California: a great place to do business, erm….. better than what we think anyway…

California poised to regain title of 8th largest economy in the world.

Innovative States Aren’t Low-Tax States

Low tax=better business climate? Not so, says Bloomberg (those commies!). When you lay that alongside California’s current position as the eighth largest economy IN THE WORLD, perhaps businesses might want to stick around the Golden State. -Via

Lists are fun. The 10 best places to live. Top cities for the creative class. Most affordable cities for retirees.

No one except maybe local boosters take rankings like these seriously. They’re Web-based photo streams ideal for grazing during a break at work.

Some rankings, however, are much more ambitious. Specifically, the creators of state rankings use economic and fiscal criteria in an attempt to shape public perceptions and public policy. A case in point are the lists produced to push a low-tax agenda, such as the Tax Foundation’s 2014 State Business Tax Climate Index. The top five tax-friendly states are Wyoming, South Dakota, Nevada, Alaska, and Florida. The bottom five? Rhode Island, Minnesota, California, New Jersey, and New York.

The conservative American Legislative Exchange Council offers a more comprehensive ranking system comprising 15 policy variables in its economic competitiveness ranking, Rich States, Poor States. Utah, North Dakota, South Dakota, Wyoming, and Virginia are head of the class, and Minnesota, California, Illinois, New York, and Vermont are at the bottom.

It’s intriguing to compare the fiscally conservative lists with those designed to highlight science, technology, human capital, and innovation. A very different story emerges. Take the Milken Institute’s State Technology and Science Index 2012 (pdf). Massachusetts, Maryland, California, Colorado, and Washington are its top five, while Wyoming, Nevada, West Virginia, Arkansas, and Mississippi rank lowest. The 2010 State New Economy Index, by the Kauffman Foundation, praises Massachusetts, Washington, Maryland, New Jersey, and Connecticut, while South Dakota, Wyoming, Alabama, Arkansas, West Virginia, and Mississippi are in last place.

The two kinds of state rankings don’t exactly overlap. Still, going through the various lists, it’s striking how low-tax states such as South Dakota and Wyoming hold a place of pride in fiscal rankings, while such states as California and Minnesota dominate innovation lists.

A spurious correlation? Probably not. In general, low-tax states have historically been dependent on natural resources or on mass production industries, relying on low costs rather than innovative capacity to gain a competitive advantage. “But innovative capacity (derived through universities, R&D investments, scientists and engineers and entrepreneurial drive) is increasingly what drives competitive success,” write the Kauffman study scholars.

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