Idaho ranks as no. 13 this year in CNBC's annual list of top states in which to do business, placing higher than neighboring Oregon and Washington, but not nearly as high as Utah, which garnered second place. Rising 18 places from the 2011 CNBC list is enough for the network to designate Idaho as one of the few most improved states, but after considering individual ranking criteria, the report suggests that this year's higher placement may have less to do with improvements in Idaho's business climate than it does with deterioration in other states.
"Idaho moved up in Business Friendliness but not much else, suggesting that its overall ascension was as much a matter of other states' slippage," the report said. Idaho has maintained a favorably stable low cost of doing business in relation to other states, as well as possessing a high-quality educated workforce, placing among the top several states in both categories.
One category weighing Idaho down in CNBC's rankings is the state's educational climate, which the network ranks at 48—third to last among all states.
"We looked at traditional measures of K-12 education including test scores, class size and spending," the report said. "We also considered the number of higher education institutions in each state and long-term trends for funding higher education."
This criteria, however, also demonstrates a particular form of bias in the report's methodology, which judges states not only by markers of quality within educational institutions, but also by their level of government funding. Academic research has consistently shown that there is no clear correlation between per-pupil education spending and measurable student outcomes.
"There is a long history of trying to estimate the relationship between average spending and average performance, and it is not an encouraging one," wrote economists Robert Costrell, Eric Hanushek and Susanna Loeb in the Peabody Journal of Education. "For decades, it has proven difficult to find a systematic relationship."
Given that student outcomes vary widely for similar levels of education spending, they went on to suggest that funding levels aren't nearly as important as other variables like teacher quality, administration, and structural incentives.
"The most important lesson that emerges from the data—with its wide variation in achievement for comparable expenditures—is that how money is spent is crucial for determining student outcomes," they wrote. "Educational excellence requires a system with the knowledge, professional capacity, incentives, and accountability that will lead schools to determine how to spend their funds most effectively to raise student achievement and reach the variety of goals we have for students."
Richard Twight, who spent 20 years handling information services for the Idaho Department of Commerce, agreed.
"You've got to dig through the assumptions underlying these kinds of questionnaires—whether they're equating spending with quality, whether they're equating teacher pay with quality," Twight said. "All you have to do is go and see what it costs per student in Washington, D.C., and then look at the graduation rates and the number of students that go to college from Washington, D.C., schools, and the costs are enormous but the end product is not very good. When you get government expenditures on provision of services evaluated as if the expenditures somehow are directly related to quality, it's just not so. And you can find examples all over the country of that."
This form of bias affects other areas of the CNBC report, as well. Its workforce ranking, for instance, judges not only the quality and availability of each state's workers, but also "government-sponsored programs to train them." Its criteria for technology and innovation included not only the proliferation of new ideas, but "federal health and science research grants to the states." Without a more detailed breakdown of which factors triggered individual elements of its scoring process, it's not clear to what extent the CNBC report values economic freedom over subsidized corporatism.
Twight said that from an economic standpoint, creating a business climate that reduces regulatory burdens and lowers taxes across the board is far more important than corporate welfare in creating true market prosperity.
"Remember, one person's subsidy is another person's tax," Twight said. "You give a subsidy to one industry, and guess who pays for that? Somebody else. Subsidies are a two-edged sword in the economy. And they're making that choice, as to who gets subsidized and who pays, as a political choice—it's not a market choice. Somebody there in a government office is saying, 'We think this industry should be favored over that industry.' Picking winners and losers. You want the marketplace to determine winners and losers. So, this idea that you can target tax incentives and target subsidies, and so on, becomes a grab bag for who has access to the political powers, and who's going to cozy up to whom. It's fraught with peril, and people will fight like crazy to gain access to that largesse. That's not a healthy business environment, in my opinion."
Rankings from other groups have shown Idaho in a similar light as the CNBC report, with the state placing 18th in the 2012 Chief Executive magazine survey and given an A+ grade in most categories from a recent Thumbtack.com survey.
