State policy-makers often perceive that the most effective way to meet the new economic challenges is to improve a state's business climate. The term "business climate," generally refers to the perceived hospitality of a state or community to the needs and desires of existing businesses or businesses considering to move to the area.
The government's role in business has a major impact on business climate. It is that combination of public services, taxation and regulation that creates the context within which companies operate. Yet, the term "business climate" has become almost synonymous with the pressure to cut taxes, reduce services and remove red tape, particularly employment and environmental regulations.
Ironically, much of what is done in the name of business climate fails to help either a state's business community or its residents. Rolling out the red carpet and making government more customer-oriented makes a lot of sense. Yet "giving away the farm for a tractor" does not. Exploring ways to create a cleaner environment in a more cost-effective manner and enlisting industry's creativity in doing so is smart. Yet, lowering necessary environmental protections and weakening enforcement actions against real law-breakers is not.
Nowhere is the pressure to create a friendly business climate felt more intensely than in the competition to attract industry. Annually, states and communities spend hundreds of millions of public dollars on a variety of tax incentives and spending programs designed to attract footloose companies. Nevada believes that most of our incentives are "built-in" or "givens" and that is true.
There are six key components of a positive business climate; education, infrastructure, regulation, taxation, entrepreneurship and attitude. We must continue to be sensitive to these elements and not short change them in an effort to appear "pro business."
Education - Factors such as natural resources and proximity to markets and suppliers are clearly important, but the next steps forward in productivity and innovation require more flexible, articulate and thinking employees. Wise investment in public education is an absolute must for creating a positive business climate. This means to continue focusing on goals such as improved student outcomes and increased accountability on the part of schools.
Infrastructure and Services - The repair and maintenance of roads and highways, the management and operation of schools, the prevention of crime, public health and the care of public parks are all essential to a community's quality of life. Basic services, efficiently and cost-effectively delivered, improve an area's competitiveness.
Regulation - A positive business climate is created by regulators who seek to work with businesses to achieve acceptable standards, whether in the workplace or the environment, while at the same time not compromising their ability to enforce the law on behalf of public health and safety. Business groups have demonstrated it is not the regulations themselves that cause them grief, but the way they are administered.
Taxation - All state tax systems are no longer able to meet acceptable standards of adequacy, efficiency and equity. Because of this, the burden of taxation is placed on an increasingly narrow slice of economic activity. The over-emphasis on tax competitiveness and tax rates overshadows the fact that there are other equally important goals of a tax system, including reliability, stability, balance and fairness.
Entrepreneurship - Public and private financing play an important role in retaining, expanding and starting new businesses. Economic development efforts need to continue to pursue the high road of greater skills, higher productivity, better wages and career opportunities by providing financial services to businesses.
Attitude - Frame of mind and a community's ability to portray its willingness to get things done contribute to a positive business climate. The intangibles and the "aura" of a region and its people are reflected in its citizens' attitudes. Teamwork and partnership pervades every aspect of a businesses' image of a community. Perception is reality. True, but only if we fail. NNDA's job is to make reality known, perceived and accepted. Our actions have profound consequences and we know it.
Fresh thinking is required about the way economic development is heading in the United States. We have to move the debate about business climate away from simplistic notions of tax competitiveness or "getting the government off our backs" to focus on the real disincentives to economic competitiveness and opportunity.
The State of Nevada, the Commission on Economic Development, NNDA and our local governments interested in improving the business climate are continuing to encourage new business investment and job creation.
Kris Holt is the executive director of the Northern Nevada Development Authority.
