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VIEWPOINTS : BUSINESS CLIMATES : Ratings Reflect Business Concerns : States Should Pay Attention to Industry's 'Wish List'

July 13, 1986|SELWIN PRICE | Selwin Price is a partner at Grant Thornton, a Chicago-based accounting and management consulting firm, and is in charge of the firm's "Manufacturing Climates Study."

While Grant Thornton's study of state manufacturing climates has certain limitations, criticisms such as those of the Citizens for Tax Justice reflect an acute lack of understanding about what is needed for a productive and hospitable manufacturing environment.

Our study is designed to measure factors that are equally relevant to all manufacturing industries and thus emphasizes the cost of doing business and the availability of resources.

The study evaluates every state and region based on the same factors and thereby clearly facilitates comparability between states and regions.

While it is not meant for specific location decisions, the ability to make comparisons on the basis of 22 manufacturing-related factors certainly is of value when manufacturers are in the initial stages of making decisions about the location of new plants or the expansion of existing ones.

Starting Point

Note that we said "initial stages." Companies considering expansion or relocation use the study as a starting point to compare statewide criteria, such as workers compensation rates.

As these companies progress through the process of site selection or expansion, they will analyze additional factors that, although not included in our study, are relevant to their particular circumstances.

These factors might include access to raw materials, local availability of labor, cost of utilities, local taxes and government incentives.

The study does not take into account specific and differing needs of each manufacturing industry.

For example, high-tech firms require highly skilled and educated personnel. On the other hand, about 80% of manufacturing jobs require only a high school education.

Grant Thornton's study measures both percentage of high school-educated adults and government-funded vocational educational enrollment as a percentage of population, factors viewed by manufacturers as critical to their manpower requirements.

Criticisms of the study raised by the Citizens for Tax Justice encompass three areas: quality-of-life issues, our selection of factors to be measured, and lack of correlation between a state's ranking and jobs won or lost.

Grant Thornton's study has never purported to measure quality-of-life criteria because they can be interpreted in a highly subjective manner and their value is in the eye of the beholder.

Recreational Opportunities

For example, to measure recreational acreage may be important to outdoor enthusiasts, but not everyone can or will take advantage of the myriad outdoor recreational opportunities that California offers.

Measuring the number of state highway miles without considering pavement conditions, accessibility to markets, weight restrictions and structural limitations is an exercise in futility.

Furthermore, quality-of-life factors are typically measured at the community level (Anaheim versus Fresno), not statewide.

However, for the second year in a row, Grant Thornton has retained the Naisbitt Group, a social forecasting organization founded by "Megatrends" author John Naisbitt, to provide a social, political and economic quality-of-life analysis of the data contained in the study.

Avoiding High Wages

The second criticism, factor selection, faults the study for surrendering to a wish list of the business lobby.

If avoiding high wages, high taxes and crippling government regulations constitute that wish list, then the allegation is true.

To reverse or stem the flow of manufacturing activity to foreign countries, the United States must become cost-competitive.

This year, 36 state manufacturing organizations representing more than 90,000 manufacturers designated which factors should receive more importance in relation to others.

Reflecting the drop in oil prices, energy costs were replaced by the issues of wages and unionization as the top concerns of America's manufacturers.

Manufacturers Know

Surely these manufacturers are in the best position to determine what factors are important to them, especially when competitive and economic conditions are constantly changing.

The changing nature of the weights placed on various factors is a positive, rather than a negative, aspect of the study.

Although Grant Thornton does not attempt to draw a correlation between the findings in its study and the number of manufacturing jobs won or lost, it is interesting to note that an independent study, undertaken by the Central Wisconsin Economic Research Bureau, demonstrates "a significant and positive correlation between the Grant business climate scores and relative manufacturing performance."

Concessions for Industry

Inconsistencies can be explained by analyzing the specific reasons for the growth in jobs that has occurred and, in particular, the extent to which this growth was attributable to factors not covered by our study, such as state concessions to entice industry.

Our study is not perfect. Nor have we set out to create an all-inclusive state indicator of business climate.

However, to dismiss the study based upon the criticism of the Citizens for Tax Justice is to overlook the forest for the trees.

Opponents of the study would be well advised to work toward improving their states' manufacturing climates rather than shooting the messenger who bears the bad tidings.

BUSINESS CLIMATES

1985 STATE RANKINGS AND SCORES

South Dakota 1 Utah 2 Nebraska 3 Arizona 4 North Dakota 5 Florida 6 North Carolina 7 Georgia 8 Kansas 9 Mississippi 10 South Carolina 11 Virginia 12 Tennessee 13 Colorado 14 Arkansas 15 Missouri 16 Nevada 17 Texas 18 Idaho 19 Vermont 20 New Mexico 21 Iowa 22 New Jersey 23 New Hampshire 24 Oklahoma 25 California 26 Massachusetts 27 Indiana 28 Alabama 29 Kentucky 30 Delaware 31 Maryland 32 Connecticut 33 Illinois 34 Wisconsin 35 Minnesota 36 Rhode Island 37 Washington 38 Louisiana 39 Pennsylvania 40 Wyoming 41 New York 42 Ohio 43 Oregon 44 West Virginia 45 Montana 46 Maine 47 Michigan 48

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