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Louisiana ranks near rock bottom of U.S. prosperity study, business environment

August 18, 2019
Originally posted on The Advocate

Louisiana's business environment and overall quality of life ranks next to last on a global private investment firm's rankings of the 50 states and Washington, D.C., and has stayed near rock bottom for the past decade.

That's according to a study of economic prosperity conducted by the research arm of equity firm Legatum released in July. 

Louisiana's economic prosperity ranking dropped in the past decade from No. 46 in the U.S. to No. 50 on the list — just above last-place Mississippi. Nearly a dozen indicators were used to measure prosperity, including health, education and social capital.

Business environment in particular was measured by the entrepreneurial environment, business infrastructure, access to credit, investor protections and labor market flexibility. For that metric, the District of Columbia, Massachusetts, New Hampshire and Connecticut ranked in the top four. Neighboring Texas ranks No. 21 on the list for business environment.

But some suggest the report overplays Louisiana's weaknesses. 

“The Louisiana economy is strong and it's headed in the right direction,” said Don Pierson, secretary of economic development. 

Pierson noted that the state has low unemployment compared to recent years and that dozens of companies have invested billions in the state. Louisiana's unemployment rate is the lowest it's been in a decade, but compared to the rest of the U.S. still lags behind.

The state “has a reputation for onerous business regulation,” according to the report.

“We've been very frustrated with the lack of political will to address ways in which Louisiana is very different than other states and that tends to make us less attractive,” said Jim Patterson, vice president of government relations for the Louisiana Association of Business and Industry. 

For example, local sales taxes are collected by each parish directly and the rates differ across the state. That can be difficult for businesses operating across parish lines, Patterson said.

“This is an area where small businesses are frustrated,” Patterson said.

Other issues include high insurance rates for commercial policies and frequent lawsuits that have driven up the cost of business overall, he said.

“We've got to turn around our business climate. We have the economic underpinning to be more successful but I think it's because Louisiana has been too focused on the public sector than the private sector,” Patterson said.

In 2009, Louisiana was No. 6 in the nation for economic quality, which refers to how well a state's economy is equipped to generate wealth sustainably, but has since dropped by 32 slots.

That dichotomy of having potential but lagging behind doesn't come as a surprise to Loren Scott, an economist in Baton Rouge.

Louisiana's economic strengths are its ties to the energy industry and petrochemical sectors.

The state was No. 16 in the country for labor productivity, since it exports the highest value of manufactured and non-manufactured goods per capita.

“We're going to rank high in terms of accessibility to fuel like oil and gas for world markets,” Scott said. “But you've got to overcome the infrastructure, workforce, tax structure and tort reform. Some of that can be expensive to master.”

Scott noted that the energy industry has brought significant investment in Louisiana, much more so than other states across the Southeast. For example, Louisiana's gross domestic product grew slightly faster than the national average during the first quarter of this year.

But the quality of transportation infrastructure, such as roads and bridges, has been on the decline, according to the report. It also found that 77 out of 102 vocational occupations requires state licenses, including florists, which suggests more regulation than other states.

“We have been very active working to broaden the portability of occupational licenses, particularly as it impacts our military installations,” Pierson said, referring to military spouses with licenses in other states looking for jobs in Louisiana and having those licenses transferred. “Things like that may have an impact on this ranking in the future.” 

Louisiana is noted for its low labor costs, entrepreneurship longevity and internet access. 

In terms of labor flexibility, considered as another economic indicator, Louisiana ranks higher than the rest of the nation. That's because less than 6% of workers in the state are unionized compared to about 12% on average across the country. 

The state has also improved the one-year startup survival rate in the past decade, from No. 42 in 2009 to No. 12 in 2018. And there has been increased broadband internet access in the past decade in urban areas, from less than 85% in 2008 to nearly 95% coverage in 2018.