The Kauffman Foundation recently released a study measuring the friendliness of each state to small businesses. While the study suffered most of the extreme weaknesses of survey research — especially small samples and the bias of opinion over action — overall there were some very interesting and illuminative points.
First, the study reinforced the point most economists make about taxes and local prosperity. Most respondents reported being satisfied with their tax obligations, which confirms it is the value proposition on taxes, not their rates, that matter. Complaints about high taxes might simply mean local government isn’t delivering sufficient quality for the cost of government. That notion is a recurring theme of this column and it was nice to hear about half of the 12,000 businesses surveyed say the same thing.
Second, the study gave Indiana poor grades for ease in finding workers, leveling blame on networking and training programs. This is interesting, but almost certainly not the actual problem. The survey asked just 11 Indiana businesses these questions, and Indiana received very good grades in the past couple years. What possibly could have changed the grade from an A to D in one year? The answer is most likely labor markets are now tighter in Indianapolis, where 10 of the 11 surveyed firms were located. It is harder to hire when fewer people are without work, as is the case in Indiana. That isn’t bad news here in Indiana, but it certainly demonstrates that asking people questions is a poor substitute for observing their actions.
Finally, the survey asked about occupational licensing and the difficulty of starting a company. While Indiana received a B in this area, several other states did much better, and that is a worry.
In many states, doing business is ensnarled in red tape, most of which is designed to keep competition at bay. Our state licenses auctioneers (presumably so they can be ticketed for talking too fast), and the state maintains a 28-page booklet regulating the massage therapy occupation, of which just a page and a half is dedicated to actual massage do’s and don’ts — and, trust me, you don’t want to read that section.