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.