THURSDAY, JANUARY 14, 2016
IOWA CITY, Iowa (January 14, 2016) — The veil is off state business climate rankings that purport — inaccurately — to identify policies that promote state economic growth.
The nonpartisan Iowa Policy Project (IPP) today launched “Grading the States,” a website that will offer ongoing critiques by IPP Research Director Peter Fisher of several prominent business climate studies.
“Grading the States” may be viewed at www.gradingstates.org.
Fisher, an economist and emeritus professor at the University of Iowa, is the author of Grading Places: What do the Business Climate Rankings Really Tell Us? published by the Economic Policy Institute in 2005, with a second edition by Good Jobs First in 2013.
The new website builds on this work and will allow continual updating as new rankings, and new research, become available. “Too often, we see public officials relying on these rankings and the policy prescriptions they promote, when in fact the rankings have no predictive value for economic growth,” said Fisher.
“This online resource will present the real story behind four prominent business climate reports — and at the same time show how states can promote long-term growth and prosperity that is broadly shared.”
“Across the years, we have continued to find profound problems in the way these business climate rankings are constructed,” Fisher said.
“The measures that underlie the rankings often align with the ideology of the organization promoting the ranking, rather than research showing what may be important predictors of state economic success. The various measures, sometimes numbering over 100, are cobbled together into an index number that has no real meaning. As a result, we see wide disparity in the way various states are ranked. Most states can find a high ranking to brag about, and an alternative low one they can use to argue for drastic changes in state policy.
While useful state rankings do exist, Fisher said, the four most prominent "business climate" rankings are best simply ignored.
“Their conclusions are at best meaningless,” Fisher said. “At worst, they actually lead states to adopt policies harmful to their long term growth.”
The new website includes reviews of the Small Business and Entrepreneurship Council’s Small Business Policy Index; the Tax Foundation’s State Business Tax Climate Index; the American Legislative Exchange Council’s Rich States, Poor States; and the Beacon Hill Institute’s State Competitiveness Report.
“Grading the States” was created in collaboration with the Center on Budget and Policy Priorities. The site will be managed by the Iowa Policy Project.
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