NC Budget and Tax Center

New ALEC business climate rankings are mostly chaff

There are lies, damn lies, and state business climate rankings.

Okay, that’s not exactly what Mark Twain said, but he might have been tempted to swap out statistics as the target of wit had he witnessed the recent proliferation of state business climate rankings.

Many of these rankings merely cloak ideology with the veil of science, as is the case with one of the worst offenders, Rich States, Poor States, which was released Wednesday.

The new report ranked North Carolina as the 4th most competitive state in the country, following a meteoric rise from the middle of the pack a few years ago.

Some leaders in Raleigh will point to this as evidence that tax cuts, slashed government spending, and reduced employee protections are making the state a better place to do business. There’s just one small problem: these rankings have almost nothing to do with economic reality.

First, a bit of background. The report is put out by the American Legislative Exchange Council (ALEC), a deep-pocketed organization dedicated to cutting government, ending progressive taxes, undermining workers’ protections, limiting the minimum wage, and generally opposing any move to make the market function in a more equitable manner. The report’s primary Author, Art Laffer, is widely seen as the inventor of supply-side economics, a theory that even former President George H.W. Bush described as “voodoo economics.”

Long story short, this report is designed to further a very specific policy agenda, not to take a sober look at what actually makes states economically competitive.

Given the agenda behind the report, it is hardly surprising that past rankings have almost completely failed to predict actual economic performance.

A thorough analysis from Good Jobs First showed that, at best, state rankings in 2007 had no relationship with how state economies performed from 2007 through 2011. In fact, good rankings on the ALEC scale were more likely to be a sign of bad things to come. For example, growth in per capita income was actually slower among states that ALEC had ranked as the most competitive. The same was true for median household income and total non-farm employment.

ALEC has convinced far too many decision-makers that its rankings actually capture competitiveness. Rankings are often intuitively appealing, particularly when you are predisposed to agree with the worldview of the authors, but that’s the danger of ALEC’s recent rankings.

They have the trappings of science (lots of charts, tables, and numbers) but none of the intellectual rigor that real economic analysis requires. If past performance holds true, North Carolina’s surge to the top of the ALEC ranking portends problems not prosperity.

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