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Economist: Psychology Matters in Attracting Business

by | Sep 11, 2013 2:01pm
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Posted to: The Economy

Hugh McQuaid Photo

Douglas Fisher

Adopting “Right to Work” legislation, cutting corporate taxes, and reducing business regulations were among the proposals recommended by an economist Wednesday for making Connecticut “stand out in a crowd” of other states.

Economists from UConn released their quarterly “Connecticut Economy” report Wednesday at the Legislative Office Building. This quarter’s review included recommendations from Douglas Fisher, an economist and vice president at Goman+York property advisors in East Hartford.

Fisher wrote business recruitment strategies for Northeast Utilities for 17 years and said Connecticut has a problem with how it is perceived by companies looking to relocate and businesses looking to expand.

“Psychology matters. I’ve been on the front lines trying to market this state for a long, long time and we are taking a hammering in terms of the marketability of our state, in terms of putting our best foot forward in a national and international context,” he said.

Although he said none of the ideas he presented would turn around how the state is perceived overnight, he said they could help to differentiate Connecticut from its neighbors.

Fisher’s proposals would also be a hard sell in a state legislature controlled by Democrats. He recommended eliminating the state’s corporate income tax, which he said raises about 3.6 percent of Connecticut’s tax base. He also suggests a push to alter or repeal state regulations that stand in the way of economic growth.

“Make it a real public show . . . Make it really obvious so that the business community gets heartened by the idea,” he said.

Steven Lanza, the UConn economist who serves as executive editor for the quarterly report, took some of Fisher’s suggestions and tested them to see if there is empirical evidence to support the recommendations. Lanza said other economists have called for scrapping the corporate income tax.

“My view of the corporate income tax is that it’s probably more of a pain in the neck to collect it and to enforce it, and administer it, than it is in terms of the revenue that it really adds to the state’s coffers,” he said.

Lanza compared corporate income tax rates across states with growth in those states over a 12-year period. He said he found a statistically significant relationship between the two.

Hugh McQuaid Photo

Steven Lanza, executive editor of The Connecticut Economist

“States with lower corporate income tax rates see higher job growth rates,” he said, adding that the relationship held up even under more complex scrutiny.

Lanza said the same type of analysis did not find a similar relationship between job growth and the traditional income tax rate. Instead, he said he found a positive relationship between job growth and states which have enacted an income tax.

With regard to Fisher’s recommendation that the state reduce some of its regulations on businesses, Lanza said there is some evidence to support that suggestion as well. However, he said it is a matter of finding the right balance of regulations, not eliminating them altogether.

“Regulation is a good thing. You need to have regulation of business in order for business activity to take place. If you didn’t have stop signs and traffic signals, transportation would grind to a halt,” he said.

But when he compared small business growth to the level of regulation across states, Lanza ended up with a chart displaying a bell curve. On one end, in lightly regulated states, additional controls helped economic development. On the other side, regulations reduced economic growth. Connecticut was in the latter category, he said.

“After a while, it does choke off new business development. Connecticut, and unfortunately most states in the northeast . . . fall well above the hump in this curve,” he said. “. . . Probably it’s just an increase of all these regulations that simply don’t make sense and should be revisited for a modern day economy.”

Fisher and Lanza did not see eye-to-eye on the economic impact of legislation adopted by about half the states, which allows workers to opt out of labor union membership and dues. Fisher said there is a correlation between states with “Right to Work” laws and job growth and economic activity.

Lanza said some research suggests that those states have done better economically. However, Lanza believes the improved economic activity has more to do with factors other than the “Right to Work” laws.

“I don’t think being a ‘Right to Work’ state — I know Doug [Fisher] and I, we disagree about this . . . but I simply don’t think that’s a factor,” Lanza said.

Fisher acknowledged that the issue was “highly debatable.” He said he did not believe that passing the policy alone would make Connecticut competitive. But he said it does underscore a business-friendly attitude.

“I’m just throwing it out there among ways you can differentiate yourself. From Maryland to Maine, we would be the only one in that orbit to adopt that,” he said.

Fisher said passing the policy would send a huge psychological message to businesses.

“To say ‘Oh my God, Connecticut did that?’ — We want some ‘Oh my Gods Connecticut did that.’ Whether it’s ‘Right to Work’ or something else, in a positive direction that sends a message to businesses that we’re doing things differently,” he concluded.

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(14) Archived Comments

posted by: DirtyJobsGUy | September 11, 2013  3:47pm

I just finished our Tax Season (CT and 7 other states) for our professional services firm.  No one got a significant amount of income or other taxes because we can’t afford to have the company make money(cheaper to pay ourselves and pay personal income taxes).  But it does cost us money to file the forms etc.  It also costs the state to handle and process forms with no real tax due.  Once again however Texas is the easiest to deal with and gives a true feeling they like us doing business there. 

It is very true that the psychology is important.  CT not so very long ago used to be a manufacturing powerhouse.  All it takes is to give people a real sense of confidence that you like them and what they do.  That is not true in CT today in any field.

posted by: Lawrence | September 11, 2013  8:45pm

What Doug Fisher doesn’t mention—either on purpose or out of ignorance—is that 67.7% of Ct corporations in 2010 either paid NO state corporate taxes or just the $250 MINIMUM.

That’s 27,736 corporate filers out of 40,940 in 2010, according to the latest annual DRS report.

Tell me, Doug—did 68% of CT residents pay nothing or just $250 in state taxes in 2010?? How can I get that deal??

And right to work states are involved in a race to the bottom, which is killing (has killed) the middle class in America already and doesn’t need to be instituted in CT.

What we need are CEOs and shareholders to stop the greed and the ridiculous, unquantifiable income disparities in the state and across the country, bring back jobs from overseas, and get off the piles of cash corporations all over America are hoarding.

Please, stop thinking “business friendly” and start thinking “getting jobs for CT citizens”—THAT’S THE GOAL.

The two are NOT the same!

posted by: StevenRosenbaum | September 12, 2013  7:10am

Business seeks a “path of least resistance.” Currently, that path does NOT lead through Connecticut. Those advocates of the current state of economic affairs simply cannot dispute the empirical evidence of this situation. Lets face it, if Connecticut were “business friendly,” the state’s economy would be in far better shape.

posted by: Greg | September 12, 2013  8:31am

Perception is reality. As this discussion has gone round and round through the years, the fact is that CT is perceived to be one of the most business unfriendly states in the country, and quite franky, data backs that up (regulatory burden, cost of living, energy cost, etc). 

If that is the perception in the marketplace then that perception is going to drive behavior.  And here we are, the only state in the country with no economic growth.  Texas, on the other hand, has a very business friendly perception (arguably with data backing that up), thus growth.

@ Lawrence: you say “jobs for CT citizens”...given the spirit of the article please share how public policy can do that, and if it’s not becoming more “business friendly”, then what is it?

posted by: JamesBronsdon | September 12, 2013  8:52am

Lawrence, I wouldn’t be surprised if 67.7% or more of “corporate filers” were individuals who have incorporated their businesses. I suspect many are feeling they’re already paying far too much in personal state income taxes as well as other state taxes, levies, fees, assessments, mandates, etc.  So, if you’re implying corporate greed or malfeasance based on the taxpaying patterns you’ve identified, I think you are, once again, overstating your case.
Yes, balance in governmental initiatives is necessary in creating a thriving, livable state. We are out of balance. I think that is all Messrs. Fisher and Lanza are suggesting.

posted by: OutOfOutrage | September 12, 2013  9:59am

OutOfOutrage

CT has no interest in “sending a message”.  Malloy’s strategy is to be slightly more attractive than NY & NJ.  That’s great for Fairfield County and the rest of us pay the freight.

posted by: JAM | September 12, 2013  12:26pm

Lawrence,
Do you work in the private sector? Have you ever for a meaningful period of time?
Some of your comments just strike me as so naive, I had to ask.

posted by: Lawrence | September 12, 2013  7:25pm

Greg and James, good comments. Greg, I can’t answer your question. I’m still mulling it. I don’t think Texas is a role model for any decent society. And yes, Jam, decades in the private sector, as a line employee and a manager. Guess I’m just tired of hearing people say the government should run like the private sector. Two different missions, two different goals, both necessary, both glorious, both ripe with errors.

posted by: Joebigjoe | September 12, 2013  9:25pm

Lawrence you said that you don’t think Texas is a role model for any decent society. Many millions of people would disagree with you. Please elaborate on why you think that?

posted by: dano860 | September 12, 2013  10:12pm

After 29 years of being in the union I still feel they have done a lot of harm as well as good. They served their purpose in the early years but over the past 25 or so they serve to protect the last and undeserving in the labor force. They have been one of the biggest reasons for insurance costs rising in my book. We saw many iterations of the IAM at Pratt and Whitney. When they went to an agency shop it was also the beginning of the big layoffs.
The numbers of unionized employees in the country have never reached the 20% figure and today they stand at approximately 11.3% or less. http://www.bls.gov/news.release/union2.nr0.htm
States that are ‘right to work’ States are the ones with growth in employment today.
Being a right to work State does not mean that unions are banned, it just gives more options to employers and employees.
Mr. Lanza continues to be the point person for the State to seek answers but I have yet to see him propose or do anything that has resulted in positive growth in Ct.

posted by: Stan Muzyk | September 13, 2013  9:52am

Bad Connecticut politics has put “too many raodblocks” that discourages new business acquisituons—and threatens the survival of existing businesses.  We need to clean house of our current state elected “bad actor General Assembly”—starting with Gov. Dannel P. Malloy.  This won’t happen until we educate voters to tha fact that Hartford must drop its role-making leadership as “a welfare capitol in the USA”—which discourages people from being forced to seek jobs to survive.

posted by: gompers | September 13, 2013  2:35pm

The supposed “Right to Work” states are the poorest states in the nation - Alabama, Mississippi, ...  They are also the biggest federal food stamp and welfare recipient states.  What good are jobs if they don’t pay enough to live on?  What Fisher suggests is simply breaking the backs of the unions by forcing them to represent deadbeat workers for free.  It is an old corporate strategy and has nothing to do with helping out workers.  These are more properly called “Right to Work for Less” laws.

posted by: dano860 | September 13, 2013  8:50pm

There are 22RTW states, they can not all be paying less than the others.
Lets compare some salaries with Ct.,
http://www.payscale.com/research/US/State=Alabama/Salary
http://www.payscale.com/research/US/State=Connecticut/Salary
In my world I would be an M.E., and these charts tell me I would get $2K less in Alabama than in Ct. When you figure in the lower cost of living I may actually be taking home more than in Ct.
Alabama is now the home of a few auto manufacturers, Mercedes Benz, Hyundai, Honda, it sounds better than 200 more layoffs at Sikorsky.
http://blog.al.com/businessnews/2012/07/alabamas_honda_mercedes-benz_a.html
BMW is expanding in S.C. and none of them even consider coming north into the union only states.
We were a manufacturing state, now we are trying to play catch up with bio-tech. We are late on that one too, Massacheutts had them years ago and still is leaps and bounds above us.
Oh, welfare and SNAP, Ct. has a large percentage of its population on them. We are not in very good shape there. Of course as Owebama seeks out people to give them to the rolls will increase everywhere.

posted by: Stan Muzyk | September 14, 2013  10:50am

It will take a lot more than psychology to escape the deep political quagmire we are buried in.
Gov. Malloy is running our state under “the bankruptcy
driven rule of Obamaism.”
“Like Obama, the taxpayor-paid social benefits crowd elected Dannel P. Malloy.”
The hard-pressed taxpayor’s are forced to pay for the bought vote that keeps burying our state and country—without being required to earn their keep.  Our taxpayors are merely getting “taxation without representation.”