PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

At the National Level or in the States: Policy Matters to the Economy

By at 3 December, 2017, 3:51 pm

Small Business Insider

The Economy

 

by Raymond J. Keating-

The latest GDP data show that U.S. economic growth in the last two quarters – the second and third quarter of 2017 – has stepped up, pushing above the 3 percent level. That’s good news, and we need to see policy changes that provide the foundation for faster and sustainable economic growth.

Of course, growth can vary considerably state by state. The U.S. Bureau of Economic Analysis released the latest GDP – the second quarter of 2017 – data by state on November 21.

Growth Highs and Lows

Real GDP growth among the states in the second quarter ranged as high as 8.3 percent in North Dakota and a low of -0.7 percent in Iowa.

Filling out the rest of top growth states after North Dakota were Wyoming (7.6 percent), Texas (6.2 percent), Michigan (5.5 percent), Oklahoma (5.5 percent), Alaska (4.8 percent), New Mexico (4.5 percent), and West Virginia (4.1 percent).

And on the other end, after Iowa, it was South Dakota (-0.3 percent), Delaware (0.4 percent), Montana (0.6 percent), Nebraska (1.1 percent), New York (1.2 percent), and Minnesota (1.2 percent), and Connecticut (1.3 percent).

What were the key driving factors on the upside and downside? The BEA explained key positives: “Nationally, mining increased 28.6 percent and was the leading contributor to growth for the nation and in the three fastest-growing states of North Dakota, Wyoming and Texas in the second quarter. Mining contributed to growth in 49 states led by increases in oil and natural gas production.”

And as for the negative factors, “By contrast, agriculture, forestry, fishing, and hunting decreased 10.6 percent and subtracted from growth in 25 states, including every state in the Plains region, which experienced high levels of crop production in 2016. This industry was the leading contributor to the decreases in real GDP in Iowa and South Dakota—the only two states to decrease in the second quarter.”

The Policy Environment Matters

However, there’s more in play, including the policy environment in each state, as explained in SBE Council’s Small Business Policy Index 2017: Ranking the State on Policy Measures and Costs Impacting Small Business and Entrepreneurship.

In the second quarter of this year, it turned out that six of the top eight growth states ranked in the top half of states in the “Small Business Policy Index,” while seven of eight slow growth states came in the bottom half on the index.

Of course, from quarter to quarter, state economic growth can and does vary widely. But over the long haul, it’s clear that policy matters. As reported in the index:

“Real average annual economic growth from 2010 to 2015 among the top 25 states ranked on the 2017 ‘Small Business Policy Index; averaged 1.87 percent, which was 37 percent faster than the 1.37 percent average rate for the bottom 25 states. So, on average, economic growth performed markedly better during this poor recovery among the top 25 states on the Index compared to the 50-state average (1.62 percent) and compared to the bottom 25 states.”

So, whether at the national, state or local levels, policies, such as various tax and regulatory issues, matter. Get the policy mix right – that is, as pro-growth as possible in terms of, for example, low taxes, light regulation and limited government spending – and entrepreneurs, businesses, investors, workers, consumers and the overall economy benefit accordingly.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP:  The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

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