A pair of national surveys ranking the business climates in each state show that, according to respondents, Idaho stacks up fairly well—with distinct room for improvement. They also shed light on the differences between what managers of large and small businesses are looking for in a growth-friendly state.
The 2012 survey by Chief Executive magazine gauges the opinions of 650 CEOs regarding which states are best and worst for conducting business. This year, Idaho ranks in 18th place, up slightly from 19th place last year. One reason the magazine cites for Idaho’s relatively stable position on the list is that it “Keeps entrepreneurs happy with fewest health mandates of any state.” Texas retains its place at the top of the list for the eighth successive year, with California trailing in last place for the same amount of time.
In contrast, the 2012 Thumbtack.com survey, conducted in partnership with the Kauffman Foundation, collects the opinions of more than 6,000 small business owners to determine which states best allow them to set up shop and thrive. Idaho garnered the highest A+ ratings in almost every category, ranging from overall friendliness and ease of starting a business to every aspect of the state’s regulatory climate. On the other hand, the Gem State ranked near the bottom in terms of hiring costs, rating a grade of D. This single category dampened overall interstate rankings for Idaho, pushing it to 10th place in terms of overall economic health and to 29th place for last year’s growth rate.
“Now, libertarians often remind us that friendliness toward business is not the same as friendliness toward markets,” noted political science professor Jason Sorens in an analysis published by the Fund for American Studies. “What’s so interesting about these two surveys is that they are of different types of business owners: CEOs of large companies and small businesspeople.”
Sorens points out that both types of business leaders share common concerns about many labor regulations, such as those governing minimum wages, collective bargaining, workers’ compensation and family leave, with less restrictive regimes leading to better ratings. Other economic categories surveyed produced varying results.
“CEOs seem to care more about taxes, but small businesspeople probably do too. Small businesspeople seem to care more about gas taxes, which I take to mean that they are more sensitive to environmental regulation and enforcement,” Sorens said. “Small businesses also care more about land-use regulation and occupational licensing (probably), which makes sense. Construction companies and contractors are mostly smaller businesses, and occupational licensing particularly affects the self-employed. On the other hand, big business is more interested in the liability system and health insurance regulation.”
Idaho’s relative ranking on each survey indicates a further disparity between what large and small businessmen are looking for in a favorable business climate. Thumbtack.com included comments from several small business owners in Idaho, nearly all of them citing the ease of starting and running their businesses as the reason for the mostly high ratings that they gave the state. People seizing economic opportunity within their communities generally express a desire simply to be left free to operate, and succeed or fail based on their own entrepreneurial merits. Comments from executives at larger businesses, on the other hand, demonstrate that they often seek specific regulatory incentives, such as development tax credits, that provide them with an artificial advantage over smaller competitors.
There is good reason, however, to be suspicious of the value of such incentive programs for a state’s overall economic health, according to a study by the Mackinac Center for Public Policy. The group analyzed the results of 127 projects funded by development tax credits over a 10-year period in Michigan and found that only 10 of them were completed on schedule and created the promised amount of new jobs. A second Mackinac study found that development tax credits are correlated with an overall decline in employment.
Idaho’s current lack of transparency in development tax credit programs may mean it’s not possible even to determine whether such results are being produced in Idaho, according to Emilie Ritter Saunders, with StateImpact Idaho.
“Idaho will give up an estimated $845 million this year in the form of tax credits and exemptions. And only a select few at the Idaho Tax Commission know exactly where that money goes,” Saunders wrote in the Idaho Statesman. “Idaho’s law is clear: Individual and business tax information is confidential. Tax returns, specifically, are confidential under federal law. But some states have set up reporting requirements for businesses to disclose which state-specific incentives they’re using (think tax credits and exemptions), and how much those are worth. Idaho isn’t one.”
Ultimately, according to St. Lawrence University economist Steven Horwitz, such indirect subsidies for specific larger businesses distort the economy, and a better route to economic prosperity would instead be to create a climate that allows entrepreneurs to compete across the board without special treatment from government officials.
“Competition promotes entrepreneurial activity and the discovery of knowledge by empowering a variety of decision-makers to try to find new and better ways of using resources as well as new ends to achieve,” Horwitz wrote. “This decentralization ensures that what [Nobel laureate economist] F. A. Hayek called the local knowledge of time and place will be best used. Centralized planning, like other forms of government allocation, necessarily relies on the knowledge of fewer people, limiting discovery and restricting knowledge-dissemination to fewer channels. Competition is a better way to overcome the knowledge problem.”