Thursday, February 22, 2018

SF118: Yet More Economic Development

Government economic planning is never a good idea. Unfortunately, for some, the abundance of experience from the 20th century of varying degrees of economic planning, both in Europe and here in America, do not seem to be convincing enough.
For example, we have a federal government that spends trillions of dollars every year on economic redistribution and corporate welfare.

The states gladly participate. A majority of the money in our state government budgets, in all 50 states, goes toward economic redistribution, but there is also a substantial amount being spent on economic development. The Council for Community and Economic Research (C2ER) provides innovative research on state-level economic development spending. Though most of their statistical products are for members only, they do provide a free-of-charge overview by state. Their data reports economic-development spending per business establishment in the state; in other words, the study took all economic development spending and divided it by the total amount of businesses in the state.

Their findings for 2016 are quite interesting:
  • The state of Wyoming spent $2,941 in economic development per business establishment;
  • We spent more than every one of our neighboring states except South Dakota, with Colorado spending $1,324 per business establishment, Utah $797, Nebraska $725, Montana $531 and Idaho $381;
  • South Dakota was one of only five states that spent more on economic development per business establishment, than Wyoming - we have the sixth highest economic-development spending per business establishment of all 50 states.
But does not SF118 make sense because we are such a rural state? Are we not forced to spend a lot on economic development to get any businesses to come here?

No. Already the numbers from the Council for Community and Economic Research should be enough to explain why. But there is more. The State Science and Technology Institute (SSTI) provides an excellent database on venture capital investments by state. In 2016, they explain, 53.3 percent of all venture-capital investments in the country went to California.

It so happens to be that California spent $20 in economic development money per business establishment. New York, which got 12.7 percent of the venture capital, spent $336 in economic development, while Massachusetts, receiving 10.3 percent of the venture capital, doled out $165 in economic development money per business establishment.

How large a percentage did Wyoming receive? Zero. We were one of only four states (the others being Alaska, North Dakota and South Dakota) that, according to the SSTI, received no venture-capital investments in 2016.

Was this a particularly bad year? Sad to say, no. Over the eight years 2009-2016 that the SSTI database covers, Wyoming only got venture capital funds in one (2010). In all the other seven years, we were at rock bottom. Zero.

To adjust for state size, the SSTI divide their numbers per capita. Taking the average per capita numbers by state over the eight years, Wyoming again stands out, but not in the way we would like to:

Venture Capital Per Capita, Average 2009-16
MA       572.26 TN         20.45
CA       523.10 MI         19.79
DC       197.69 ME         19.76
NY       176.22 NM         16.11
UT       140.82 IN         14.96
WA       128.24 NE         14.44
CO       119.76 WI         13.74
VA         78.80 KS         13.35
MD         78.34 IA         11.74
CT         74.09 NV         10.37
NH         58.96 ID            8.96
IL         58.13 SC            8.91
NJ         57.96 ND            8.08
RI         54.84 KY            6.39
MN         52.97 AR            5.95
GA         46.70 MT            5.23
TX         45.98 SD            4.74
DE         44.91 AL            4.47
PA         43.97 OK            4.36
OR         43.04 LA            4.05
NC         39.34 WV            2.44
VT         35.82 WY            2.21
FL         25.45 HI            1.98
AZ         25.20 MS            0.46
OH         22.38 Puerto Rico            0.15
MO         20.51 AK                -  
Source: SSTI

At least, we do better than Hawaii, Mississippi and Alaska. Oh, and Puerto Rico. 

Since these two datasets, from C2ER and SSTI, use different denominators, they are not perfectly comparable. We will have to adjust the SSTI numbers to make sure the total venture-capital spending by state is spread across business establishments instead of the population. This set of numbers will be in tomorrow's article, as will a comparison of spending on venture capital to GDP growth. 

Until then, let us note two things with reference to SF118:

1. Wyoming does not need more economic development spending. 
2. Instead of spending all this time and money on new ways to expand economic development, our state legislators - and our governor - should focus on making Wyoming more attractive to venture capitalists.

The last point is very important. In the CNBC study of best states to do business, Wyoming ends up dead last in the "access to capital" category. This is not new: the CNBC annual ranking consistently ranks Wyoming at or near the bottom for venture capital access. 

With that said, stay tuned for tomorrow's follow-up article. 

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