Just about every state claims to be "business-friendly." But which ones really are?
It's more than an academic question these days. Two former governors—Mitt Romney of Massachusetts and Jon Huntsman of Utah—plus the current governor of Texas, Rick Perry, are touting their business-friendly policies as they seek the Republican presidential nomination. And with jobs scarce, any policy that might lure businesses and create a few jobs seems worth looking into. Even President Obama, erstwhile critic of "fat-cat bankers" and "corporate jet owners," has begun wooing business leaders as he tries to come up with new ways to boost the flagging economy.
To determine which states truly seem to be luring businesses, I used data provided by economic consulting firm EMSI of Moscow, Idaho, showing business establishments per capita. Since the data control for population, the method allows for comparisons between populous states like California and Texas and less populated ones like Rhode Island and Nevada. I was interested in each state's performance over the last few years, to account for the recent recession, so I measured the change in business establishments per capita from the beginning of 2008 through the end of 2010. I also included each state's unemployment rate in my data set, to help identify outliers.
The median change was 0, which means that the typical state neither gained nor lost businesses in proportion to its population over the last three years. That's a very weak showing consistent with an economy still struggling to bounce back from a brutal recession. Not surprisingly, states that suffered the worst during the recession—especially Nevada, Arizona and Florida--tended to lose businesses, while states that fared better had a higher rate of business creation.
As for the Republican presidential candidates: Perry's Texas ranked 23rd among states, with no change in business establishments per capita. Texas has been gaining population, which means that it also gained new business over the last three years—but not enough to increase the rate of businesses per person. Utah, which Huntsman governed from 2004 to 2009, came in near the bottom of the list, but that's probably an outlier caused by a large influx of people migrating to the state; overall, Utah's economy has done relatively well, with an unemployment rate that's well below the national average. Romney's Massachusetts ranked near the top of our list—but Romney can't really claim credit for that, since he left the governor's office in 2006.
Here are the 10 states (nine, plus the District of Columbia) with the best rates of new-business creation since 2008:
Washington, D.C. Businesses per person in 2008: 1.97; in 2010: 2.05. Unemployment rate: 10.8 percent. The nation's capital clearly benefits from a strong government sector and a lobbying industry that's been booming (for better or worse). The district's high unemployment rate, however, indicates that there's a sizable underclass that's not partaking in the prosperity.
Washington state. Businesses per person in 2008: 1.14; in 2010: 1.2. Unemployment rate: 9.3 percent. The Seattle-area tech industry, anchored by Microsoft, has helped keep Washington's economy above water—plus the state may be gaining entrepreneurs and others who are leaving recession-weary California.
Massachusetts. Businesses per person in 2008: 1.09; in 2010: 1.15. Unemployment rate: 7.6 percent. The housing bust in the Northeast wasn't as bad as it was elsewhere, which has helped the regional economy. Massachusetts benefits from strong education, healthcare, and tech sectors.
North Dakota. Businesses per person in 2008: 1.26; in 2010: 1.32. Unemployment rate: 3.3 percent. This is one of the few states where there's barely been a recession, thanks to a boom in energy and agriculture. North Dakota has the lowest unemployment rate in the nation.
Illinois. Businesses per person in 2008: 0.97; in 2010: 1.01. Unemployment rate: 9.5 percent. The jobless rate is above average and the state has faced huge budget deficits, but Illinois also has a strong agriculture sector, plus the diversified economy of Chicago.
Louisiana. Businesses per person in 2008: 0.92; in 2010: 0.97. Unemployment rate: 7.6 percent. Even last year's Gulf oil spill hasn't dampened the state's booming energy sector.
Kansas. Businesses per person in 2008: 1.0; in 2010: 1.03. Unemployment rate: 6.5 percent. Agriculture is the story here, with rising prices for food crops and farmland sustaining the state's economy.
Nebraska. Businesses per person in 2008: 1.08; in 2010: 1.11. Unemployment rate: 4.1 percent. The Cornhusker State has long benefited from a low cost of living that draws businesses. Like other Midwestern states, the absence of a pronounced boom-bust cycle in housing has left less damage than in the Southwest or Southeast.
South Dakota. Businesses per person in 2008: 1.21; in 2010: 1.24. Unemployment rate: 4.1 percent. North Dakota's energy and agricultural bounty has spilled across the border, benefitting its neighbor to the south.
New York. Businesses per person in 2008: 1.01; in 2010: 1.05. Unemployment rate: 8 percent. The financial industry has lost thousands of jobs, but New York has a vibrant economy—including tourism—that attracts businesses from all over the world.
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