Forum for Innovation

There are voices today depicting America’s economic straits as “the new normal” – low growth and high unemployment that leaves the country technologically and economically static. There are, however, concerted efforts and powerful forces at work throughout the 50 states that belie this all-too-simple conclusion. In fact, it seems clear there are bright and growing areas around the country, offering important lessons for America’s state and business leaders. 

It’s one of the lessons that the U.S. Chamber’s National Chamber Foundation (NCF) has been observing with its annual Enterprising States study. Started in 2010, the study has investigated the challenges that states have navigated in fostering the policies, programs and environments that enhance industry and build prosperous communities in the midst of an economic downturn. Enterprising States has also generated a greater need to understand how state and business leaders are driving jobs and growth through new approaches, real solutions, and public-private collaboration. 

In 1932, U.S. Supreme Court Justice Louis Brandeis wrote, "It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country." 

This remains true today. Each state faces unique challenges, and one size does not fit all. It is up to the state leaders (of all political parties) to find the solutions that best address their specific challenges, and there are encouraging examples throughout the country of how this approach is driving success. The contrast between the progress in the states and the gridlock on the federal level reveals just how important America’s “laboratories of democracy” are to the nation’s economic recovery. 

Enterprising States 2012 takes an in-depth look at state priorities, policies and programs. Several insights emerge as central to fostering economic growth and creating jobs, among them are the need to remove business roadblocks, enhance the quality and cost of living, and create a pro-business environment. Given the study’s findings, it would seem America has the capacity to define its “new normal,” and not be defined by it. 

Cleaning up the DURT

There is no doubt that the private sector is the engine for growth in the United States. Jobs, exports, economic recovery and international competitiveness all rest in the capable hands of America’s businesses. Fostering their success drives that of the United States, but in many places, the business environment has become littered with DURT – the delays, uncertainty, regulations and taxes that stymie growth and make it difficult for the U.S. private sector to flourish and compete. 

There is always a measure of risk in investment, but reducing uncertainty and delays stemming from government actions can encourage growth. With Washington in gridlock and hundreds of regulations coming down the national pipeline, business owners are understandably cautious about making investments. For example, hiring new employees is critical, but unless there is clarity in the significant regulatory costs businesses will bear, there can be little confidence that hiring is a wise investment. 

Beyond uncertainty, regulations directly strain the bottom line. A regulatory-heavy environment pushes businesses to focus on meeting the government’s rules over their own growth and profit priorities. Several states, however, have recognized the imperative to lighten the regulatory burden. For example, in 2011, Utah Governor Gary Herbert ordered a review of all the state's business rules and regulations.   As a  result, there were 368 proposed rule changes to improve Utah's regulatory environment. In Wisconsin, Governor Scott Walker signed legislation that requires all regulations be reviewed to determine their impact on the state’s small businesses.  

The more businesses spend satisfying expensive regulations, the fewer funds are available for growing the company and creating jobs. This is also true for taxes. Many states have let spending spiral out of control. According to the National Conference of State Legislatures, 49 states are required by law to balance their budgets, Vermont being the exception. Despite those fiscally sound requirements, a number of states have tremendous debt that threatens their financial solvency. California, for example, has a budget deficit of $26.6 billion dollars. In some cases, businesses are being asked to foot the bill through higher taxes. Yet, overtaxing America’s engine for growth inevitably strains the very force that can rebuild American prosperity. 

Even with unemployment rates less than half the national average, farm incomes at historic highs, and surging exports, Governor Dave Heineman and the Nebraska Legislature have continued to enact pro-growth oriented policies and tax reforms, including implementing individual income tax relief and tax incentives targeted at encouraging business development throughout Nebraska.   

Indiana has also implemented tax reforms, lowering corporate income taxes from 8.5% to 6.5%. This helps businesses (and consequently, states) become more competitive. It also makes the state more attractive to new business, particularly in an era when the United States has the highest corporate income tax rate in the world. Indiana’s tax reforms are helping the state’s private sector grow, which is good for its citizens and communities (and has the added benefit of eventual greater state tax revenue). 

Removing roadblocks and costly burdens helps the private sector grow and create new jobs, but this magnifies the need for access to the skilled workers and innovators that can fill those new jobs. This raises an important question for states: Where do workers and business owners want to live and can they afford to live there? 

Creating a Better Quality of Life

Increasingly, states (and countries) are competing for the best and brightest workers. One of the ways states can draw the innovators, entrepreneurs and skilled workers who can give their private sector a competitive edge is by encouraging a high quality of life and low cost of living. It seems clear there is a direct relationship between creating jobs and making the state an appealing place to live. 

Texas, which leads the country in export intensity, short-term job growth and entrepreneurial activity, has the third-lowest cost of living. While wages can sometimes be less than in other states, the lower cost of living means workers can still enjoy a good quality of life. 

Or take Virginia, which is the top state for adjusted family income, offering a high-value, high-income economy. Since 2009, the state created 128,000 jobs, paced by 41,000 new professional, scientific and technical-services jobs. This significant job growth, even in the face of the economic downturn, reveals that in addition to fostering business growth, states can offer an enjoyable, affordable life for their workers, which is an important asset in the competition for skilled workers. 

Contrast this with California. The state is taking steps to grow industry and competitiveness, but an ongoing challenge for California is that it costs significantly more to live there. According to recent figures from CNN Money, a worker earning $50,000 a year in Boise, Idaho, would need to earn almost $20,000 more to enjoy the same quality of life in Los Angeles. If they lived in Manhattan, New York, they would need to earn $114,000. To be sure, both Los Angeles and New York offer a renowned quality of life with numerous attractions. Yet, they illustrate clearly how a high cost of living could actually decrease the quality of life. As a result, California’s growth in short-term jobs and gross state product are mediocre. Despite efforts to grow the economy, a fundamental question for all states remains: Can people afford to live there? 

Leading a Pro-Business Environment

Growth at the state and national level will come from the private sector. And to keep government in lock-step with business, states require leadership unafraid to make important changes that can foster growth. Governors and other state leaders have had to make tough decisions on budgets and services to put their economies and communities on a safer, more stable footing. Many have also worked to establish the relationships between the public and private sectors that can open new doors and align business needs with state capabilities. Indeed, real leadership in the laboratories of democracy is helping states create the tailored solutions (and jobs) that best address their unique circumstances. 

It is no longer sufficient to focus only on low costs and other incentives for drawing in new or expanding businesses. North Dakota, an Enterprising States-projected “Next Boom State,” is currently making strides as a leader in economic growth, spurred by the oil production industry. The state is careful to maintain this momentum while also promoting an environment that goes beyond the energy industry, making North Dakota more business friendly overall. For example, Governor Jack Dalrymple and the North Dakota State Chamber of Commerce are partnering on the ND2020 and Beyond public-visioning effort to ensure correct investments are made to sustain the state’s economic future and to remain a viable environment where the private sector can prosper.   

States need to develop a business climate that gives businesses and entrepreneurs a fighting chance in a difficult economy and in an increasingly competitive globalized world. Part of this means developing a skilled workforce that can staff 21^st century jobs. Manufacturing, for example, is no longer just about repetitive action. Today’s manufacturers need workers and innovators with the science, technology, engineering and math (STEM) skills to create world-leading products. To do this, several states are focusing on reaching students at a younger age, encouraging a focus in the STEM areas and preparing them for the modern private sector. 

To attract high-tech jobs and develop workforce STEM skills, Governor Jack Markell created the Delaware STEM Council in 2011. It focuses on boosting STEM education as well as developing innovative methods for collaborating with educators. The close work between government, business and schools helps ensure students receive the education that best matches the state’s employment needs. 

Just as important is fostering innovation, giving entrepreneurs and businesses a welcome environment for creating the new services and products that revolutionize and increase consumer demand worldwide. To help this effort, successful states are offering tools, support, and tax and regulatory incentives that drive innovation.   

In 2011, Gov. John Hickenlooper established the Colorado Innovation Network (COIN) to promote collaboration among Colorado’s private, public and academic organizations with a focus on stimulating economic growth, creating jobs and attracting new businesses by supporting innovative business activities. The state is now a leader in innovation, with a concentration of high-tech jobs nearly 60 percent higher than the national average – about $115,000 in earnings per job. 

There are examples like this throughout the country, where government and business are aligning their needs and interests. They are all models of behavior and cooperation that our economy – local, regional and national could use more often.  

There is no question that America faces steep challenges to success and job creation. The domestic and international economy has changed, raising new competitors and tougher markets. One of America’s greatest strengths, however, is its diversity and free enterprise system. With a continued effort from business and government leaders throughout the country, jobs will grow, companies will flourish, and the so-called “new normal” will give way to a more prosperous tomorrow.