CEOs vs. Small Business Owners on Which Policies Make for a Business-Friendly Climate

Which public policies make an economy better for business? One way to answer this question is to ask businesspeople. Two recent surveys ask businesspeople to rank the American states on their friendliness toward business.

Now, libertarians often remind us that friendliness toward business is not the same as friendliness toward markets. Indeed, libertarians believe that many of their favored policies, such as abolishing trade protection, corporate welfare, and regulations that privilege big business, will redound to the benefit of workers and small business owners. What’s so interesting about these two surveys is that they are of different types of business owners: CEOs of large companies and small businesspeople. The first survey was conducted by Chief Executive magazine and the second by thumbtack.com in partnership with the Kauffman Foundation. By relating respondents’ views about the friendliness of their states to those states’ actual policies, we can see where big and small businesses agree and disagree about which policies are most important for their success.

My first step was to draw out of these survey data those numbers that relate specifically to different states’ policy environments, as opposed to other aspects of the economic climate. From the CEO survey, therefore, I took the taxation/regulation score given for each state (higher is better). From the small business survey, I took the “Regulations” component grades. Unfortunately, the small business survey does not include raw scores for each state, so I simply quantified the grades as follows: A+ = 0, A = 1, A- = 2, and so on, up to F = 11. The small business survey only covers 45 states, but for these states, the correlation between CEO and small business scores was -0.76. Since higher is better in the CEO survey and lower is better in the small business survey, that high correlation indicates a surprising degree of agreement between large and small businesses about states’ friendliness toward their businesses.

Nevertheless, there may remain some important differences in which policies large and small businesses prioritize. To get a handle on this question,

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Today in Neat-o Research

1. Jordan Rappaport, “Moving to Nice Weather,” Regional Science and Urban Economics. U.S. residents have been moving en masse to places with nice weather. Well known is the migration towards places with warm winters, which is often attributed to the introduction of air conditioning. But people have also been moving to places with cooler, less-humid summers, which is the opposite of what is expected from the introduction of air conditioning. Nor can the movement to nice weather be primarily explained by shifting industrial composition or by migration of the elderly. Instead, a large portion of weather-related movement appears to be driven by an increased valuation of nice weather as a consumption amenity, probably due to broad-based rising per capita income.
2. Nathan J. Ashby, “Freedom and International Migration,” Southern Economic Journal. Economic freedom attracts immigrants.
3. Duggan, Hjalmarsson, & Jacob, “The Short Term and Localized Effect of Gun Shows: Evidence from California and Texas,” Review of Economics and Statistics. We examine the effect of more than 3,400 gun shows using data from Gun and Knife Show Calendar and vital statistics data from California and Texas. Considering the one month following each show and a surrounding area ranging from 80 to 2,000 square miles, we find no evidence that gun shows increase either gun homicides or suicides. The similarity of our estimates for California and Texas suggests that the much tighter California gun show regulations do not substantially reduce the number of firearms-related deaths in that state. Using incident-level crime data for Houston, Texas, we also find no evidence of an effect on other crime categories.

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How Do Conservative Paternalists Define Freedom?

Having taken on left-liberals in my last post, it’s only fair to take a shot at the right too. Here‘s the Deseret News editorializing on why our recommendations for Utah are wrong:

The report’s authors are clear about their definition of freedom. “In our view, individuals should be allowed to dispose of their lives, liberties, and properties as they see fit, as long as they do not infringe on the rights of others,” they write. But few personal behaviors can intrude more on the rights of others than drinking alcohol and gambling… [T]he enormous alcohol industry, relentlessly pushing everything from glamorous images to new products such as sweet-flavored alco-pops, would, if left unfettered, eventually rob more people of freedoms.

The line taken here seems to be that if you make bad decisions that decrease your life satisfaction, you have lost freedom (to whom?). And if you encourage someone to make a decision that might be bad, you’ve violated his rights. For the benefit of the Deseret News, I’ve compiled a new list of policy recommendations for Utah based on this new definition of freedom:

1. The enormous credit card industry gets people hooked on cheap credit, and the debt they take on means less freedom. Enact a state monopoly of credit.

2. Television and books encourage people to sit at home rather than get up and exercise, resulting in an epidemic of obesity and, of course, violating their victims’ rights. Tightly regulate their use.

3. Many people get involved in mistaken relationships when they are young, sometimes resulting in children and often resulting in heartbreak. Clearly these young lovers have taken away each other’s freedoms. Ban fornication. Fund a virtue police to monitor young couples. Iran has a system that works, at least compared to decadent, unfree societies in the West.

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How Do Libgressives Define Freedom?

Matt Yglesias throws some scorn the way of Freedom in the 50 States 2011:

Reasonable people can disagree as to whether there’s more freedom in Los Angeles or Brooklyn, and there may be good reasons to move from either place to Sioux Falls, but obviously “for the freedom” is not one of those reasons. For the lower taxes? Sure. Because there’s less government regulation? Maybe so. But because there’s more freedom? Clearly not. They say that they “explicitly ground our conception of freedom on an individual rights framework” but all that goes to show is that their understanding of the individual rights framework offers an unsound conception of freedom. These answers are clearly and uncontroversially mistaken.

Because he doesn’t propose any alternative conception of freedom, it’s unclear precisely in what way he thinks that the libertarian conception of freedom is mistaken. But it’s even more perplexing how he comes to the conclusion that the ranking “refutes” the libertarian conception of freedom. California lost 4.4% of its 2000 population over the next 9 years to other states, on net. New York lost 8.9% of its 2000 population over the next 9 years to other states, on net. New Hampshire, by contrast, enjoyed a net gain of 2.8% of its 2000 population over the same period. South Dakota’s net in-migration was 0.8%. The study finds that freer states experience more net in-migration, controlling for climate.

So let’s get this straight: People are fleeing a state with gorgeous year-round climate, world-class universities, Silicon Valley, and Hollywood and flocking to a wintry, windswept state with… the Badlands. People are fleeing a state with Wall Street, the Met, the Yankees, and Broadway for a wintry, rural state with… the Old Man of the Mountain. Wait, he’s gone now too. The omitted variable? Libertarian freedom. And that makes all the difference.

So how do libgressives define freedom? They often seem to conflate freedom and utility. (See for instance the quotes at the end of this story.) But surely a man locked in a cell hooked to an experience machine isn’t really free, is he?

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Freedom in the 50 States

I’ve just gotten back from a Cato Institute event discussing the new study, Freedom in the 50 States, with my coauthor William Ruger, John Samples, and Michael Barone. I’ll post the video when it’s available. The Mercatus site for the study allows you to download the study and to use a calculator to see how states would change on the index if they made certain policy reforms. They’ve also put together this nice little video for the project:

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More on Voting with Feet

At Volokh, Ilya Somin presents the evidence that people vote for economic freedom with their feet internationally and domestically. Pileus on inter-state migration here.

Update:  Somin has more on this issue here.  And of course, please feel free to examine the original study comparing the states cited by both Eric Crampton and Somin.

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Milton Friedman on JFK’s Speech

Many may have forgotten that Milton Friedman begins Capitalism and Freedom with a critique of President Kennedy’s inaugural speech.  It is well-worth another look – so dig out your dusty and yellowed copy and read the introduction again.  The key line is this one:

The free man will ask neither what his country can do for him nor what he can do for his country.

Given the context, Friedman clearly (mis)uses the term country as a stand-in for government or state.  Understanding this makes his critique even more powerful, otherwise it would sound a lot closer to Rand than the Friedman who believed in private charity and wouldn’t have a problem with sacrificing for the good of others in the community as long it was voluntary.

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