Not Low Business Costs

I finally had the time to take a look at the annual competitiveness report published by Business Leaders for Michigan. The one that gets so much publicity because it shows Michigan has a cost of doing business 4% higher than the national average. Which they argue is what Michigan most needs to fix to grow its economy.

Their own report shows how untrue that is. They only provide data for ten states that they designate as comparison states for Michigan. The ten (in the order they list them) are: North Carolina, Massachusetts, California, Texas, Illinois, Alabama, Tennessee, Georgia, Indiana and Ohio.

Of the comparison states the one with the lowest business cost score is North Carolina, 14% below the national average. The two comparison states with the highest business cost scores – far higher than Michigan – are California and Massachusetts (18% and 17% above the national average). If they are right that Michigan’s moderately high business costs are the chief cause of Michigan’s economic decline, then Massachusetts and California should be in ever worse shape and North Carolina should have one of the nation’s best economies.

The exact opposite is the case! Their two highest business costs states are the only comparison states in the top ten nationally in per capita income and North Carolina is thirty fifth. The differences: per capita income in Massachusetts $16,000 higher than North Carolina, California $8,000 higher.

So what about per capita income growth rates? (Some – including Business Leaders for Michigan – argue that Michigan should benchmark itself against high growth states.) From 2001-2008 Massachusetts ranks 24th, California 33rd and North Carolina 44th.

How about the metric that most of the public uses to measure economic success – the unemployment rate? In February 2010 Massachusetts 9.5%, North Carolina 11.2%, California 12.5%.

Lets look at all ten comparison states. North Carolina is one of seven below the national average in their business cost scores. Of the seven all are below the national average in per capita income. Six – Texas at 26th being the exception – are in the bottom twenty.  The tenth state is Illinois whose business cost score is at the national average. It is 14th in per capita income.

The three comparison states with the highest business costs scores are the three states with the highest incomes – by far.  So much for low business costs being the key to Michigan’s economic revitalization!

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