Tuesday, May 17, 2011

Governor Walker Tweets about His Success but Overlooks One Little Problem

Here is a tweet from the Governor's Twitter site posted yesterday: 

Governor Walker

The verdict is still out on the political staying power of Wisconsin Governor Scott Walker's collective bargaining and other reforms. But if the opinion of American business counts for anything, he's already helped the Badger State.
Chief Executive magazine recently completed its annual survey of CEOs on the best and worst states for business. The 500 CEOs graded the states on taxes and regulation, the quality of the work force and living environment, among other categories. Wisconsin made the biggest jump of any state, and one of the largest in the history of the survey, rising to 24th from 41st in 2010 and 43rd in 2009. Louisiana continued its rise, moving up 13 spots to 27th on the basis of its improvements in tax climate and deregulation. Indiana moved up 10 spots to sixth.
The Wisconsin jump is especially notable because Mr. Walker and a new GOP legislature only took office in January. This suggests that Big Labor's attempt to make Mr. Walker a national political target had the ironic result of making Wisconsin more appealing to business executives. "Indiana and Wisconsin's governors have been outspoken about wanting to be more business friendly," says Chief Executive director for digital media Michael Bamberger.
CEOs don't make investment decisions based solely on such impressions, but they can get a state a hearing it might not have previously received. Wisconsin still ranked 33rd among all states for taxation, and its grades on other categories didn't change radically. But a company's relationship with employees was also on CEOs' minds. "Rules that make it hard, if not impossible, to separate from a non-productive employee make companies fearful to hire or locate in a state," one CEO wrote.
Texas led the survey for the seventh straight year, followed by North Carolina, Florida, Tennessee and Georgia. As for the five worst states, you will not be surprised to learn that they are, in descending order, Michigan, New Jersey, Illinois, New York and California. Tax-raising Illinois has dropped 40 places in five years and, as the magazine puts it, "is now in a death spiral."
If this survey is any guide, and if his reforms can survive and expand, Mr. Walker may save Wisconsin from a similar fate.
The Governor also went on Fox and Friends today and talked about the rise in the Chief Executive rankings as a vindication for the hard choices he made.

There is only one little problem with this self-promotion by the Governor and the conclusions of the Wall Street Journal's editors.  It's total horse manure. The survey by Chief Executive magazine was conducted well prior to the announcement of the Governor's Budget Repair Bill.  The survey methodology used by Chief Executive is discussed here.  Money quotes:
556 CEOs completed our detailed survey, which was conducted between Jan. 14 and Feb. 1, 2011.  They were each asked to provide their selections for the 4 best states for doing business and the 4 worst states for doing business.  We assigned points to each state each time they were cited as a top 4 state based on the following weighting:
  • For each #1 rating, 10 points
  • For each #2 rating, 8.33 points
  • For each #3 rating, 6.66 points
  • For each #4 rating, 5 points
Conversely, each time a state was rated as one of the 4 worst states for business, we deducted points from their total as follows:
  • For each #50 rating (#1 worst state), -10 points
  • For each #49 rating, -8.33 points
  • For each #48 rating, -6.66 points
  • For each #47 rating, -5 points
Chief Executive then tallied up all the positive points minus the negative points to come up with total points for each state, and then listed the states in order of points earned for our rankings.
The Budget Repair Bill and all its anti-union aspects were sprung on the good citizens of Wisconsin by the Governor on February 14, 2011, two weeks after the CEO survey was completed.

Moreover, the scores in mid-January would have been taken just a week and a half or two after the Governor was sworn in.  It is just as likely as not that the increase in the ranking was a function of CEO's looking back at the year that had passed since they last assessed Wisconsin, which was the last year of the Doyle administration. 

Maybe the CEO's in Wisconsin and some CEO's outside Wisconsin did rank the state higher, or perhaps take it off their "worst" list based on the campaign promises of the Governor.  Either action would tend to pump up the state's score.  But until Chief Executive magazine opts to release the survey and tell us who the CEO's were, and where they are located, and what they had to say about Wisconsin in their survey responses, it is pretty much total speculation whether the new Walker agenda had any effect on the results, much less a significant one.

Finally, if you look at the methodology carefully, it is a pretty inane way of ranking the business climates in the 50 states.  The WSJ editorial (and the Governor on Fox and Friends) made a great deal about the decline in the rankings for Illinois, for example.  Low opinions of a state like Illinois inserted on a number of surveys may have bumped Wisconsin down from the "4 worst states" list of many respondents, but that doesn't necessarily mean that Wisconsin has significantly improved its business climate.  It is just as likely to mean that other states viewed as having declining business climates have dropped into the "4 worst states" on more responses.  Until we at least know how many of the 556 CEO's surveyed even listed Wisconsin in either the "4 Best States" or "4 Worst States" categories, and how that compared to the number that did so in 2010, it is hard to take the results too seriously.  Moreover, I don't have any feel for whether the CEO's who ranked Wisconsin (or any other states) are leaders of Fortune 500 companies or presidents of the Bob's Pretty Good Carpets and Flooring Emporiums of the world.

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