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Hope for RI: Misleading business-climate rankings

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.

17 Responses to Hope for RI: Misleading business-climate rankings

  1. Yvonne Seggerman November 5, 2009 at 4:16 pm #

    brilliant!
    I came to the State not too long ago and coined it “Reverse Chauvinism” i.e. if its from here it must be no good.

    I can’t tell you how many times I have said I have worked in NYC or was born in Los Angeles and people have visibly changed their minds about the value of our conversation — its nuts! There are great people, great institutions and a wonderful comraderie and working/collaborating expediency that is unique to Rhode Island.

    Y Seggerman, Executive Director Pawtucket Armory Center for the Arts

  2. j. michael abbott November 5, 2009 at 4:18 pm #

    Amen! If we inventory why we all live here, we would have a long list of positives that make this place so special, and why we continue to stay. I strongly believe in Rhode island’s future.

  3. Hy Goldman November 5, 2009 at 4:48 pm #

    I think the wages from tourism and farming are still better than
    unemployment checks, and give more self-respect!!

  4. Barry Fain November 5, 2009 at 4:56 pm #

    Wonderfully done op-ed, Scott. Long overdue.
    We recently did a story on poeple who could have chosen to live anywhere, but after doing their research, chose Rhode Island. They included business people, airline pilots, families coming in for the education, young creative types who loved the vitality., all types. It was a long and very impressive list. That’s the RI we need to market. Keep up the good work
    Barry Fain, editor/publisher Providence Media

  5. Bill Roper November 5, 2009 at 5:05 pm #

    You’ve done a great job digging below the surface to illuminate the complexity of relationships between growth, jobs, the environment and community, Scott. I actually just wrote a little bit on the same subject on the Orton Family Foundation’s facebook. You might also be interested in a project the Foundation, TNC and a number of business organizations are supporting, which involves a RI and a CT town in an area we call “the Borderlands.” You can find it on the Foundation’s website, http://www.orton.org. Thanks for your great insights, Scott.

  6. Lee R. Whitaker November 5, 2009 at 5:29 pm #

    Thank you Scott. I hope all the nay sayers read your article, and raise their heads a little higher to see the good. That in turn will lift their hearts and minds. You are helping us overcome the constant pounding from the one note johnnies. Keep up the good work.

    Lee R. Whitaker, AICP

  7. paul beaudette November 5, 2009 at 5:37 pm #

    Scott, a great piece that put the projections of RI’s future in so much disrespect. They look at the numbers through their myopic lens. You raised excellent comparisons and suggestions to move us forward. If I may add one to your thinking it is our strong environmental assets from state parks, hiking trails, blue ways for being on the rivers, coves and bay along with wonderful beaches both fresh and salt water. We need to advocate for them as well. thank you for shinning a light of HOPE.

  8. Bob Andrade November 5, 2009 at 5:41 pm #

    Excellent and long overdue. This is exactly how I and I’m sure many people feel and we’re glad that someone has finally come forward and put the message across in such a thoughful way. The glass is indeed—-Half full not half empty.

  9. Yvonne Seggerman November 5, 2009 at 5:51 pm #

    half full of champagne, I always say.. but that’s just me.

  10. Mike Byrnes November 5, 2009 at 11:24 pm #

    Scott,

    Great article with many good recommendations. While I agree 100% that 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, I do think it makes sense to pay attention to why RI is ranked so low. We need to better understand why our unemployment number are so high. We can do much more to make our state business friendly.

    I would not use NY, NJ and CA as examples. Their per capita income may be high but the numbers of residents and businesses leaving all three states would not make them a positive model. Taxes are an issue. It is not only our property tax that is high, but also state income and corporate tax. For every well educated entrepreneur that says taxes don’t matter there are many more “Rhode Islanders” who have Florida license plates on their cars. We need to ask if there is a message here.

    The reports that you cite do not doom Rhode Island to the economic under class they only make statements about our condition and as you so ably point out those statements can and should be challenged. You have done a great service in pointing out that there is a way forward for our state.

  11. Chris Benetti November 5, 2009 at 11:57 pm #

    Why aren’t our elected officials thinking like this? Where is the governor, with all of his management experiance, I would think these are the types of questions he should be asking. These are the type of projects , i.e.the smart growth inventory of available sites, that his staff should be researching and developing. Thank you for reminding us all what a great place this is to live and work.

  12. Neil Steinberg November 6, 2009 at 8:59 am #

    Scott,
    As you know we share a positvie view of our state. Your piece describes the “half full” atributes very well and hopefully gives many lseaders good for thought and more importantly spurs a more proactive game plan.
    Neil Steinberg
    Rhode Island Foundation

  13. greg gerritt November 6, 2009 at 9:00 am #

    Given the ecological crisis, it is likely that all western industrial economies will have to shrink. Instead of wasting time looking for new ways to grow, RI would be better off looking for ways to reduce inequality while intelligently shrinking its economy. You can not end poverty without healing ecosystems, You can not heal ecosystems without ending poverty.

  14. David Preston November 6, 2009 at 2:00 pm #

    Scott – Good piece. The attitude around here is brutal and self-fulfilling. If you ask me about a restaurant, and I tell you it’s lousy, are you likely to go? Same deal for businesses coming here or growing here – they’ll bring their business elsewhere. The property tax burden here is too high – 5th in the country. But one of the items on the famous List of What’s Wrong With R.I. is the “highest sales tax in the country.” This is simply not true, since there are many things we don’t tax. That’s why, according to RIPEC, RI is 37th in state and local general sales tax collections per $1,000 of personal income, and 30th per capita. Much closer to the lowest in the country than “the highest.”

    Finally, I’m always suspicious of these business rankings, since almost every time I look at the criteria they are more often than not driven by ideology (usually from the right) than by facts and math. In fact, I wouldn’t be surprised if groups from the states that come out on top actually fund these studies to a certain degree in order to turn high rankings into marketing tools.

  15. Rick Pace November 8, 2009 at 10:41 am #

    Scott,

    I appeciate your work on analyzing Rhode Island’s economic situation and suggesting valuable project ideas.

    Unfortunately, the problems are more than psychological. I think the cynicism and psychological problems are the result of a long history of misplacing social and economic incentives.

    We now have a poorly educated general population. Our economic incentives are cynical and hopeless. And my personal experience is we are not very understanding of one another ( Not cynicsm, just my personal day to day experience).

    With the economic downturn, Rhode Islanders are indeed in trouble. Hopefully, the financial crisis will bring about a new thoughtfulness and understanding.

    Sorry, to be so drab…and I feel badly for the situation….

  16. Pat Fontes November 14, 2009 at 4:12 pm #

    This comment is late because I’ve been away on a two-week study delegation to Israel and Palestine. I couldn’t agree with you more, Scott.

    I moved back to live in RI after 15 years in Ireland and 12 in Portugal. I told all my friends that RI was the only state I could think of moving back to without total culture shock. RI is great and doesn’t have the confidence in itself it should. We’d be better off if all the nay-sayers would fulfill their threat and get out!

  17. Greg LeRoy December 1, 2009 at 12:43 am #

    For a thorough dissection of the bogus “business climatology” ratings like those Scott cites, see Grading Places, by Peter Fisher, at http://www.epi.org/publications/entry/books_grading_places/

    and for even more history on them:
    http://www.greatamericanjobsscam.com/chapter-3.pdf
    Greg LeRoy
    Good Jobs First