For job growth, state should think small.

• Author: Hood, John
• Position: FREE&CLEAR

Is North Carolina one of the best places in the country to do business? Or do we have a lousy business climate? You won't find a more contentious issue in state politics. The Democratic nominee for governor, Walter Dalton, has the difficult task of arguing for continuity. He cites rankings that make the state look good. His Republican adversary, Pat McCrory, is advocating change. Naturally, he points to lists that make the economy look enfeebled and uncompetitive.

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Both men have a case. Recent rankings by CNBC and Forbes and Site Selection magazines portray North Carolina's economy favorably. But it doesn't fare as well in studies by Bloomberg Businessweek and Inc. magazines. In the most recent Bloomberg Economic Evaluation of the States, North Carolina is near the bottom of the list in economic performance. One explanation is that, with so many rankings by a variety of organizations with different goals, they are bound to disagree. Another is that the interests of large, established companies are not always the same as those of small businesses and entrepreneurs. States attractive to some are not always appealing to others.

Take the issue of business regulation. According to Forbes, North Carolina has the country's best regulatory climate. But the ranking is rather odd. While policies such as the state's right-to-work law are properly included, the magazine also counts bond ratings, infrastructure and availability of targeted incentives. If you run a large company that can offset your regulatory costs with generous tax credits or cash subsidies from the state, this measure might make sense. But for the vast majority, judging the "regulatory climate" this way doesn't. To them, incentives are unavailable or uneconomical. They are likely to agree with the findings of a more straightforward survey by the Kansas City, Mo.-based Ewing Marion Kauffman Foundation, which asked owners of several thousand small companies to rate their state's business policies. In overall regulatory climate, North Carolina had the worst score in the South. Only 11 states ranked lower. It was also worst in the South and among the worst in the nation for business taxation.

The Washington, D.C.-based Tax Foundation has long ranked the state as having one of the nation's most unfavorable business-tax climates, not only because of our high marginal income-tax rates but for the poor design of our retail-sales tax, which is often wrongly applied to...