We’re doing a lot of things right. A new study by the Pacific Research Institute ranks Texas No. 3 in the nation for small business. Low taxes and limited regulations make Texas a great place for small businesses to start and to grow.
“Small businesses’ share of the private non-farm economy was 3.6 percentage points smaller in 2010 (the latest estimates available) than their share in 2002 – as of 2010 small businesses accounted for 44.6 percent of national GDP,” the report explains. “Similarly, employment and payroll growth at small businesses has been lagging their large business counterparts. Due to small businesses’ traditional role as the economy’s innovators and job creators, and the lack of sufficient innovation and job creation thus far in the economic expansion, it is imperative to reinvigorate small businesses.”
Texas ranks third, after second-place North Dakota and surprise first-place Indiana.
In a recent telephone interview, the study’s author, Dr. Wayne Winegarden, explained that he examined 14 specific factors to calculate the rankings. Texas scored highly on nearly all of them.
Texas is doing great,” he said. “Continue doing what you’re doing. Texas is seen as the state that should be emulated. You see this in any comparison of California versus Texas, for example. Small businesses respond – Silicon Valley is moving to Austin.”
Texas took the top marks in categories such as minimum wage regulations, energy regulations, telecommunications regulations and right-to-work status.
But it scored middling (14th in the nation) on occupational licensing rules, showing that there’s still work to be done rolling back some of the barriers to entrepreneurship that occupational licenses present.
And Texas scored terribly on its tort liability system, coming in at 35.
“No state is perfect,” Winegarden said. “One of the areas that Texas can improve in, to help its business environment, is tort liability. Texas could really help make itself more business-friendly with some reforms.”
Medical malpractice reforms adopted by the Texas Legislature in 2003 have been helpful, he said. But more reforms are needed. The nation’s civil justice system is expensive, the study notes, and the “large liability costs in the U.S. threaten the vitality of all businesses, but are particularly problematic for small businesses.”
But Texas remains among the best for small businesses. Winegarden said Indiana’s surprise showing was largely due to its business-friendly former governor, Mitch Daniels. The American Spectator magazine refers to Daniels as “Mitch the Knife,” and credits him with turning a union-heavy state with a bloated budget and high taxes into a great place to do business. And he “eliminated a $200 million deficit and transformed it into a $1.3 billion surplus,” the magazine adds.
Winegarden also commends Texas’ leadership. That leadership is critical now that federal regulations and a sluggish economy have put pressure on many small businesses.
“Given small businesses’ traditional role as the economy’s innovators and job creators, the slowing growth prospects for small businesses are disconcerting,” the study notes.
Texas still has some work to do, but its ranking in this study is heartening.