OP-ED | Are Companies Fleeing the State? Maybe Not In the Way We Think
A firearms manufacturer, PTR of Bristol, finally left the state for South Carolina this week. Everyone knew it was coming, but it stung nonetheless. It’s not fun to watch whole companies head south. So now we wonder: should we expect more and more companies to pack up and leave the state, as politicians often claim they will if we don’t ease up on taxes and regulations? Well . . . that turns out to be complicated, and what it means for policy is less clear cut.
Sen. Jason Welch, R-Bristol, was quick to assign blame to “misguided gun legislation that banned their product” and “high costs, high taxes, and over-regulation.” Gov. Nikki Haley, R-South Carolina, echoed that sentiment during a news conference to announce PTR’s move, saying that in her state, government “. . . will stay out of their way and let them do their jobs.”
Gov. Rick Perry, R-Texas, made similar statements during his June job-poaching tour of Connecticut. “Is your regulatory climate one of which really allows your citizens to be able to enjoy the freedoms that they can have?” he said at a news conference in Hartford. “Or are they going to relocate somewhere?”
State Republican Party Chairman Jerry Labriola, Jr., in an email to supporters in February, said that the “. . . the Governor’s record-breaking taxes have caused the out-migration of jobs, companies and skilled workers to other states, where they can actually ‘grow’ instead of ‘go.’”
This story sounds depressingly familiar. Taxes are high, regulations are stifling, the government isn’t “business-friendly,” and so companies are just up and leaving the state like PTR did. From the rate at which the threat of companies relocating to other states is discussed, you’d think it happens all the time.
The truth is far more complex.
I decided to try to find out just how many companies are leaving the state, and just how common it is for companies to migrate across state lines. I was amazed to turn up virtually nothing. In fact, data on businesses relocating out of state is very scarce, indeed. Almost nobody tracks it. The Bureau of Labor Statistics tracks gains and losses related to business creation, expansion, contraction, and closure, but not relocation. The Connecticut Department of Community and Economic Development’s David Treadwell said that “as a free-market economy, most of this activity happens without our knowledge.”
The few studies that do exist suggest that cross-state migration of companies is rare, and makes up only a small fraction of job losses.
According to the BLS, the most recent data is from the first three quarters of 2012, during which Connecticut saw a net gain of 15,197 jobs.
Some 259,390 jobs were gained at growing companies while 39,056 jobs were created with new companies. Losses at “contracting” or shrinking companies totaled 245,812, while 37,437 jobs were lost at companies closing. A fraction of the jobs lost in the “contracting” or “closing” categories could be from relocations, but the BLS doesn’t have that data. Economist Patrick Flaherty at the Department of Labor issued a caveat, saying that if a company moves jobs out of state gradually over time, those losses could be counted as coming from “contracting establishments.”
Conversely, the BLS also has no data on whether any of the new jobs or job gains were from companies moving into Connecticut from other states.
So what does that mean for Connecticut’s listing economy? Peter Gioia of the Connecticut Business and Industry Association said that while there isn’t a lot of data out there about relocation, “the stealth effect of moving new added production or offices elsewhere ultimately hurts more than outright relocations out of state.” That means a company could start here, but decide to open their new distribution center or factory in another state. He added that a lot of this happens “when firms see a high cost of doing business together with perceived business unfriendly attitudes of state officials.”
Therefore PTR’s relocation may not be a sign of companies just up and leaving, but an extreme symptom of overall dissatisfaction with how businesses and government interact. Policymakers and opinion leaders should be less concerned about companies decamping Whalers-style for other states than about growing and encouraging the businesses we have, and improving relations.
Unfortunately for businesses, the tax and regulatory burden may not ease any time soon. There may be some taxes and regulations that are unfair or unduly burdensome, like the much-loathed business entity tax, but after a certain point the government likely won’t budge. Relations between government and business certainly can be improved, however, and the Malloy administration must do much more than it has to show that businesses are being heard in Hartford.
In the meantime, worries about large numbers of companies simply packing up and leaving are probably unfounded. We have enough real economic trouble to worry about rather than chasing those ghosts.
Susan Bigelow is an award-winning columnist and the founder of CTLocalPolitics. She lives in Enfield with her wife and their cats.