Mass. Is High In ‘Competitiveness’ for Businesses

But Scores Very Low for ‘Taxes’ and ‘Environmental Policy’

By Georgia Pellegrini
February 2002

Massachusetts is second in the country in its ability to sustain a “high level of per capita income” says the Beacon Hill Institute in its first annual “State Competitiveness Report.”

However, the state ranks far down the list for the effect of its government policies. It is 47th of the 50 states in that category. Its environmental policies place it at 41st in the nation.

The low ratings indicate a need to reduce government spending because high tax rates and weak financial discipline make a state unattractive to businesses, according to the study.

It also indicates a need to minimize oppressive environmental policies because states that have environmental problems or are heavy-handed with regulation are likely to be less attractive to businesses as well as their workers.

The study acknowledges the tremendous technology of the state and its highly skilled workers. However, it does not address the unskilled workers in manufacturing, many of whom have lost their jobs, which have moved to other states or overseas.

First in Three Areas

The report combined a wealth of variables into nine basic categories:

Human Resources.

Technology.

Finance.

Security & Legal Institutions.

Infrastructure.

Openness.

Domestic competition.

Environmental policy.

Government & fiscal policy.

Among these, Massachusetts ranks first in three categories: human resources, technology and finance.

The high rankings are said to indicate a high level of skilled labor that is readily available and not too expensive, combined with a widespread commitment to education, training and health care. The state is also said to be the forerunner in intellectual property, that is, research funding, patent issuance, percentage of professional scientists and engineers, collaboration with universities and importance of high tech companies.

Businesses in Massachusetts are not only able to come up with the ideas that constitute intellectual property, according to the study, they are also able to implement the ideas and mobilize for financial investment.

The study puts Delaware at number one in the country for competitiveness and Mississippi at the bottom. The difference in state competitiveness explains the more than 25% difference in living standards among the fifty states, says the study. It also highlights the fact that cold weather is not an obstacle to competitiveness. Four of the top ten states are in New England while most of the warm weather states are in the bottom half of the rankings.

Residents Don’t Agree

While technology may be what drives the Massachusetts economy, it does not guarantee contentment among Massachusetts residents, specifically business owners and workers of non-technology oriented companies, according to a survey reported in the study.

One of the most interesting aspects of the survey is a separate "Opinion Index," which shows the results of eight states surveyed: Massachusetts, Virginia, North Carolina, Texas, Connecticut, Vermont, California, and New York.

It demonstrates how business owners and other residents of respective states perceive their states competitiveness relative to the other seven. They were asked questions about the nine categories that were used in the study.

In some cases, they perceived their state’s competitiveness to be quite different from what was actually measured. The opinion survey shows that businessmen and others overrate the competitiveness of Virginia, North Carolina and Texas and underrate the competitiveness of Connecticut, Vermont and Massachusetts. This demonstrates the need for some states to work harder at publicizing their competitiveness, while others have to work harder to measure up to their reputations.

Massachusetts residents were some of the most pessimistic in their perception of their state’s relative competitiveness, tying New York for the most pessimistic of the group. While labor is believed to be highly available here, it is also believed to be expensive and highly unionized. Respondents suggested that Massachusetts has good infrastructure and complementary firms for existing businesses. However the state lacked in almost all other subindexes. Most notably, in agreement with the "Indicators Index," the residents saw Massachusetts to have some of the most oppressive environmental regulations, hurting business competitiveness.

Moreover, Massachusetts residents feel that their competitiveness in Human Resources is mediocre, not the highest as the report says. This is believed to demonstrate the citizens’ discontent with programs such as health care and education. No doubt, part of this showing of discontent reflects disillusionment with the higher taxes and minimal reform that has taken place in the Massachusetts educational system, leaving some citizens with the feeling that the state has a large, very expensive, yet mediocre school system.

Residents were perceptive in noting Massachusetts’ heavy-handed environmental legislation, with the Department of Environmental Protection regulating even small dry-cleaning businesses. Environmental “tax shifting” has also been proposed by the Environmental League of Massachusetts to tax businesses and consumers who buy their products, based on the kind of pollution the product creates.

On the whole, there appear to be mixed messages over the state of the Massachusetts environment, for while there has been a resurgence of indigenous wildlife, the Charles River is suffering the lowest flows since 1937.

While the BHI study highlights Massachusetts’ strengths, it simultaneously reveals residents’ overall discontent with many aspects of its programs. It signals a need for officials to address groups who do not benefit from the demand in technology and to advertise to the country, and to Massachusetts citizens, how competitive Massachusetts really is and where its strengths lie.

Question Remains

So the question posited by the study remains. Why are residents in Massachusetts perceiving the state’s competitiveness to be so substandard, when the BHI study states that it should be quite the contrary? The answer lies, perhaps, in the types of jobs that are flourishing in Massachusetts versus those types of jobs that are feeling the effects of government restrictions. Although jobs in technology seem to be flourishing and collaborating with universities, and while research funding is high and the tech companies are experiencing much success, it must be acknowledged that the technology sector demonstrates merely a small sampling of the kinds of jobs in Massachusetts.

The 108-page report was written by Dr. Jonathan Haughton, an economics professor at Suffolk University, and Vadym Slobodyanyuk, a Research Assistant at BHI.

The study can be seen online at www.beaconhill.org. A hard copy of the study may be obtained by calling 617-573-8750 or writing an e-mail to fconte@beaconhill.org.