There’s a saying — always improvised — that about 64 percent of statistics are made up on the spot.
To consider all state-by-state business climate rankings along those lines would be giving them short shrift. But there are questions about their value to policymakers in places like Maine, where they are pointed to — lately with horror — as signs of problems that need fixing.
That’s the case with the annual Forbes rankings that have been a hobby horse for lawmakers and Gov. Paul LePage, who have pointed to the ranking at various times in the past three years and emphasized, with a finger pointed somewhere, that the state is dead last.
That’s not the case any more, as Maine moved up one notch from the bottom this year, ahead of Mississippi.
Within the realm of the rankings, the change doesn’t mean much, and regardless of how a national magazine establishes a state-by-state pecking order for business climate, old questions remain about what — if any — message policymakers should take from them.
Here are some variables that are not readily apparent in Forbes’ ranking system:
All Maine businesses aren’t located in the same Maine. The biggest difficulty of tying state-level business climate rankings to the success or failure of any specific company is that businesses don’t locate in “Maine” — they locate in specific areas as different as Houlton and Ogunquit.
Greg LeRoy, executive director of the Washington-based organization Good Jobs First, which in 2013 commissioned a study of business climate rankings, said that’s a problem.
“The idea of a state business climate is nonsensical,” LeRoy said. “Look at the difference in the business climate between Bangor and Portland — those are two different labor markets and two different transportation systems and two different qualities of life and industrial bases. How can you lump them together and generalize?”
Peter DelGreco, head of the business consulting firm Maine & Co., agreed with that skepticism, and said he finds studies of specific labor markets or population centers more credible.
Still, the magazine’s ranking does come up when DelGreco speaks with specific businesses about locating in Maine, and it’s a conversation he said he wishes were not necessary.
“We have companies that are booming and we’re looking for more companies to join our economy,” DelGreco said. “I would hesitate to say [the ranking] is the determining factor, but it comes up and we have to manage it. And I think it’s manageable.”
The Forbes ranking does not prescribe solutions. The number ranking of Maine along with other states is an at-a-glance economic comparison, not a detailed prescription for policy changes.
“We look at it as a jumping off point where people can compare the economic climates across the 50 states,” Kurt Badenhausen, the Forbes editor who oversees the annual rankings, said. “It’s intended to give our readers a snapshot of the business climates around the 50 states.”
Badenhausen in 2011 corrected LePage’s interpretation of his magazine’s assessment of Maine’s economy, after the governor interpreted a call to address “structural problems” in the state budget as a need to reduce “welfare costs” and separately that the state should reduce energy costs.
Both are key policy priorities for LePage as he prepares for a second four-year term, but they were not specific recommendations of that year’s Forbes ranking.
The Forbes rankings have virtues: They’re consistent and not (entirely) backed by industry. Badenhausen said the methodology behind the Forbes rankings has changed little in recent years, making minor tweaks or additions to 36 data points used to generate the rankings.
For that reason, it’s notable that Maine’s one-spot shift is minor compared with the largest movements in the rankings this year — Louisiana jumped 11 spots and New Jersey fell nine spots.
The ranking is in part based on population growth, as a predictor of economic activity. Maine’s population has been stagnant for years and been a key reason economists in the state have forecast slow growth.
Five-year projections of growth from Moody’s Analytics and Economic Modeling Specialists Inc. are also a factor in the rankings.
While the exact weight of each metric in the Forbes report isn’t revealed, significant categories are based on indices from groups like The Tax Foundation and George Mason University’s Mercatus Center, which have ties to the American Legislative Exchange Council (ALEC), a conservative think tank, and the Koch brothers, the billionaire siblings who have spent millions of dollar to fight government regulation, back conservative political groups and promote what opponents call an anti-worker corporate agenda.
The Kochs are well known and ALEC’s own business climate rankings employ ideas of economist Arthur Laffer, whose theory that steep income tax cuts would encourage new economic activity is getting a test in Kansas. Republican Gov. Sam Brownback found out the day after his re-election that the cuts have left the state with a shortfall of $1 billion more than originally projected, according to the Kansas City Star.
Laffer told NPR in an October interview that such a tax cut can’t be expected to generate new economic activity overnight.
What should policymakers make of all this? Badenhausen said he doesn’t have any specific advice for how policymakers should use or refer to the Forbes rankings.
LeRoy, speaking not specifically about the Forbes ranking, said policymakers “should make fish wrapping” out of business climate studies.
LeRoy’s comments are based partly on a study his group commissioned from public finance expert Peter Fisher that examined industry- and think tank-backed business climate studies and didn’t look at studies like that from Forbes or other publications. He said the Forbes ranking does share some variables with the business climate rankings Fisher studied.
“We don’t think they have any policymaking value and are politicized grab bags of data,” LeRoy said.