technically savvy work force.

Evidence suggests the plan’s working. The region added 54,300 jobs last year. To keep pulling in Millennials and other educated workers, leaders tout Seattle’s famous sense of place. Sites like the Pike Street Market, the iconic coffeehouses and the maritime heritage continue to attract newcomers—and growth depends on workforce expansion.

GDP GROWTH 2% 2013-2014
RANK 137 / 361

Hammered by the Great Recession, Las Vegas has continued to shrivel as entertainment spending evaporated. To rebuild the economic base, city leaders and their statehouse counterparts jumpstarted growth through incentive recruitment. First, cross-state rival Reno wooed Tesla with a jaw-dropping billion-dollar incentive deal. Las Vegas countered by signing Tesla’s arch-rival Faraday Future to build a billion-dollar plant in North Las Vegas. Cost to the city: $216 million in incentives.

This past winter, members of the Site Selectors Guild honored Nevada for Excellence in Economic Development. The guild cited three projects, facilities for Barclaycard, eBay and Faraday Future. All involved Vegas.

GDP GROWTH 24.1% 2013-2014
RANKING 1 / 361

For more than a decade, the towns dotting the Permian Basin below west Texas and southeast New Mexico gushed black gold. Among them, Midland, the oil-rich, home-of-George-W-Bush community, led all U.S. metro regions in GDP growth six of the past 10 years. During the boom, officials shrugged off the need to diversify. Why mess with your goose when it’s laying golden eggs?

Now that the bottom’s fallen out of the oil and gas sector—Midland lost some 14,500 jobs in 2015—the answer is clear. The Midland Development Corporation is talking up diversification and pursuing companies in the field of commercial space exploration. Most local businesses, though, are waiting out the cycle. Expect Midland to pump black gold again when prices reach 50
cents a barrel, says local oilman Kirk Edwards.

For the methodology behind the Best & Worst States rankings, click here.