By SCOTT WOLF
Rhode Island generally takes a pounding in the reports ranking states’ business climates by such national organizations as the Tax Foundation and Forbes Magazine. What predictably follows such news is gloom-and-doom commentary by civic leaders along with a growing sense of hopelessness among rank-and-file Rhode Islanders.
George Wein, the longtime Newport Jazz Festival impresario, denounced this malaise last summer, noting to The Journal that “Rhode Island thinks it’s a depressed area; they think it’s a permanent way of life.”
Before we all give up on our state and move to high-ranked business climates such as South Dakota, Nevada or Wyoming, it is critical to understand the limitations of business-climate reports. That’s why I recently analyzed Census and Bureau of Labor Statistics data about all states, seeking to answer a basic question: What correlation exists between a state’s business-climate ranking and more concrete measures of economic performance such as per-capita income, and rates of poverty and unemployment?
To those convinced that Rhode Island’s low rankings should be our overriding economic-development focus, my findings might be jaw-dropping. For example, if a high business climate ranking alone were a sure ticket to economic success, why would Nevada, the 4th best business-climate state in America (according to the Tax Foundation), have the nation’s second-highest unemployment rate (even higher than Rhode Island’s), and why would the best business-climate state, South Dakota, have the 16th highest poverty rate, considerably worse than ours, and a per-capita income significantly lower than ours? And why would the states with the three worst ranked climates — New Jersey, New York and California — have respectively the 2nd, 4th and 7th highest per-capita incomes among the 50 states?
I didn’t invent these figures, although they are so much at odds with Rhode Island conventional wisdom that you might think I did.
Fortunately, at least one group of Rhode Islanders, well-educated recent arrivals with entrepreneurial ambitions, doesn’t appear to accept the notion that our state is economically oppressive. They usually tell me that our state’s tax and regulatory structure affect them little, if at all. Some find Rhode Island natives’ relentless negativity a much bigger business-climate issue.
None of this commentary is intended to deny that Rhode Island has high taxes, at least on property, and that we share with other industrialized states a fairly complicated and overly time-consuming regulatory system. Can we and must we become more economically efficient and attractive through continued tax reform, permit streamlining and regionalization of some local services? Yes, absolutely! But does our low-ranking business climate doom us to a future as an economic backwater? Not at all — unless we become so obsessed with pursuing lower taxes and spending that we conclude that nothing else is important in shaping our economic future, including targeted investments in our key built, natural and human assets.
Even Forbes and the Tax Foundation demonstrate that their business climate rankings have limitations and can’t fully predict a state’s future economic well being. Forbes in fact, while recently ranking Rhode Island last on overall business climate, ranked us 18th best for future economic growth prospects. The Tax Foundation meanwhile acknowledges that a state’s “overall business climate” is affected by many variables beyond those in the foundation’s business climate index, citing, for instance, a state’s “. . . proximity to raw materials or transportation centers, the quality of its educational system and the skill of its workforce, not to mention the intangible perception of a state’s ‘quality of life’.”
As we develop a strategy for sustainable prosperity, we need to stop being paralyzed by hyped business-climate reports and begin playing the highly competitive economic-development game through policies and incentives that capitalize on our strengths.
Let’s for example, reinstitute a targeted state historic tax credit, to take full advantage of our having the largest collection of historic commercial buildings per square mile of any state.
Let’s develop a statewide smart-growth site inventory to market such properties to the many high-paying, knowledge-economy businesses that have been displaying a preference, here and elsewhere, for urban, historic, walkable settings.
Let’s explore an ocean-research corridor initiative with Massachusetts and Connecticut to generate more economic value from the greatest concentration of ocean-research expertise in America.
Let’s increase significantly the small number of Rhode Island Economic Development Corporation employees currently identifying and helping to commercialize the extensive research occurring in our higher-education and health-care institutions.
In this era of rising gasoline costs, let’s invest in a more comprehensive and user friendly public-transit system to maximize our advantage as a very small, high-density state that’s easy to navigate.
Let’s reject NIMBYism and support Governor Carcieri’s initiative to develop a major offshore wind-energy farm and wind-turbine-manufacturing facility at Quonset.
Let’s promote our tourism and farming sectors more aggressively and not get sidetracked by dubious assertions that their average wages or annual output are too low to be worthy of our attention.
And let’s seek in an environmentally responsible way to make better use of our strategically situated ports and T.F. Green airport.
By pursuing these actions and investments, using federal, state and private resources, along with continued work on some of the more traditional business-climate issues, we will be taking a significant risk. We might after all succeed economically, and lose the opportunity to continue immersing ourselves in what has become a favorite Rhode Island pastime — self-flagellation. But beating ourselves up is a luxury we can no longer afford if we are committed to helping Rhode Island avoid permanent underachiever status and reach its vast untapped potential.