Friday, October 12, 2007

Debunking the Growth Myth, Part 3

Myth Number 3
We must stimulate and subsidize business growth to have good jobs.

Reality Check: Traditional economic development programs are often little more than corporate subsidies that act to fuel local growth.

This is a variation on Myth 2 that emphasizes business growth. The reasoning goes like this: People want good jobs; jobs come from businesses; therefore, creating a good business climate will result in more good jobs. A "good business climate" roughly translates to one with less government regulation, lower taxes, and a higher level of business subsidies.

A study by Dr. William R. Freudenburg of the University of Wisconsin evaluated how well business-climate ratings predict the prosperity of the people living in those areas. He used the three best known business climate ratings (Inc. Magazine, the U.S. Chamber of Commerce, and the Fantus Company) and compared the performance of each state, five and ten years after its rating. States with "good" business climate ratings experienced $585 to $1,100 more growth in per capita income after five years than did top-ranked states. The disparity was even greater after ten years.

The study did not address short-term gains. However, over the long run, an individual can expect to receive higher personal income gains in states rated as having bad business climates. This surprising outcome may be due to the emphasis placed by good-business-climate states on investing resources in business rather than directly in people.

for a printable copy of the argument against myth 3, click here.

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