Do Business Climate Issues Matter? Silly Question.

A recent Arizona Republic article describes how Greater Phoenix plans to step up its marketing efforts in California as more California companies grow dissatisfied with the state's business cost and regulatory environments. Do business climate issues matter? Yes, without a doubt they matter, and in the current economic environment they matter even more as businesses find themselves unable to absorb additional cost burdens.

Arizona and other Western border states have benefited significantly from California's business climate problems. These same issues have hobbled economic development in states like Ohio, Pennsylvania and Michigan. These are what I would call "advanced economy" problems. States with well-developed--and yes mature economies--are exceedingly complex "political economies." The future will bring even greater--not less--complexity to most states. State business climates will grow even more complex as most states seek to balance economic development against other public policy priorities.

Historically, chambers of commerce, manufacturing associations and business roundtable organizations have worked most consistently on shaping the public policy environment for economic development. In many cases, these organizations work to head-off new legislation that reduce business competitiveness. A perfect case in point are all the "half-baked" proposals for tax reform that state legislatures are trying to pass as add-ons to annual and biennial budget approvals.

There are no perfect business locations--only some that are better for some businesses than others. Trade-offs are a reality in any state business climate. Also, competitive advantage has a temporal dimension. All sources of advantage are only good for so long.

If I had to pick just two things that businesses will need to survive--and hopefully thrive--in the next three years, they would be:

* Ability to manage costs.

* Strategic flexibility.

We live in unstable times, which are unlikely to cool down for some time into the future. Economic development waters are likely to remain rough and unpredictable. Encourage your state legislators and local government officials to avoid the temptation to over-burden businesses with new costs and compliance requirements. Be careful not to kill the goose that lays the golden eggs.

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