The Best and Worst States in America to Do Business

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Chief Executive Magazine has released its annual list of best and worse states to do business, and Southern and Mountain-West states dominated the rankings — to the detriment of the two coasts. The top five states in the survey, Texas; Florida; North Carolina; Tennessee and Indiana, are praised by the magazine for their governments’ and lax regulatory policies and low taxes. The 650 CEOs surveyed also apparently like states that have so-called “right-to-work” laws, which restrict union activity. Writes Chief Executive Editor-in-Chief J.P. Donlon,

“It may be no accident that most of the states in the top 20 are also right-to-work states, as labor force flexibility is highly sought after when a business seeks a location. Several economists, most notably Ohio State’s Richard Vedder and Harvard’s Robert Barro, have found that the economies in R-to-W areas grow faster than other states, have higher employment and attract more inward migration.”

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Migratory patterns from the coasts to the Sun Belt and Mountain West are among the proof offered by Donlon that these policies are superior to the those of states like California and New York, which rank 50th and 49th, respectively, on the list. (Rounding out the bottom five are Illinois, Massachusetts and Michigan). But Donlon spends at least as much effort condemning the policies of those states as he does the ones high up on his list. Chief Executive is particularly hard on The Golden State:

“California’s enduring place of perpetual decline continues in this year’s ranking. Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell.”

Harsh stuff, especially considering California has — by far — the highest gross domestic product of all the states in the union, and is home to some of the most dynamic and cutting-edge businesses in the world. New York has the third highest GDP of all the states in the union, ranking 7th in GDP per capita. It’s also interesting to note that the vast majority of the nation’s wealthiest people actually live in these two states, which begs one to question whether the sample of CEOs polled by the magazine was diverse enough, and how much weight qualities like “workforce quality,” and “living environment” are actually given in the survey.

The list also raises the question of whether these states are merely temporarily benefitting from their willingness to engage in a tax and regulatory “race to the bottom.” Again, the magazine notes that states high on their list, like Texas and Florida, are seeing high imigration numbers while coastal states are seeing proportional emmigration. So the added jobs suggest that these pro-growth states are attracting people, but how long will this last? Low taxes and minimal regulation will have consequences at a certain point, consequences like poor schools and environmental degradation. In other words, for the time being, Texas can hire Massachusetts’ well-educated students, but if Massachusetts stops investing in education whom will Texas businesses hire? Indeed, many CEOs have complained recently that American workers don’t have the skills or education to fit their businesses needs. On top of middling test scores, Texas is dead last in the country in uninsured rates with over a quarter of its population without health insurance, and 46th out of 50 in poverty rates.

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So, I’m sure from the point of a view of a CEO these states are great places to start a business, especially if you need low-wage, low-skill workers. But taxes and regulation provide for necessary things like schools and worker protections, and too vigorous a race to ditch them might prove ruinous for business in the end.