It’s CNBC “Top States for Business” season. Does it really matter?
Stop me if you’ve heard this before, but Rhode Island turned in an ugly showing in the latest CNBC rankings of America’s Top States for Business. RI is getting awfully comfortable in the bottom 5 year-after-year, this time clocking in at 46. CNBC breaks things down as follows:
Cost of Doing Business: 46
Infrastructure: 42
Life, Health & Inclusion: 13
Workforce: 23
Economy: 36
Business Friendliness: 30
Access to Capital: 41
Technology & Innovation: 28
Education: 28
Cost of Living: 42
Virginia, North Carolina, Utah, Texas and Tennessee come in at the top of the overall rankings. Elsewhere in New England, RI trails Massachusetts (14), Connecticut (24), New Hampshire (37) and Vermont (42), but leads Maine (48).
Now, the usefulness of these rankings is something that is disputed across the political scene. Pro-business groups and the RIGOP will point to them as evidence that the “blue state model” has failed here. RI’s poor standing was a topic of conversation in former Governor Gina Raimondo’s Senate confirmation hearing to become U.S. Commerce Secretary. Uprise RI and the Economic Progress Institute have argued that the rankings only function to embolden the business community in its quest to rob the working class blind.
So what approach does one take? I believe there are conclusion to be drawn but legitimate gripes as well.
The progressive case that the CNBC rankings themselves are lacking in quantitative rigor is difficult to deny. Indeed, CNBC posts a methodology explaining how they weight the categories in the calculation of the overall score, but the impact of various factors within categories is undefined. For example, the highest-weighted category (16% of the overall score) is “Cost of Doing Business, ”explained as follows:
We measure the strength of each state’s business tax climate, as well as tax burdens for various types of businesses and facilities. We also measure wage and utility costs, as well as the cost of office and industrial space. And we consider incentives and tax breaks that states offer to reduce business costs, with special emphasis on incentives targeted toward development in disadvantaged communities.
There is a lot happening there, and for the highest-weighed category, you really would like to see how individual metrics factor in. Then there’s the issue of tax breaks and incentives. Rhode Island knows all too well that simply offering incentives guarantees basically nothing in terms of economic payoff to the state. 38 Studios showed us that the opposite can be true. Are the measurable economic payoffs to tax breaks and business incentives offered by states factored into this metric? Again, CBNC’s explanation leaves this important question unanswered.
Because of the shortcomings of the rankings themselves, it’s a waste of breath in my opinion to put stock into year-to-year changes. The 50 states are so different that interstate comparisons outside of a contained region like New England or the greater Northeast aren’t always the most useful either.
So what are the rankings good for? They provide policymakers something like a menu of choices for reform.
The political factions in RI are far from agreement on things that factor heavily into the CNBC grade, like business incentives and what to do about K-12 schools. Therefore, while the grade may be something like a snapshot that indeed captures some of the serious policy challenges in RI, making too much of it just creates background noise that obscures how to really make RI a better place to do business. Instead, we would be better off focusing on a category or 2 at a time, starting with the areas of the greatest need where there is the broadest appetite for reform.
For example, 2 of RI’s lowest rankings come in infrastructure and cost of living. You would be hard pressed to find any Rhode Island pol or resident who would argue that, actually, we are doing swell in these areas. Housing as a policy issue has never enjoyed as much time in the spotlight at the General Assembly as it did this year, and now there is a full cast of organizations, emboldened by the political momentum, pushing in the same direction to increase the stock of affordable housing in the state. This alone is progress, although not the type that show up in a ranking system like CNBC’s.
Will it be a failure of governance if the momentum doesn’t translate into results? Absolutely. Will the CNBC’s future rankings reflect the results or lackthereof? Maybe, but due to their methodological shortcomings, it could be far from obvious if things are indeed getting better.
