I’m not a big fan of state business rankings. Everyone seems to assume they are a good measure of a state’s economic well-being. They aren’t.
There hardly ever is a correlation between what matters — whether residents have a job and earn a good income to pay the bills and save for their retirement and the kids’ education — and how well they do in these rankings.
Add to that, most rankings measure to what degree a state is a good place for business. Once again the assumption is that where business is doing well, residents are too. But that is no longer the case. Increasingly traditional measures of economic success — GDP, productivity, corporate profits — can be doing well at the same time household standard of living is stagnant or declining.
So I don’t want to make too big a deal of CNBC’s new America's Top States for Business 2015 ratings. But I do think there are some noteworthy features.
First, maybe most surprising, is that Minnesota is ranked No. 1. Michigan Future — the think tank I run — has long used Minnesota as its model state because it has the best economic outcomes in the Great Lakes and one of the best in the country, both high per capita income and a high proportion of adults working. But in most “best place to do business” rankings, Minnesota ranks toward the bottom. In the well-respected Tax Foundation’s 2015 State Business Tax Climate Index, Minnesota ranks 47.
So how can CNBC rate it as the best state to do business? CNBC agrees Minnesota is a high-cost state, which normally is all these business-friendly ratings measure. They rank Minnesota 35th in cost of doing business. But CNBC believes being a good place to do business is more than being a low-cost place to do business.
CNBC writes: “Never, since we began rating the states in 2007, has a high-tax, high-wage, union-friendly state made it to the top of our rankings. But Minnesota does so well in so many other areas — like education and quality of life — that its cost disadvantages fade away.”
Minnesota ranks 13th in workforce, ninth in infrastructure, third in quality of life and second in education. These are four of the 10 categories CNBC considered vital to being a good place for business. Each is the result, in part, of public investments you can make with higher taxes.
It’s worth noting CNBC includes in quality of life a broad measure of livability, “including several factors, such as the crime rate, inclusiveness such as anti-discrimination protections, the quality of health care, the level of health insurance coverage and the overall health of the population.” CNBC also includes an evaluation of local attractions, parks and recreation, and environmental quality.
As Gov. Mark Dayton said in an interview with CNBC, Minnesota is a “high-value state.”
Exactly! What matters is what you get for your higher taxes or higher labor costs. There is a benefit side to the equation, as well. It’s not just costs. What the CNBC metrics say is, it’s worth it to business to pay more if the results are a higher-quality workforce, higher productivity, a better transportation system and a better quality of life.
Michigan’s overall ranking by CNBC is 22nd. We rank 17th in cost of doing business, 25th in workforce, 26th in infrastructure, 48th in quality of life and 25th in education.
For the past two decades, Michigan has been operating under the assumption that the lowest cost states have the best economy. It hasn’t worked. Despite the welcome decline in unemployment, Michigan still ranks in the bottom 10 in proportion of adults working and in the bottom 15 in per capita income.
It’s time for Michigan to broaden its economic agenda to be a high-value state, not a low-cost state, to focus on all the CNBC metrics, not just those that measure costs. It’s time we learn from Minnesota and CNBC that education attainment, infrastructure and quality of life — including inclusiveness such as anti-discrimination protections — are essential to economic well-being.
Lou Glazer is president of Michigan Future Inc.