California fares poorly on many national rankings specifically those focused on
taxes and the cost of doing business. However, over the past 30 years, the state's
economy has grown at roughly the same rate as the national average.

Apparently, the Golden State's natural advantages such as its mild climatic conditions
along with its diverse mix of  industry are more strongly associated with economic growth 
(increase of population, infusion of capital, harvesting of natural resources and changes
in technology) than the measures of business and economic rankings.

According to a new study released by Public Policy Institute of California, (PPIC)
the analysis examines relationships between business climate rankings published by a
variety of national organizations and several measures of economic performance. These
rankings or indexes are based on measures of state policies and other factors believed
to affect the health of businesses and consequently, the economic prosperity of states.
They have come to play a prominent role in policy debates about economic growth.

The PPIC study finds that the business climate indexes emphasizing taxes and the cost
of doing business are associated with economic growth. That is, states ranking more
favorably than California on these indexes do tend to grow faster. In an examination
of the factors used in the indexes, the PPIC analysis identifies two that are most
closely associated with growth: a smaller share of government spending on welfare and
transfer payments and a more uniform and simple corporate income tax structure.

But the factors that have the strongest relationship to economic growth are not captured
in the business climate rankings and are largely beyond the reach of short-term policy
decisions, PPIC says. They include natural advantages or disadvantages, such as weather
and geography. They also include industry composition and population density, which may
be the outcome of cumulative long-term decisions and cannot be significantly altered in
a short time by policy changes, the study says.

"California's poor rankings on the business climate indexes focusing on taxes and costs
is offset by natural advantages, particularly good weather and historical conditions,"
says study co-author Jed Kolko, PPIC associate director of research. "These favorable
factors enable the state's economy to perform reasonably well. Still, our findings imply
that a better business climate would promote faster economic growth in California."

We agree with that.  Unfortunately California does not fare well with many of these rankings.
But on the other hand, many cities and counties in the state do rank well.  The California
Business Minute's annual report, California Ranked, Rated and Graded 2010  illustrate
that  out of the nearly 100 different rankings, nearly 75 percent of the time, the state and its
communities rank well. Its the 25 percent that "crap on California" that hurts.

To view the report, go to:  http://www.ppic.org/main/publication.asp?i=867.

Tim Johnson
California Business Minute