The “Business Climate” Studies Will Drive You Crazy

Measuring the Business Climate

Measuring the Business Climate

A commentary in the Voice of San Diego (VOSD) by Irv Lefberg (yes, that’s me), points out that California and its two largest southern cities have performed relatively well as job creators since 2009. This, despite a lot of anecdotes and news headlines to the contrary, about companies leaving the Golden State for “friendlier” business environs like Texas.

VOSD has done some good investigative journalism using real data on the movement of businesses between localities, which showed that San Diego has been attracting more businesses than it’s losing. The net job growth numbers are consistent with the data on business movements.

An important take away from these stories is not to put a lot of trust in most of the “business climate” studies or the rankings of states and cities on  “ease of doing business.” They started appearing about twenty years ago, with the U.S. Chamber of Commerce and Grant-Thornton amongst the most prominent.  I thought those were done relatively well back then.

Today the landscape is cluttered with these reports.  And the news media can’t seem to resist making them into headlines, like one earlier this year which said,  “San Diego Named the Best for Launching a New Business;” followed by another one, ironically, yesterday, shouting that “San Diego gets an ‘F’ from Small Biz Owners.” Read about it here.

The basic (and most obvious) problem with the business climate studies is they make (usually untested) presumptions about what ingredients are needed for baking a good cake. Then they measure each locality against the half baked recipe, often using data which are not even comparable across the areas.

The studies are not all this bad; but as they proliferated, bad money drove out good money,  as is the tendency.  The worst studies are the surveys of “business people” asking them what they think of their city or state as a place to do business.  (The study reported today about small business folk giving San Diego an “F”  was a survey).  How were the respondents chosen?  Are they a representative sample?  Exactly what questions were they asked?   Was the response rate good?  Who knows?

Many of the rankings and climate purveyors don’t seem to be bothered when it turns out that more than a few of their top ranked places for doing business have poor performing economies, while some of the “worst” have been top job creators for decades. This happens a lot, but doesn’t seem to lessen the appetite for more climate studies and “competetiveness councils” to list and purge the worst business polices.

The bottom line is that states and cities ought to first look at their bottom lines before they jump to conclusions about how good (or bad) they are for business growth.  The bottom lines are: job growth, wage growth, and income distribution.

This is not to say that critics of high business taxes or over-regulation can be ignored if the bottom lines of the economy look good. The critics may be onto something that will come back to bite in the future, even if it hasn’t shown up yet in the standard blood work.  Also, the critics usually have a lot of money to spend on political campaigns.

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7 thoughts on “The “Business Climate” Studies Will Drive You Crazy

  1. Alex MacLachlan

    Irv, Judging a local economy as one is about as accurate as judging how the rich and poor are doing at the same time and averaging the results. The one that said SD was the “best” was in Forbes and two of the three criteria were whether there was a fast growing industry and do most businesses use social media, like Facebook pages. It must have been written by a millennial or something if those are the top two criteria being taught in biz school these days. I guess Washington DC would have been the best business climate of 2009 with its fastest growing government segment and highest paid workforce “Liking” each others Gov Agency on Facebook by those criteria. I guess I always see California as an aging Hollywood starlet. She still knows how to attract much attention to herself (new job growth) until you get to know her and realize she isn’t the sweet beautiful farm girl discovered in the ice cream shop with whom you fell in love. That ability to recognize what she use to be and the happiness she created in people is now replaced by a shell of her former self, still able to attract a lot of new attention but not held in nearly such high esteem by those who have known her the longest and have to deal with her many expensive daily demands on you for the privilege of being in her company.

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  2. Irv Lefberg Post author

    Alex, your Hollywood aging starlet metaphor for California works great. I could think of a few ways to extend it a bit, but this is supposed to be a family friendly blog. 🙂 I think Water is the major near term threat to the California economy. Brown needs to get Musk/Tesla to show him/Cal.some more love 🙂

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  3. Alex MacLachlan

    I could extend it too for Facebook, but you guys are much too intellectual for that smut.LOL. Yes, the disconnect and comparison between the best and brightest minds we have available to us in the tech world and the political morons we have running the show is striking

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  4. Gerry OKeefe

    Here’s a story for you, Irv. OMG! There’s a “shortage” of long-haul truckers, but we’d better not raise pay to attract new supply!

    Free market Capitalism broken but management concerns about the share of value that accrues to labor. This is B U L L S H I T and just plain wrong.

    http://www.nytimes.com/2014/08/10/upshot/the-trucking-industry-needs-more-drivers-it-should-try-paying-more.html?smid=nytnow-share&smprod=nytnowhttp://www.nytimes.com/2014/08/10/upshot/the-trucking-industry-needs-more-drivers-it-should-try-paying-more.html?smid=nytnow-share&smprod=nytnow

    Gerry O’Keefe c: 360.593.6620

    Via iPhone

    >

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    1. alex maclachlan

      Gerry, what I’ve been told by long haul truckers i know or have talked to is that the stringent environmental laws that were imposed killed the independent long haul truckers. Only the big corporate trucking companies could incur the cost of modernizing their fleet to the newer diesel technology, therefore competition in the market decreased as independents went out of business. That gave the large corporations leverage over the labor market in a recession, thus lower wages. Now that the economy is slowly recovering, this article mentions signing bonuses to attract new, experienced labor, so maybe the pendulum is swinging back a little more in labor’s favor but gains should be slow as many of these trucking company’s other costs will be or are currently rising in tandem with labor costs.

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      1. Irv Lefberg Post author

        Hi Alex. Good observations. Thank u. My reply to your comment is incorporated in my reply to Gerry ‘s . I still think if they locked the three of us in a room with a limited supply of pizza and avocado pita sandwiches , we’d solve a lot . But it may be too late. I think the wheels have come off the go cart. :).

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    2. Irv Lefberg Post author

      Gerry. Thanks for super interesting article. Alan Greenspsn would give this pedantic. , economist answer , which has some truth: “Wages are sticky”. Both on the way up and way down. So, am thinking that trucking companies will relent after awhile , especially if they can make adjustments to some of the long term contracts Alex mentioned. Also , if customers aren’t getting their goods shipped by truck I suppose they would look to other means of shipping and. / or that new shippers/truckers would emerge to fill the void. Alex is probably right that smaller independent truckers may not be be able to make it work , but who is to say that , say , Fed Ex or SW airlines won’t decide to try its hand at long haul commercial shipping via truck ? That’s how capitalism is supposed to work.

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