Government Equals Growth as Massachusetts Tops Ranking

By Michael McDonald | Bloomberg Businessweek | November 19, 2012

Massachusetts ranked first in economic opportunity in a new index that bolsters President Barack Obama’s argument that government and education are essential for creating the conditions for growth.

Massachusetts, Maryland and Minnesota placed among the top five states measured by unemployment, household income and the chance for residents to boost earnings. The new gauge was developed at Harvard University and the University of Pennsylvania.

“The states that invest in their citizens end up having better economies, which would go counter to the idea that we should strip down the size of government,” said Meredith Bagby, an author and founder of the group that published the index. “The flip side is that governments have to be well-managed.”

The ranking counters assertions by Republican leaders in Texas, Florida and South Carolina that they are lands of opportunity. South Carolina is 50th on the list from Bagby’s States Project, while Florida is 44th and Texas comes in at 29th. Still, that was one up on California, at 30th. The two most-populous states have traded claims to producing the most new jobs in the nation in the past year.

“States provide a really interesting way to look, to test out those philosophies” that were a focal point of this year’s political debate, Bagby said. “What’s better, big government or small government? What’s better for the economy?”

Massachusetts Mix

Top-ranked Massachusetts, where Democrats hold all statewide elective offices and run the Legislature, produced the most-potent mix of measures. It had the 16th lowest September jobless rate, at 6.5 percent, and a fourth-highest median household income of $63,313 in 2011, according to Labor Department data. The Pew Center on the States economic mobility gauge of residents earnings potential put it among the top 10.

Yet Massachusetts ranked 22nd on the Washington-based Tax Foundation’s state business tax climate index. Wyoming, with no corporate or individual income taxes, placed first and New York, last, according to Richard Morrison, a foundation spokesman.

North Dakota, where a booming shale-oil industry helped drive unemployment to 3 percent in September, the lowest rate in the U.S., and Utah rounded out the top five in the economic opportunity index. On the bottom, the Palmetto State was joined by 49th Kentucky and North Carolina, at 48th.

Less-Mobile Texas

Texas, which became the second-largest U.S. state economy last year, surpassing New York and trailing only California, added about 1 million jobs under Governor Rick Perry, a Republican, from December 2000 to May 2011, Labor Department figures show. The oil-rich state, which has no personal income tax, placed in the bottom 20 percent of the Pew mobility index, while its median income level put it in the middle of the pack.

States that voted to re-elect Obama earlier this month dominated the top half of the economic opportunity ranking, while those won by Republican Mitt Romney, who advocated for shrinking government by cutting spending, were found mostly toward the bottom.

Massachusetts often ranks high in such reports because, while government spending might be higher, it has a concentration of top universities such as Harvard and the Massachusetts Institute of Technology, according to Alan Clayton-Matthews, professor in Northeastern University’s public policy and urban affairs school.

The state’s dozens of colleges once fed graduates into burgeoning financial, defense and computer industries. More recently, pharmaceutical, medical and biotechnology businesses have provided new jobs, according to Clayton-Matthews.

“College graduates tend to gravitate toward other college graduates,” said Clayton-Matthews. “That seems to be compatible with this idea of migrating people and businesses, who are seeking a knowledgeable environment to live, will seek out these places.”

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