When the Corporation for Enterprise Development (CfED) published its economic report card for states in March, it was hailed as a new approach to the business climate debate.
The nonprofit Washington economic development research and consulting organization described its study, "Making the Grade: The Development Report Card for the States," as a more accurate and more comprehensive picture of how state economies are performing.
That was an obvious dig at other widely publicized indices of states' business climates.
Having criticized other surveys that purport to measure the business climate in the 50 states, CfED should have known that its study and the ratings it assigned would please some state officials and offend others. Few economic issues generate as much controversy as that nebulous quality called business climate.
So it's not surprising that CfED's first annual development report card for the states has raised a few hackles. They're raising more than hackles in the South. And, little wonder.
In a comparison of the regions, CfED had some rather unflattering things to say about the economies of southern states. Except for Florida, it said, the Southeast "suffers the legacy of poverty and smokestack-chasing." Almost uniformly, CfED continued, economies in those states are performing poorly. Mississippi, Alabama, North Carolina, South Carolina, Arkansas and Tennessee were ranked at the bottom of the CfED index. "These states, and a few states from other regions that are also near the bottom, tend to have little in the way of industrial development, are poorly diversified and, in some cases, rely to a significant extent on agriculture," CfED said.
CfED's report card caught its members off guard, admitted the Southern Growth Policies Board (SGPB) in North Carolina. "In essence, the South was told that it had failed in economic development," said Stuart A. Rosenfeld, director of research and programs for SGPB. CfED's grading system "did not always appear internally logical," Rosenfeld said in an SPGB bulletin, under the heading, "Analysis of Emerging Issues: Reviewing the Ratings."
Rosenfeld gives CfED an "A" for a "monumental data gathering and filtering task" in attempting to replace the old business climate definition. Like other indices evaluated in the SGPB bulletin, however, CfED's report card is not an accurate measure of economic growth or capacity, the growth policies board said.
"There is danger in trying to create any single measure or grade to describe a geographic area," Rosenfeld cautions.
He concedes that the analyses by CfED and others should be considered as indicators of new conditions that are important to growth. Each of the indices examined in the growth policies board's study contains weaknesses and biases, however, Rosenfeld cautioned. As measures of relative conditions in a state or economic growth tendencies, he concluded, "they are going to require considerable work before they accurately reflect economic capacity."
Included in that group, undoubtedly to the chagrin of CfED, is Grant Thornton Co., the big Chicago accounting firm that publishes an annual study of general manufacturing climates in the 48 contiguous states. The states are ranked based on a list of factors ostensibly considered by manufacturers to be keys to business success.
More than a little bit of irony comes into play when CfED's report card is lumped with the controversial Grant Thornton index in the critique by the Southern Growth Policies Board.
For years, officials seeing their states ranked near the bottom of Grant Thornton's manufacturing climate index, have fumed over the ratings and the process. But it was CfED's slashing criticism of the Grant Thornton index last year that attracted more than the usual attention.
CfED ripped the Grant Thornton study as "the prime culprit" in leading states astray, contended it encourages bad public policy and suggested it might foster poor business location decisions.
"No longer can this index be taken for granted as the appropriate or proper bench mark for measuring economic progress," CfED said of the Grant Thornton study. "Relying on it as definitive threatens the potential for public and private decision makers to make wise economic policy."
Rather than lowering the debate over business climate, CfED may have succeeded in elevating it.
To be sure, the Grant Thornton index has always been flawed. CfED weighed in with what it described as a more accurate picture but the Southern Growth Policies Board has effectively rebutted that claim.
"Even with this new, more comprehensive system, we still do not have a perfect picture of state economies," CfED acknowledged in "Making the Grade."
No one has, and that's the folly of these indices that rank states by arbitrary measures of economic performance.