Closer look at state ‘business climate’

Wednesday’s front page Bangor Daily News story regarding Maine’s business climate may have been more important for what it did not say, than for what it did.

Every year states are evaluated according to what kind of climate or environment they provide for business. Some reports take a very narrow focus by claiming that corporate tax breaks, coupled with low taxes, low wages and minimum government regulation and programs, are the most beneficial factors for creating a good “business climate.” However, a number of studies, such as those conducted annually by the Corporation for Enterprise Development (CFED), consistently prove that this narrow approach to economic development is not only incorrect and misleading, but also harmful to a state’s economy.

If a state follows the narrow “business climate” approach it will end up attracting marginal industries which provide questionable benefits to the area as well as to the people they employ. As a study on the de-industrialization of America has documented, because these industries often are on the end of the production cycle, both labor and management functions are highly regimented and routine. Since only low-skill job levels are needed and available, the wages paid are low as well. And, the corporate taxes paid to the state and locality also are minimum or nonexistent since tax abatements were the primary inducement for attracting this type of business or industry in the first place. In addition, there is absolutely no guarantee that once the tax abatements end these businesses won’t decide to move elsewhere, as is often the case.

Despite all the traditional “business climate” rhetoric, there are important findings and experiences regarding what works in stimulating and maintaining a viable economy. For example, according to a study by Belknap Data Solutions Ltd., when business and manufacturing enterprises were asked to identify those factors which were priorities in their decision-making on plant location, the following were cited as the most important: a skilled, educated and productive work force; quality educational institutions; attractiveness of the area for managers and professionals; basic infrastructure, including the transportation network; sewer and water systems; availability of capital; and accessibility to markets. Another survey study dealing with business location decisions found that traditional factors involving tax and financial incentives had “little influence on almost all plant location decisions.”

Economic and political changes on the national and international levels are beyond the control of individual states. What’s important is how effectively a state and its people can adapt to these changes. Based on current and past findings reported by the CFED and other organizations, there are a number of constructive actions which states like Maine can take. Here are some of the highlights of these approaches:

. The ongoing development and funding of high-quality public schools, vocational centers and institutions of higher education produces citizens and workers who are not only highly educated, but have the ability and expertise necessary for adapting to changes in today’s highly competitive world economy. Such a work force can play a critical role in enabling a state to attract, maintain and support progressive enterprises in the profit and nonprofit sectors. These enterprises can make a positive contribution to a state by providing well-paying jobs and beneficial tax revenues. The foundation for strengthening a state’s economy involves the creation and strong support of lifelong opportunities for people to achieve upward mobility and self-development through education.

. The development and proper maintenance of a strong infrastructure is a critical determinant in helping existing business and industry within a state to become and remain competitive. A state’s physical infrastructure of roads, bridges, airports, water and waste systems, public buildings and resources is another major factor in attracting, keeping, and maintaining viable economic enterprises.

. Institution of policies and programs designed to enhance the quality of life for people needs to be a key priority in any state’s development efforts. State economic development efforts have been most successful and lasting where they have strengthened or attracted businesses that provide enduring quality jobs with adequate compensation and benefits. Government can play a pivotal role in forming public and private partnerships designed to achieve economic growth which shares the benefits with the greatest number, mobilizes capital, helps distressed areas, and enhances the development of human resources, business and technology.

The CFED’s reports have provided Maine people, and particularly our policy-makers, with important considerations about what we are doing with admittedly scarce public resources. The larger question

is whether we are putting our tax dollars where we can get the “biggest bang for our buck.” As the late Gov. James Longley observed, it’s something to think about.

Bill Murphy and John Hanson are on the staff of the Bureau of Labor Education at the University of Maine.