Last year, in a massive, high-profile, bidding war, the corporate behemoth that is Amazon announced that it would be opening a second headquarters, and would be accepting applications for this opportunity.
Altogether, 238 cities/states applied for the opportunity. For months, Amazon made it seem that it would be seriously considering all proposals, before ultimately settling on two massive urban centers in New York City and outside Washington D.C. in Northern Virginia. While 24 different applications came from Massachusetts, only one came from Mississippi, and records don’t seem to provide the name of the city that applied. This process reveals the lacking capacity of Mississippi to draw in major business programs.
Now this process was inherently flawed, as it encouraged states to dole out state-sponsored bribes in the form of tax incentive programs and to favor one company over others. However, it also reveals the structural challenges Mississippi faces in attempts to be competitive against other states when it comes to the modern market incentives to draw in and sustain businesses.
We have previously written about the need to reduce crime to positively influence population growth in the Jackson area. But that’s not all. There are also legislative and regulatory policies hindering business growth in the state, and changes that could be made to prepare for the future.
As city and state leaders further consider the future, they ought to reflect on how best to build an environment which positively promotes business development and entrepreneurship on the local level.
To meet this end, Jackson, Ridgeland, Madison, Flowood, and Pearl need to consider branding themselves not just as individual cities competing for business and citizens, but as the Greater Jackson Area along with the capital city.
This type of community partnership has proven quite effective elsewhere across the country, especially in the Dallas-Ft. Worth area, and the Research Triangle that is Raleigh-Durham-Chapel Hill in North Carolina. In these cases, cities have been able to combine their individual strengths such as education centers, available land, working-age populations, and more in order to make a more coherent pitch for both new businesses and new residents.
These strong regional coalitions have undoubtedly contributed to these cities becoming some of the fastest growing in the nation. One needs only to look into the history of the Raleigh-Durham-Chapel Hill Research Triangle to understand how a regional area can turn itself around. In the early 1950’s, the per capita income of the area was one of the lowest in the entire Southeast. Yet today, the Research Triangle cities are consistently listed as one of the best places to live in the country, and each day they attract about 80 new residents to the area.
A few key lessons emerge from the development of the Research Triangle. It was not a top down initiative driven by government. The Research Triangle was endorsed and publicly supported by leadership but was driven forward through private solutions which allowed the organization to operate with the efficiency of a non-governmental entity. The privately funded Research Triangle Institute targeted the emerging technological developments and sought to make itself a flexible institution, capable of changing with a shifting economy.
These lessons ought to be internalized by local leaders and applied to our future growth. First, government can’t dictate and direct the economy and see consistent success. We need to encourage private growth and investment, and take the government hands off the wheel. Second, only in the promotion of market freedom can we ease the regulatory burden and encourage creative entrepreneurs to steer the economy in Jackson and the greater metro area.
Recent studies reveal the unfavorable environment for starting a business in Mississippi. Business Insider ranked us the 35th best place to start a business. In a more recent report, another website ranked us the 38th best place. You can search for others that have similar results. What is clear is that we’re at least stagnating, but are potentially getting worse by comparison to other states. In these studies, while we were consistently ranked well for our cost of living, we ranked rather low in regards to our access to an educated employee base, and the actual cost of starting a business.
Another important factor in both of these studies is an evaluation of the overall entrepreneurial environment. This status depends on how many people are starting businesses and the survivability of a business. This is another factor which Mississippi and individual cities can directly impact.
Policies that protect entrenched interests stifle economic competition and limit the ability for new business owners to break into the market. This stifling effect can be accomplished through a variety of regulatory and legislative approaches. Burdensome occupational licensing, business fees, and restrictionist policies all play a part.
Regulators often claim the need to protect citizens in establishing these rules, but really they are protecting entrenched business interests across the state. While we ought to create policy that is favorable to business, it shouldn’t favor established businesses over those attempting to break into the market. Competition is good, it incentivizes further development and elite performance.
When a competitive business market is present, the best companies thrive, and the consumer is presented with the best options and quality of experience.
In order to help ease this burden, we need a mechanism to repeal outdated or unnecessary regulations. A few years ago we established an occupational licensing board to review new regulations, but there is still no metric in place to effectively and efficiently dismiss overly burdensome, previously established, regulations. To this end, we ought to create a non-governmental review board with the authority to roll back excessive regulations.
Currently 55 percent of our economy is controlled by the public sector. This is not sustainable for growth. The role of government in the economy is to protect property and enforce contracts, not to fuel the economy both directly and indirectly through its largesse and its allocation of contracts and resources.
In Mississippi, our leaders love to claim success in regards to our low tax rates. However, the more burdensome taxes are still present, but just better hidden, and they hit businesses especially hard.
We tax land, buildings, inventory, and equipment at higher rates than all surrounding states. All these factors play a direct role in business decisions. As noted in Promoting Prosperity in Mississippi, the state is one of only ten that taxes business inventory. Even with an existing partial rebate, this tax punishes inventory levels and encourages states to set up shop in nearby Alabama and Tennessee, neither of whom have an inventory tax.
Furthermore, we are one of only nine states in the entire nation that tax intangible property such as stocks and bonds. This tax directly discourages any large company from basing itself in the state, because it heavily burdens companies that own their own stock (as most large publicly traded companies do).
On top of this, Mississippi maintains property taxes far above the national average. According to the authors of Promoting Prosperity in Mississippi, if the state were to set its commercial and industry taxes to the national average, then business activity could increase by up to 20%, new plant establishments could grow by up to 8%, and employment growth could increase to 2.44% per year.
Much of Jackson has been designated as an opportunity zone for the next ten years by the Tax Cuts and Jobs Act of 2017, and federal incentives have been put in place to fuel business growth and investment. By encouraging businesses to take advantage of these incentives and lightening the present tax burden on industry, we can promote new companies to invest and existing companies to expand.
For many of the regional partnerships around the country, education is a great asset (perhaps especially true in the case of the North Carolina Research Triangle). The strength of Mississippi’s community college programssets this region apart for its ability to create a workforce that is well-balanced for the next generation of jobs. Continuous education will surely be necessary as technological advancements mandate a flexible workforce.
The region should make this factor a staple as it pitches itself for the next generation of businesses which are guaranteed to be more digital, and more technologically inclined, along with the high caliber private universities in the area.
As we look to the future, we need to seek to free ourselves of economic reliance on the payroll of government. The pathway to success is consistently proven to be paved by private industry.
As we attempt to make the Jackson area, and Mississippi as a whole, more attractive to businesses, we must recognize our current barriers to market growth, especially those burdens which were imposed by government with the aim of protecting existing industry rather than seeking to foster the type of economic competition which would ultimately expand it. And we must emphasize our assets, such as our community college programs and low cost of living, and then allow the market to do the rest.
This week, Mississippi Center for Public Policy will be looking into the underlying reasons as to why Jackson is struggling, exploring the legislative and regulatory climate which encourages migration and business stagnation both within our capital city, and across the state.