NC Budget and Tax Center, Uncategorized

NCGA reminded that many “business climate” rankings paint an overly rosy picture

Last Thursday, members of the Economic Development and Global Engagement Oversight Committee saw evidence that many “business climate” rankings overstate how well North Carolina is actually doing.Abernathy Slide - Rankings and Econ Performance

Respected economic expert Ted Abernathy, formerly the Executive Director of the Southern Growth Policies board and now with Economic Leadership, an economic development and analysis consultancy, briefed the committee on a range of economic dynamics from growing wage gaps between urban and rural North Carolina to factors that influence our competitiveness on the global market.

Abernathy also examined how North Carolina’s economic performance compared with how we fared in several business interest group and media publications. This analysis shows that North Carolina’s economic performance has fallen short of its stature in many of the rankings. As can be seen in the graph, North Carolina is in the top 20% in performance (“Statistical Ranking”), but is a top 5 state in the “Best States” rankings. Our economy is doing better than many states, but not nearly as well as many state rankings would imply.

Business climate rankings often overstate how well North Carolina is doing, sometimes because they choose measures that reflect policy goals more than actual economic reality. For example, my colleague has written about the flaws in rankings published by the Tax Foundation, whose measures of competitiveness align with their low-tax agenda.

North Carolina has also been firmly established near the top of many state business climate rankings for years—in good times and bad. Further evidence that the rankings are not telling us much about whether the economy is delivering opportunity, growing in a way that provides jobs to all who need them or in all communities that do, etc.

Over the years, elected leaders from both parties have invoked North Carolina’s strong showing in one business ranking or another as proof that their ideas are working. Invoking business rankings during debate is almost a rite of passage at the legislative complex, right up there with the bad coffee, but tradition doesn’t make the rankings any more accurate, or any better a basis for policy decisions.

Mr Abernathy’s analysis provides a reminder that good policy is based in facts, the good and the bad. Let’s hope this year sees policymakers heed the facts and what struggling North Carolinians are telling them more than some abstract rankings that hide much of what is wrong with our economy from view.

One Comment

  1. James

    January 13, 2016 at 11:01 am

    I’m sure the admonition that good policy is based on facts earned a few chuckles from that audience.

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