Improving Kentucky’s Business Friendliness

Friday, November 1st, 2013

Last week on One to One, I talked with former New Zealand legislator and diplomat Maurice McTigue. He now consults with state governments and business groups around the United States about how to improve economic competitiveness.

It was a fascinating conversation about the opportunities he sees for Kentucky to become more business-friendly and more competitive with our neighboring states. McTigue doesn’t believe simply cutting regulations and offering unlimited tax breaks are the answer. In fact, McTigue says tax incentives simply indicate that something else is wrong with state development policies that, if fixed, would be more beneficial to current and prospective businesses alike.

McTigue encourages states like Kentucky to focus on growth strategies rather than job creation. He says when states invest in growth, the jobs will follow. He also advises states to speed up and streamline permitting and compliance processes so businesses can do what they need to do more efficiently. And he said that Kentucky should reduce the number of taxes it collects from 70 down to around 10 – not to reduce tax revenues, but to simplify how many taxes have to be paid.

Advocacy groups and business organizations are also closely listening to McTigue’s ideas. I asked three such organizations in the Commonwealth to offer their thoughts. First, here’s what Jim Waters, president of the Bluegrass Institute in Lexington had to say:

Maurice McTigue’s polite but firm refusal to back down on his assertion that tax incentives, which form the centerpiece of Kentucky’s economic-development approach, [are] not the best policy if we hope to turn Kentucky from a poor state to a mecca of prosperity is a breath of fresh air among all of the voices claiming that such handouts are the only way for the Commonwealth to compete …

Perhaps the best advice offered by McTigue, and yet the one so often ignored or rejected by Kentucky politicians, is: “If others are doing it better than you, you better find out what they’re doing and copy it.” Such “best practices” approach works for Kentucky business giants like Toyota and UPS. Frankfort should try it, too.

Could such an approach also hold the key to why states like Louisiana, which historically have trailed Kentucky in certain areas of economic competitiveness, are now passing us up in key economic and education indices?

Jason Bailey, director of the Berea-based Kentucky Center for Economic Policy, also agrees that Kentucky focuses too much on tax incentives, but disagrees with McTigue on the fundamentals of economic growth.

The specific ideas he focuses on are to streamline regulatory and permitting processes and have fewer types of taxes. He focuses heavily on the tax and regulatory structure, and speaks positively of right to work laws because they allegedly “make it easier for people to manage their labor force.”

But the real fundamentals that truly matter for economic development are about the quality of life in a state and the capacity of the state’s citizens. Those things require adequate public investment in education, health, human services, public amenities and infrastructure, and a role for government in protecting against abusive business practices. They require an economic development strategy based on assisting targeted sectors and supporting entrepreneurs. They require broad, democratic public participation in economic development planning. Mr. McTigue talks about none of those things.

While everyone wants governmental processes to be no more complicated than necessary, simplicity alone will not unleash economic growth. And deregulation, tax cuts and right-to-work laws are a recipe for inequality rather than development …

Economic development is about raising the quality of life of all of the state’s citizens. That requires a government that sees broad improvement in living standards as the goal, and invests in the capacity of its people to create their own economic future.

Finally Bryan Sunderland, a senior vice president of the Kentucky Chamber of Commerce, urges an annual review of our state’s economic development policies.

“If Kentucky leaders are not looking to improve the business climate every single year, we’ll continue to be passed by other states that do,” says Sunderland. “Improving our business climate through education, competitive taxes, and reasonable regulations is the best way to grow the economy and jobs.”

What do you think of McTigue’s ideas? You can add your voice to the conversation by emailing me your comments at bgoodman@ket.org, or by posting them on Facebook (billgoodmanKET) or on Twitter (@BillKET). I’d love to hear from you.

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