States Business Climate Gets Decent Grades

May 24, 2002
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LANSING — Michigan cracked the top 10 in a recent survey of how well each of the 50 states was situated to compete for business.

Just barely, though.

Michigan came in ninth overall in a study conducted by the Stanford Research Institute International (SRI). But the state fared better regionally in the report, as it finished second among a dozen northern and Midwestern states.

The Michigan Economic Development Corp. (MEDC) commissioned the study called “Benchmarks for the Next Michigan.”

Scoring a higher national mark than Michigan were Colorado, Texas, Minnesota, Virginia, California, Georgia, Massachusetts and Washington. The state, however, did finish ahead of New York, Florida, North Carolina, South Carolina, New Jersey and 36 others.

Only Minnesota topped Michigan regionally, and only by a mere 35 points on a 700-point scale.

SRI came to its conclusions after the firm scored each state on seven factors that it felt measured competitiveness. SRI graded Michigan as highly competitive on three, competitive on two and not so competitive on two more.

Michigan scored highest on quality of life, globalization and vitality, and innovation resources.

  • Quality of life was the state’s highest mark. The study reported that Michigan has a competitive cost of living, affordable housing, and a very high rate of home ownership. It said that Michigan was generous with its school expenditures, its students scored well on standardized tests, and that good health insurance coverage was available.

In addition, the report found that Michigan’s air was very clean, the water was of a fairly good quality, that commuters had a short drive to work, and that the state was very strong in recreation and leisure assets.

But SRI also reported that the state needs to improve the health of adults and infants if it wants to move up the quality of life scale. Weather dragged the state down, too, with too few sunny days.

  • As for globalization and vitality, SRI reported that Michigan is very competitive in total exports, highly attractive for foreign investment, tops in the nation for new facilities and expansions, has significant net business creation, and a high GSP and income levels.

On the downside, the report cited Michigan’s high levels of unemployment and layoffs, which have tailed off to the national level in recent years, and relatively slow job growth from new businesses.

  • Research and development, along with collaborations, largely made up the innovation resources category. SRI reported that the state was exceptionally strong in industry R&D, while fairly strong in university R&D. But Michigan was weak in federal R&D funding and didn’t offer R&D tax credits at the state level.

SRI also reported that Michigan was very competitive for ATP awards, very strong in registering new patents, and had strong innovation-support programs such as the Life Sciences Corridor and SmartZones. State firms, however, were not taking advantage of funding programs like SBIR, and spin-offs from universities were relatively few.

SRI gave Michigan solid grades on human investment and financial services, as both factors ended up just outside the top 10. But the firm didn’t score the state as high on infrastructure and business costs.

  • The research firm split the infrastructure factor into two categories: technology and physical. SRI said the new broadband initiative was a plus for the state and that Michigan has done very well in using technology to improve government services. Schools, hospitals and small businesses, however, were behind the high-tech curve in the use of broadband.

SRI reported that the new terminal at Detroit Metro Airport and a push for utility reform were two big pluses for the state’s physical infrastructure. But a low number of flights per capita, a high level of urban traffic congestion and lofty utility rates hurt the state’s score.

  • Michigan picked up its worst mark on the cost-of-doing-business factor. Michigan had competitive costs for office and industrial space, but had high employer health premiums. As for taxes, the state had a relatively low personal income tax rate, property tax reform and tax incentives for businesses. Still, SRI found that Michigan offered a higher than average overall tax burden.

“Michigan falls far below the average scores for the benchmark state and all states,” read the SRI report on business costs. “Michigan ranks second to last among its peers, ahead of only California. Michigan also ranks very low, 42nd, on a national level.”

The MEDC held a conference on competitiveness issues earlier this month in Lansing and 200 business leaders from across the state participated. At the meeting, the study was made public and those who attended were given the opportunity to comment on the findings.

“This conference was an excellent opportunity for business leaders to discuss Michigan’s strengths and areas for improvement,” said MEDC President and CEO Doug Rothwell. “The action items detailed at the conference outline vital steps to Michigan’s continued economic growth.”

Rothwell said more discussions on the state’s competitiveness were in the works between now and next fall when the MEDC will file a report listing steps that the state can take to improve its overall ranking.           

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