During last year’s gubernatorial campaign, CNBC ranked Massachusetts #5 as one of the best places to do business. The ranking (and some of the subindexes that weren’t quite so positive) got bandied around by the campaigns as evidence and counterevidence of the state of our business climate. (Even some of my fellow bloggers have referenced it.)
If you look at the subindexes for that ranking, you can quickly figure out our strengths and weaknesses – on productivity/quality of life measures, we are very strong; and on business cost/tax policy issues, we are pretty weak.
And that gets replicated in lots of similar surveys – depending on which measures are chosen, Massachusetts does very well or quite poorly.
So what matters? Well, a new study (sub required for this one, free version on California is here) reveals some interesting information. It found that business costs and tax policy predicts economic growth in many cases, while productivity and quality of life measures have no correlation with economic growth.
Furthermore, drilling down a bit further, tax simplicity and predictability was much more predictive than overall tax rate.
It’s also important to note that certain embedded advantages like weather and existing industry mix can outweigh poor rankings on business climate and tax policy issues.
So, you tell me the ranking you want and I’ll tell you what to measure. But if economic growth is what you are after, business climate and tax policy (and specifically tax simplicity and predictability) is what you should be measuring.
Crossposted at Boston Daily.