What Minnesota’s “Best States for Business” Rank is Telling Us

CNBC has just released its annual (after a 2020 pandemic hiatus) “Best States for Business” study -- one of the many such studies undertaken by various organizations to make the fundamentally subjective, objective.   In this edition, Minnesota ranks a very respectable 7th in the nation, although down from recent years including 2015 when we took home the title belt with considerable fanfare.

As an organization that has spent time in the past wading through these types of reports trying to make sense of their frequently divergent and conflicting findings and assemble conclusions from them, we found the CNBC “Best States for Business” one of the most interesting.  That’s because of the broad range of business location and expansion considerations included in their evaluation and the breadth and quality of their private and public sector data sources.  Their best efforts to seek what they call “neutral and ideological diverse” data sources for their 85 metrics (mostly successful, occasionally not) helps ensure the rankings are not predestined to have a strong ideological bias or reflect a political agenda.  The best proof of that is the CNBC statement accompanying Minnesota’s first place ranking back in 2015: “Never since we began rating the states in 2007 has a high-tax, high-wage, union-friendly state made it to the top of our rankings. But Minnesota does so well in so many other areas — like education and quality of life — that its cost disadvantages fade away.”

Comparing our 2015 and 2021 rankings shows that our relative weaknesses in traditional business competitiveness issues are becoming more visible, rather than fading away.  That’s despite the shine continuing to emanate from our quality of life and other foundational advantages.

Some of the decline can be chalked up to changes in relative weightings in the report.  CNBC adjusts the weightings of its ten areas of competitiveness based on their national review of how hard state governments emphasize them in their economic development programs and marketing.  As it turns out, “cost of doing business” for the first time has replaced “workforce” with the highest weighting.   Similarly, the relative weighting placed on “access to capital” and “infrastructure” increased this year and may be reflecting the priorities of a period of pandemic recovery.

But even if our decline is partly a function of temporary weighting changes, Minnesota’s relative underperformance on metrics behind the rankings in these categories deserve consideration.   Of chief concern is workforce which has gone from 13th in the nation in 2015 to 29th in 2021.   Minnesota’s workforce rank now joins business cost, business friendliness (legal and regulatory environment), and cost of living in the bottom half of the nation.   That’s a potent superfecta of business competitiveness considerations that affects business decision-making.   We owe our continued top ten ranking to quality of life, the vitality of the state’s technology ecosystem crossing diverse business sectors, and the quality of our public education system.

Notably, these findings largely mirror those of a recent 115-page, even more data-intensive report from the Minnesota Chamber of Commerce Foundation entitled “Minnesota 2030: A Framework for Economic Growth”.   It also highlights in considerable detail the technological and educational strengths on which the Minnesota economy is based and their importance to the economy while flagging the same competitiveness concerns captured by CNBC.  At the top of the list is slowing labor force and population growth stemming from declining natural growth, net domestic migration, and international migration.  Resulting labor supply constraints and talent flow issues contributed to CNBC workforce rankings (likely using the same government data sources.)

The policy debate on what to do in response to all this is rooted in the age-old economic development debate: do people follow jobs or do jobs follow people?    It turns out both are true.   As one recent study concluded jobs attract people when the economy as a whole is observed as demonstrated by the fact that the growth of job density was followed by the growth of population density but not the other way around.   However, when the economy is split into highly skilled jobs and less-skilled jobs people attract jobs: the growth of highly skilled people density was followed by the growth of highly skilled job density and the same can be said about the density of less-skilled people and less-skilled jobs as well.

Unsurprisingly, this suggests careful attention is needed to create responsible balance in government policy-making.  That means smart spending to continue to build on our foundational strengths like education and having amenity rich places (in a decidedly un-Mediterranean climate) to attract and retain talent, It also means being attuned to the fact labor is highly mobile, and a competitive business environment is needed for business expansion and growth to put that talent to use here.  If there is something meaningful to conclude in these click bait reports, it lies in the metrics themselves.  And they indicate that more consideration and “investment” – as we now like to call all things government – is deserving on the business competitiveness side of the policy ledger.