Maine absent in ‘business climate’ survey that issued it an ‘F’ in 2013, but how much do we care?

Maine was absent this year from a state-by-state ranking of “business friendliness” to small businesses after dropping its 2012 “D” grade to a seemingly unfair “F” in 2013 (Last year, Maine scored well in categories that authors of the annual and Kauffman Foundation survey said matter most for small business owners. It was the only state to get an overall score of F in 2013 despite getting Fs in no single category, which one commenter appropriately calls “something fishy“).

This year, however, Maine joined Vermont, the Dakotas and Montana in having fewer than 30 respondents to its survey, which Thumbtack chief economist Jon Lieber said in an email is below the survey’s reporting standard for reliability (Lieber’s report raised that standard from a 20-respondent threshold in 2013). The entire survey received about 13,000 responses this year.

The latest report recently got attention in The Economist, which put together all of the latest state grades into one map. That is, Maine appears to have again received an F, though that grade (again, somewhat baffling and I’ve asked for more details) lingers from 2013. I’ve emailed Lieber asking for more explanation, though the 2013 report in question was led by another economist.

In pointing out that the complexity of regulations were the top trouble for small business owners, the article makes the case that tax breaks and cash incentives aren’t the most effective way to attract businesses to a place:

America’s states and cities have traditionally tried to attract businesses by offering them tax breaks and other cash incentives. Yet there may be a more effective way, and one which puts no strain on stretched budgets: make life simpler.

Thumbtack points out the same in a blog post about its business friendliness rankings — that is, that easy-to-understand regulations and tax laws and accessible training and networking programs “stood out in determining what made a government friendly to small business.”

And that’s part of what makes its latest overall ranking for Maine — from 2013 — downright vexing.

The lowest single-category grade the state received based on surveys of more than 20 small business owners was a “D+” for ease of starting a business. It got a “C” for training and networking programs and higher than a “C” in eight other categories.

That score, however, is based on three questions: how survey respondents rate the government’s support of small business owners, whether the respondent would discourage or encourage someone from starting a new business in the state and how difficult or easy it is to start a business here.

But press for the latest 2014 survey — which, again, doesn’t include any new data for Maine — raises the question: when and how much do we pay attention to these rankings?

[Soapbox alert]

A regular refrain of mine, there’s reason to take business climate rankings with a grain of salt, as this 2013 report from the corporate subsidy watchdog Good Jobs First argues.

The Thumbtack survey makes the case that it is different because it has no policy agenda, citing the same 2005 survey Good Jobs uses to distinguish its grading system from others:

Many business indices are produced organizations promoting a particular agenda or policy such as less taxation or greater subsidies for private activity. Our purpose is to accurately convey the attitudes and concerns of actual small business owners.

That issue aside, it’s clear that politicians latch onto these types of reports (and most anything, really) to stump for what they think is the good, bad and ugly.

It happened again this week, this time from the Maine Democratic Party, which criticized Gov. Paul LePage in response to Maine’s 45th-place ranking in a list of “top states for business” from CNBC. In that release, the party criticizes the governor’s actions to hamper Norwegian offshore wind company Statoil’s plans for an offshore wind farm in the Gulf of Maine as that company announced a $2.5 billion investment in a wind project in England.

But on the CNBC rankings, that’s not the substance of the latest spin (which, keep in mind, will come next week from Republicans or some political action committee or others speaking freely). That is, the party chides the state for ranking 39th in personal income growth and for ranking 41st in gross domestic product.

Here’s where I want to make my point: Those metrics are valuable, but to characterize them as direct measures or results of political success or failure, ignoring the demographic trends and national context that also influences them, is misleading. The political interpretations make no mention that economists and demographers see those growth figures as no surprise and, looking out at the state’s population trends years ago, estimated it would be so. To use business friendliness rankings as a metric of political success or failure is yet another leap.

So what’s the news? The news is it’s still an election year, so look out!

[Off soapbox]

Darren Fishell

About Darren Fishell

Darren is a Portland-based reporter for the Bangor Daily News writing about the Maine economy and business. He's interested in putting economic data in context and finding the stories behind the numbers.