The editor’s opinion from Marketplace, Northeast Wisconsin’s business magazine. (Obligatory disclaimer: Most hyperlinks go to outside sites, and we’re not responsible for their content. And like fresh watermelon, peaches, pineapple, grapefruit, tomatoes and sweet corn, hyperlinks can go bad after a while.)
July 15, 2008
We're number 37!
When I reported that the area’s biggest school district had scores that were less than other schools in the area and schools in its athletic conference, I was called on the carpet by school district officials (not for the first or last time, by the way) and told that you really can’t compare scores of one group to another. One year later, when a different group of third-graders got better results, the school district, of course, crowed about their great test scores.
(And if you think that’s bad, just try comparing property tax rates between municipality–school district–county combinations.)
I thought of that when I saw CNBC’s ranking of states as places in which to do business. Texas ranked first, followed by Virginia, Utah, Idaho and Colorado. Alaska ranked 50th.
How did Wisconsin rank? Number 37, behind, in the Midwest, Iowa (ninth), Minnesota (10th), Indiana (13th), Illinois and Ohio (both tied for 30th), ahead of Michigan (40th), and down four spots from 2007.
The survey, according to CNBC.com, uses public data on 40 measures of competitiveness, separated into 10 broad categories, and weighted “based on how frequently each is cited in state economic development marketing materials.”
That 37th ranking is what you get by combining Wisconsin’s rankings (apparently in the following weighted order) in cost of doing business (36th), workforce (47th, our lowest ranking), economy (36th), education (ninth, our highest ranking), quality of life (25th), technology and innovation (22nd), transportation (13th), cost of living (22nd), business friendliness (28th), and access to capital (27th).
Some of the rankings are pretty obvious. Cost of doing business refers to individual income and property taxes, business taxes, gasoline taxes, utility costs, wages, Worker Compensation insurance, and industrial and office rental space. “Economy” refers to “basic indicators of economic health and growth,” along with the number of major corporations located in a state. Education combines K–12 test scores, class size and spending, along with the number of higher education institutions (in Wisconsin’s case, 13 University of Wisconsin four-year schools, 20 private four-year colleges, 13 UW two-year schools, and 16 technical colleges). “Business friendliness” is “the perceived ‘friendliness’ of their legal and regulatory frameworks to business.” “Access to capital” refers specifically to venture capital.
Some are not so obvious. “Workforce” refers to the numbers of available workers and their average education level, unionization level (with higher levels getting lower ratings because “while organized labor contends that a union workforce is a quality workforce, that argument, more often than not, doesn’t resonate with business”), and the job placement success rates of state worker training programs. “Quality of life,” which every Wisconsin economic development body touts, is based on “local attractions, the crime rate, and health care.” “Technology and innovation” is based on states’ “support for innovation,” number of patents issued to state residents, and the “deployment of broadband.” “Transportation” is an interesting measure, based on “the value of goods shipped by air, land and water,” as well as air travel availability and road quality.
With these as the definitions, 37th isn’t much of a surprise. Given our levels of taxation and regulation, in fact, it's pretty remarkable that Wisconsin came in just 36th in cost of doing business and 28th in business friendliness. (Then again, the survey was conducted before the news that our state makes a habit of overtaxing our corporations.) It's nice to see that we rank 13th in business-related transportation given our lack of large airports and the fact that most of our four-lane highway construction came at our initiative, rather than having been part of the Interstate Highway System. (More on that in a future post.)
Some are surprising, and perhaps you would disagree with them. Every Northeast Wisconsin business person, without exception, has always touted the quality of his or her workforce. In fact, some businesses with nationwide customer bases even export their local employees to other areas of the country for work, reasoning that the cost of housing employees is less than the benefit of their superior comparative work ethic. However, Wisconsin historically has a below-average percentage of people with college degrees. Many Northeast Wisconsin private-sector employers have unions and get along fine with them; public-sector unions, however, are the bane of the taxpayer's existence in this state. As for the success rate of state workforce development programs, this rating would not seem to be a vote of approval.
About our state's economy, at least it can be noted that 36th is 10 places better than in 2007. This half of the state is manufacturing-oriented, although health care and the insurance industry are significant white-collar employers. High-tech and particularly biotech are growing but comparatively smaller segments. Texas, the number one ranked state, is also ranked first in economy, with a gross state product per capita nearly $3,000 more than Wisconsin's. This ranking doesn't measure per capita income, but Wisconsin has more often than not trailed the national average, depending on how you count, in personal income as well.
Tom Still, our former Inside Wisconsin columnist and president of the Wisconsin Technology Council, argues that Wisconsin's culture has not been as entrepreneurial as, say, the culture of Minnesota, which, you'll note, is ranked 27 places higher than Wisconsin. It has to be said as well that tax rates as historically high as ours (an important point — Wisconsin's reputation as a nosebleed-height tax state far predates tax cuts passed in the 1980s and 1990s) don't really reward entrepreneurial risk-taking.
A quibble in the opposite direction is our ninth-place ranking in education, based on our high spending on education (leading directly to our high taxes) and our students' high test scores, which I would argue has as much to do with their parents' opinion, as expressed in parental discipline, about the importance and value of education as with what happens inside Wisconsin schools. The large number of post-high school education options does not correlate with our aforementioned below-average college graduation rate. And there is less correlation than teacher unions want you to believe between education spending and education quality; otherwise, New York, New Jersey and the District of Columbia would be the top three in U.S. education quality based on per-pupil spending, and I don't think anyone believes that to be the case. Wisconsinites reflexively boast about our great schools without, I think, seriously investigating whether our schools really are as great as we think they are. (Being seen as having some of the best schools in the U.S. may not be such a great thing either.)
One final quibble is in the area of quality of life, where Wisconsinites might have a different definition than CNBC's survey. Wisconsin doesn't have that many name-brand attractions; the Northwoods is not necessarily thought of like, say, Disneyland, and yet observe the U.S. 41/U.S. 45 interchange in Oshkosh, or Interstate 39 in Marquette and Waushara counties, on a Friday evening. Wisconsin's crime rates are historically low (note that this list of the 30 lowest metro-area violent crime rates includes Sheboygan, Appleton, Eau Claire, Wausau, Fond du Lac and Oshkosh). This survey does seem to suggest that businesses don't take the environment seriously when making location decisions.
So what do we do about 37th place? First: Take it seriously. Unlike, say, a certain newspaper chain's obsession with our drinking habits with accompanying potentially manipulated survey, CNBC appears to have no axe, partisan or otherwise, to grind. If the survey is based on measures of competitiveness that economic development organizations tout, then based on those standards, Wisconsin is not doing very well. The survey should be looked at in the same way one would look at a negative job review: Fix the problems. It's not as if Wisconsin will be fired if we don't improve, but then again not improving won't make our state a better place to work or live.
Nothing will get better in this state, business-wise, if we take either tack usually found when faced with survey results we don't like: (1) attack the messenger, the survey or the conductor of the survey, or (2) revert to boosterism and tell people to not believe this survey; this is a great place to do business. The role of economic development corporations or business promotion groups is certainly not to emphasize the negative. But someone must point out that, compared with the states with which we are competing for business — including keeping the businesses we have here from leaving — Wisconsin has barriers to business vitality, economic prosperity and wealth creation (particularly attitudinal barriers), and if we ever expect sustained improvement in our state's economy, we need to deal with those barriers, particularly on Election Day.