Still a C state ? The Presteblog

The Ball State University Center for Business Research has released Conexus11, a comparison of the states in business climate generally and manufacturing and logistics business climate specifically.

The study grades the states on manufacturing, logistics, human capital, employee benefit costs, global reach (that is, the amount of international trade), productivity and innovation among state-based businesses, tax climate, diversification of state businesses, and venture capital per capita ? ?variables chosen to represent those state level items most likely to be considered by site selection experts for manufacturing and logistics firms, and by the prevailing economic research on growth.?

With that in mind, Wisconsin parents, here is Wisconsin?s report card:

Manufacturing: B+
Logistics: B?
Human capital: B+
Employee benefit costs: D?
Global reach: C
Productivity and innovation: D?
Tax climate: C?
Diversification: B?
Venture capital: C

Add those up by the usual point system, and Wisconsin?s grade point average is 2.11, a C. Any parents out there satisfied with C grades?

These are essentially the same grades the state received in the 2010 comparison. (There was a blog that covered that somewhere ?) It?s good that Wisconsin did relatively well in one of the biggest employment sectors of the state. Logistics is not only a major employer (Schneider National and its orange trucks), but logistics is part of every business that sells products or performs on-site services.

The rest of the areas are of a more general business-climate nature. The tax-climate grade is about two grade levels too high. (I?m guessing relatively few manufacturers are organized as S corporations or other pass-through entities, and to have business-friendly tax reform requires reforming not just corporate income taxes, but personal income taxes as well.) The Global Reach grade is an indictment of the state Department of Commerce, which sent news releases regularly extolling the state as an exporter, when apparently they were inflating the export impact of a state that should be close to leading the nation in exporting, between manufacturing and agriculture. One wonders how much the employee benefits cost score is tied to state mandates in health insurance.

Not all of them are tied to what government does. The diversification grade touches on a tricky subject, the balance between sticking to your business knitting (core competencies and all that) and branching out into areas that might prove more lucrative. If this reads like damned-if-y0u-do/damned-if-you-don?t, well, it is:

States which have a high proportion of manufacturing activity in a single sector typically suffer higher volatility in employment and incomes over a business cycle. ?Less diversified regions are also more likely to experience greater effects of structural changes to the economy which involve a single sector. ??One potential benefit of low levels of economic diversification is that specialization and the resulting agglomeration economies often emerge in these highly specialized regions.

It is interesting to see Wisconsin get high marks in human capital, but low marks in productivity and innovation. The study notes the latter grade is based on ?manufacturing productivity growth, industry research and development expenditures on a per capita basis, the per capita number of patents issued annually and the expenditures by venture capital firms in each state adjusted to a per capita basis.? That includes, but is not limited to,??the presence of local talent in these areas through access to university laboratories and non-profit research activities,? which in this state starts with UW?Madison.

Venture capital shows up in the aforementioned productivity and innovation grade and in a separate grade. This state is far worse than the national average in terms of venture capital investment. (In part because, as I argued yesterday, Wisconsin doesn?t have enough rich people.) And yet the initial attempt to promote venture capital (deservedly) went nowhere. That doesn?t mean the problem has disappeared; it means a better solution is needed than what was initially proposed.

As I bring up every time business climate studies are discussed here, those of a certain political bent criticize studies that give results with which they ideologically disagree. (This means you, Bob Jauch!) But business climate studies are by definition based on what businesses consider important, not on what Da Union wants. It is no accident that Wisconsin has trailed the national average in per capita personal income growth since the days disco was popular. It is also no accident that Wisconsin has trailed as well in business start-ups, incorporations, venture capital investment and other measures of business vitality. (It is also not an accident that Wisconsin unemployment rates and labor force participation numbers are better than the national average ? Wisconsinites work because they have to in order to pay for everything government wants from us.)

Wisconsin has been officially open for business for less than six months. So irrespective of Gov. Scott Walker?s quarter-million-new-jobs pledge, the effects of legislative initiatives to improve the state?s business climate won?t be known for some time. Those efforts to date haven?t gone nearly far enough to undo the effects of the previous approach.

Source: http://presteblog.wordpress.com/2011/06/23/still-a-c-state/

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