Institute releases 15th annual State Competitiveness Report and Index

BOSTON - (July 29, 2016) Massachusetts once again secured the top spot on the Beacon Hill Institute’s 15th Annual State Competitiveness Index (SCI). The index measures the ability of states to grow their economies and increase personal income. Massachusetts has retained the number one position each year since 2011. 

The BHI competitiveness index is based on a set of 43 indicators divided into eight sub-indexes – government and fiscal policy, security, infrastructure, human resources, technology, business incubation, openness, and environmental policy. Known in the field as a “productivity index”, the BHI ranking distinguishes it from more narrowly-focused measures that target only taxes, high technology, quality of life, or economic freedom.  The State of Washington’s Department of Commerce gives high grades to the BHI Index for its transparency, methodology and variability. 

North Dakota once again finished second, followed by South Dakota, New Hampshire, Iowa, Nebraska, Minnesota, Rhode Island, Vermont and Texas. While the rankings in sub-index measures were far from uniform, states that paid attention to fostering a well-educated and healthy workforce scored well.  Rhode Island’s rise may be temporary and due to a one-time multi-billion dollar Initial Public Offering by a major bank in 2014. 

Massachusetts showed formidable strengths in its human resources (for example a high number of residents with health insurance and low infant mortality rates), technology (as a recipient of National Institutes for Health grants to local institutions and its large base of science and engineering graduates and high-tech employment), and business incubation, where Massachusetts draws the second top ranking in terms of venture capital per capita and ranks eighth in IPO dollars per capita.  New Hampshire which has bounced around in the top 20 for the past 10 years appears to have regained its footing. 

“Since we do not have oil, gas or mineral deposits, human capital has become our natural endowment, our ticket to progress,” notes Frank Conte, project manager for the BHI report. “The strong showing across most sub-indexes demonstrates that Massachusetts workers are productive. The workforce is one major reason that the Bay State remains attractive to innovative industries and allows us to overcome the perennial soft spots in our economy:  the cost of labor, high housing and utility costs.” 

The lowest-ranked states were West Virginia (46), New Jersey (47), Alabama (48), New Mexico (49) and Mississippi (50).  

Policymakers often compare a state’s performance with that of “leading technology states (LTS).” However, these states do not always prove to be competitive according to the SCI. Massachusetts (1) Minnesota (7) and Texas (10) are the only LTSs to finish in the top 10.  Other LTS states ranked as follows:  Colorado (14), Connecticut (32), North Carolina (15), New York (27), California (35), Pennsylvania (36), New Jersey (47) and Virginia (12).  

“By improving its ranking on the index, a state can realize substantial increases in personal income,” observed Conte. “Since its inception, the index has been highlighting the micro-foundations — the right mix of policies and endowments — that lead to prosperity. It remains a useful guide. ”

The report is available here. 

Energy infrastructure options essential to Massachusetts economy

A six-member conference committee is hashing out the details of an extensive energy bill now in two separate bills S. 2400 and H. 4385. The Beacon Hill Institute does not advocate for or against any piece of legislation. However, the Institute provides economic analysis of current proposals related to its research portfolio. Some key observations are in order.

The debate over hydropower from Quebec, natural gas or other renewables such as offshore wind and solar is absolutely critical if the Commonwealth is able to meet the goals outlined in the Global Warming Solutions Act. Everyone wants to reduce greenhouse gas emissions but that goal requires hard thinking, particularly since both coal and nuclear power plants will be closing down. Debates about pipelines generate much heat and little light and ignore the pressing need for reliable, cost-effective sources of energy.

Section 30, would amend current law by adding the following language: “Nothing in this section shall be construed to authorize the department to review and approve a contract for natural gas pipeline capacity filed by an electric company.”

To foreclose on possible construction of energy infrastructure, the direct intent of Section 30, would be shortsighted. In fact, the new language would pose severe economic consequences to the Commonwealth of Massachusetts, which already faces competitive disadvantages on energy costs. According to the Institute’s 2014 State Competitiveness Index, Massachusetts ranks first for having the conditions in place that provide for a high level of per capita income and continued growth. But energy has been a persistent disadvantage for Massachusetts since the Institute began ranking states in 2001. Last year in a sub-index that measures infrastructure Massachusetts ranked 44th when considering electricity prices per kilowatt hour. High-tech manufacturing could use the break in the form of competitively priced energy.

Some energy realism is in order. It is clear from the current economic and climate change literature that natural gas is essential to meeting the goals of a cleaner environment in both the short and long term. The state needs to preserve its options to build such facilities.

ISO-New England, which manages the region’s power grid, notes “wind and solar energy have been expanding dramatically though it will be several years before they generate a significant portion of the region’s electricity.” That means natural gas remains essential. By 2022, natural gas is expected to generate 55% of electricity.

In 2012, the ISO studied a scenario whereby 28 dirty plants would be retired. The grid operator found that “approximately 6,000 MW of resources would need to be replaced, repowered or retained to satisfy both generation and transmission reliability requirements. Given current trends, the majority of replacement resources would be natural gas-fired generation.”

The ISO report diplomatically highlights the shortcomings of renewables saying the “reliable large-scale integration of these resources presents challenges for grid planning and operation.” These include variability, (lack of wind and sun), issues “behind the meter” which make it difficult to forecast demand, and transmission limitations. These shortcomings inherent in renewables make Section 16 of the bill, which would double the state’s Renewable Portfolio Standards, all the more harmful.

Closing the door on natural gas would be a policy mistake.

BHI work cited in Campaign 2014

BHI's work on labor market reform and interstate competitiveness has drawn the attention of office-seekers far and wide. Safe to say both parties like us. After all, the work speaks for itself. 

Kotkin: "Why North Dakota Is Booming"

Joel Kotkin on North Dakota:

Oil also is the principal reason North Dakota enjoys arguably the best fiscal situation in all the states. With a severance tax on locally produced oil, there's a growing state surplus. Recent estimates put an extra $1 billion in the state's coffers this year, and that's based on a now-low price of $70 a barrel.

North Dakota, however, is no one-note Prairie sheikdom. The state enjoys prodigious coal supplies and has—yes—even moved heavily into wind-generated electricity, now ranking ninth in the country. Thanks to global demand, North Dakota's crop sales are strong, but they are no longer the dominant economic driver—agriculture employs only 7.2% of the state's work force.

Perhaps more surprising, North Dakota is also attracting high-tech. For years many of the state's talented graduates left home, but that brain drain is beginning to reverse. This has been critical to the success of many companies, such as Great Plains Software, which was founded in the 1980s and sold to Microsoft in 2001 for $1.1 billion. The firm has well over 1,000 employees.

The corridor between Grand Forks and Fargo along the Red River (the border between North Dakota and Minnesota) has grown rapidly in the past decade. It now boasts the headquarters of Microsoft Business Systems and firms such as PacketDigital, which makes microelectronics for portable electronic devices and systems. There are also biotech firms such as Aldevron, which manufactures proteins for biomedical research. Between 2002 and 2009, state employment in science, technology, engineering and math-related professions grew over 30%, according to EMSI, an economic modeling firm. This is five times the national average.

While the overall numbers are still small compared to those of bigger states, North Dakota now outperforms the nation in everything from the percentage of college graduates under the age of 45 to per-capita numbers of engineering and science graduates. Median household income in 2009 was $49,450, up from $42,235 in 2000. That 17% increase over the last decade was three times the rate of Massachusetts and more than 10 times that of California.

Here's a case of great minds thinking alike: Last year, North Dakota topped the BHI's Annual State Competitiveness Index with its strong showing in our Government and Fiscal Policy, Infrastructure and Environmental Policy measures.

The complete 2010 State Competitiveness Report is available here.

House Speaker Robert A. DeLeo to address BHI's 10th Annual Competitiveness Conference

The Honorable House Speaker Robert A. DeLeo will keynote this year's annual conference announcing the release of the institute's 10th annual report on competitiveness.

Published since 2001, the report features an index that measures the ability of all 50 states to establish policies that sustain long-term economic and personal income growth.

9:30 a.m.
Sargent Hall
First Floor Function Hall, Suffolk University Law School
120 Tremont Street
Boston, MA 02108
RVSP - phone: 617-573-8750;
e-mail: compete@beaconhill.org

Sponsored by:
THE BEACON HILL INSTITUTE & THE DEPARTMENT OF ECONOMICS at SUFFOLK UNIVERSITY

Is it something we said?

Massachusetts ranks 47th according to Chief Executive magazine.

Details here.

Dropping to number 2!

Should we worry? World Economic Forum: U.S. drops to second in competitiveness index.

Switzerland knocked the United States off the position as the world's most competitive economy as the crash of the U.S. banking system left it more exposed to some long-standing weaknesses, a report said on Tuesday.

The World Economic Forum's global competitiveness report 2009/2010 showed economies with a large focus on financial services such as the U.S., Britain or Iceland were the losers of the crisis.

The U.S. as the world's largest economy lost last year's strong lead, slipping to number two for the first time since the introduction of the index in its current form in 2004.

"We have been expecting for some time that it may lose its top-position. There are a number of imbalances that have been building up," said Jennifer Blanke, Head of the WEF's Global Competitiveness Network.

"There are problems on the financial market that we were not aware of before. These countries (like the U.S. and Britain) are getting penalized now," she said.

New Hampshire's Falling Competitiveness

New Hampshire is a prime example of what Dr. Haughton warned against today in his presentation of the BHI Competitiveness Report. Complacency.

The sixth annual report, released in 2006 ranked NH #3.
The seventh annual report, from 2007, ranked NH #9.
The eighth annual report, released today, dropped NH to #17 overall.

In an apparent attempt to reverse this trend, the state, along with private donors, if offering Massachusetts business owners who are considering moving their company to NH promotional tours.

"They will be picked up at the border in a limo, whisked away to lunch, and offered hockey or skiing tickets and a night's stay in an upscale Nashua hotel...A business recruiter will pitch New Hampshire's perks over lunch before taking the business owner to visit potential relocation sites."

(HT: Nashua Telegraph)

The NH state government could affect the "live free or die" state's ability to attract and retain business and to provide a high standard of living for its residents over the long run by considering where they have relative disadvantages according to our competitiveness report. By making the state more attractive to business, the state would not need gimmicks to lure business owners.

In 4 different areas, NH ranks in the bottom 10:

• Workers’ compensation premium rates: 46th
• Crime index change 2006-2007, %: 43th
• Electricity prices per million BTU: 44th
• Science & Engineering grad. students 100,000 inhabitants: 41th

State Competitiveness Report

On Wednesday, November 19th, at 9:30 AM the Beacon Hill Institute will present its Eighth annual State Competitiveness Report at the Suffolk University Law School, 120 Tremont St, Boston.

Mass. Governor Deval Patrick will open the event, followed with a summery of the findings by Johathan Haughton, BHI senior economist and lead author of the report. A panel discussion will follow consisting of Greg Bialecki, Massachusetts Undersecretary for Business Development, John Regan, Vice President of the Associated Industries of Massachusetts, and Michael George, CEO of OatSystems, Inc.

The report measures a states ability to attract and retain business and to provide a high standard of living for its residents over the long run.

For prior Competitiveness Reports see the Beacon Hill Institute Website

Boston's economy still strong

According to the latest Beige Book, the Boston economy is strong. A little good news in a cascade of gloom should always be welcomed.

The Boston-area economy is still getting banged up, especially the manufacturing, housing and commercial real estate sectors.

But the local economy overall appears to be weathering the nation’s economic storm somewhat well, with the high-tech sector still growing and adding jobs, according to a new survey released yesterday.

The Federal Reserve’s “Beige Book” - a compilation of interviews with local businesses - says the Boston and New York economies are showing “signs of stabilization,” while other areas of the country are experiencing “weak” and “soft” economic conditions.

The Boston area’s retail sectors, earlier hit by a cutback in consumer spending, reported “mixed or little change” in activity since the last Beige Book report in late July, the latest report said.

Tourism is doing “surprisingly good,” despite high gas prices that have discouraged travel around the country, the survey said.

Boston's diverse economy is an asset.

Anti-Business Climates and State Budget Deficits

States that have unfavorable business climates generally tend to have high taxes that attempt to redistribute income across the state. Not surprisingly, states that try to redistribute income overextend themselves and run large deficits. Steve Malanga, an editor of the excellent RealClearMarkets.com, found that the top five anti-business states are running combined deficits of $33 billion! That amounts to 2/3 of all projected state budget deficits (twenty-nine states are projected to run deficits).

Development Counsellors International surveyed business executives to find out what states they thought were too hard to do business in. Executives named New York, California, New Jersey, Michigan and Massachusetts as the most anti-business states. Executives complained that these states had high taxes and too many regulations. As Malanga writes:

But any look at the states with the biggest deficits reminds us that governors and legislatures are largely the authors of their own problems, and that the biggest trouble some of them seem to have is that their taxing and chronic overspending have made them toxic to the business community.

This survey is interesting in comparison to BHI's 2007 State competitiveness Report. BHI found that the five states mentioned above had terrible fiscal policies for business competitiveness. The best fiscal situation was Massachusetts at 34th, while Michigan was 37th, New Jersey 46th, California 49th and New York finished last. However, it terms of overall competitiveness, Massachusetts finished 2nd, California 24th, New York 38th, Michigan 41st, and New Jersey 43. While state fiscal policies might have an effect on business climates, human capital, technology and security play important roles in state competitiveness.

Taking a look at wired cities

The American Electronics Association (AEA) released its “Cybercities Report 2008” yesterday The report ranked the top 60 metropolitan areas for “wages, establishments, payroll, employment concentration, and wage differential.” According to the report, the top five “cybercities” were:

New York,
Washington D.C,
San Jose, Boston and
Dallas-Forth Worth.

Comparing indexes is always a useful exercise. The AEA offers some interesting contrasts with the Metropolitan Area Competitiveness Index, issued each year by BHI.

While AEA identifies the value of a wired city or metropolitan area to the workforce, BHI takes a look at the depth of that connectivity.

According to the report, the top five cities for high speed internet access per 1000 residents, a variable BHI lists under the infrastructure subindex, were:

Hartford,
Boston,
New York,
Providence and
Baltimore.

Washington D.C. ranked 21st and Dallas finished 39th. While these two reports do not compare the same exact figures, the AEA report and the BHI report do appear to complement each other and underscore the importance of broadband access to the new economy.

Given these measures, it's likely that high-tech companies and its workers will place a high premium on how well a city or metropolitan area is wired.

A strange map indeed

California should be a member of the G-8!