There’s a lot of bipartisan self-congratulatory talk going on about how Minnesota ranks #8 in the latest edition of The Best States for Business and Careers, an index from Forbes. MinnPost, for example, includes quotes from the current governor, as well as a man who would like to challenge him for the office next year. Of course, everything must become political.
But the quality of a state for economic performance is a complex subject that should defy short-term chest-beating. For one thing, it depends in parts on the personal habits and qualities of its people, which are only partially determined by public policy. In short, not everything is determined by policy or politics. But if we do want to sort out political blame or credit, consider also that there’s typically a lag between a policy and its effects. Many different policy decisions influence the elements of the rankings, and it’s likely that some have short lag times while others have long ones.
When it comes to meta-indexes such as this, I’m always more interested in the particulars than in the headline-grabbing number. And in this case, there’s enough murkiness in just what is included in the index to make me question its validity as a tool for guiding policy. Still, let’s take a look.
To compile its rankings, Forbes looked at six different categories of data:
- Quality of life included colleges (the number of top-ranked institutions), cost of living, crime rates, an index for culture and recreation, health statistics, poverty rates, school performance data, and weather.
- A state’s economic climate is measured by the average unemployment rate over the last five years, as well as “job, income, and gross state product growth.” In other words, it’s backward-looking.
- Growth prospects were calculated by looking behind (the number of businesses that have opened and closed; venture capital investments) and looking forward (forecasts from Moody’s Analytics).
- Labor supply is one category Minnesota does well in. It does well in high school and college achievement. This category also measures net migration over the last five years, percentage of workers in a union (low), and projected population growth.
- The regulatory environment is, curiously, captured by two indexes that appear to be at odds with each other. One report, Freedom in the 50 States, emphasizes minimal uses of government. The other, from Pollina Corporate Real Estate, “measures tax incentives and the economic development efforts of each state.” When I read “tax incentives,” I think “government picking favored projects over others,” though it’s hard to tell what Pollina has in mind. The Forbes index also “considers labor regulations, health-insurance coverage mandates, occupational licensing, the tort system, right-to-work laws and more.” That’s a mouthful, and by conventional free-market standards, Minnesota doesn’t do that well on these matters.
- Business costs, says staff writer Kurt Badenhausen, “incorporate Moody’s Analytics cost of doing business index which includes labor, energy and taxes. Moody’s weighs labor costs the most heavily in its index. We also included a state tax index from the Tax Foundation that launched in 2012 and looks at the tax burden on businesses in each state across different industries.”
It looks like a decent compilation of factors, though we don’t know the specific weighting of each category. In addition, the data for some categories is described only generally, so there’s a lot we don’t know about this index.
What about Minnesota? In the article that summarizes the index, Forbes credits the state’s strong showing to “an improved economic outlook,” as well as its #2 in the percentage of adults with a high school diploma, a low poverty rate, and a healthy population.
Here’s how the state ranks on each of the six categories.
Quality of life: #5. When you have a lot of money–and Minnesota is a high-income state–you can buy a lot of quality of life. How did it become a high-income state? (Insert lots of political debate here, but let’s just say we’re good at making and selling stuff that commands a high value in the global and national market.) In addition, Minnesota’s generous welfare system helps keep the poverty rate low. Also, Minnesota is a laggard in locking people up in prison–which may, considering that prisons become schools for crime–may actually be good for crime rates.
Economic climate: #9. Over the past five years, the state has had it good. Republican politicians and partisans, of course, will credit Republican rule. It’s obviously a self-serving argument on their part, but it still must be asked: What will be the effects in a few years of the state’s current one-party DFL rule? It may depend, in part, on how long that monopoly continues.
Growth prospects: #13. This is encouraging, though again, some of the data–it’s impossible to say how much–is based in part on past policies. The other part is based on educated guesses about the future.
Labor supply: #18. The state’s high rate of high-school completion helps here. Minnesota routinely scores near the top of the nation on the National Assessment of Educational Progress, as well.
Regulatory environment: #22. Given the mash-up of indexes here, it’s hard to say anything other than, “At least Minnesota has been above average.”
Business costs: #34. Though this is the most heavily weighted factor in the index, it is also the only one in which Minnesota ranks below the national average. That’s not good for the future.
It’s all an interesting collection of data, but there’s so little detail about specific measurements that, combined with the other factors mentioned above (lag time, non-policy factors), it’s hard to say anything definitive as a result of this report–except that politicians will seek to claim credit one way or the other.
(First published by Center of the American Experiment)