The big business lobby constantly complains that Oregon’s “business climate” is terrible, but what does the data actually show?

In this episode of Policy for the People, we dig into one of the most common myths about Oregon’s economy: that the state has a bad business climate. Economist Joe Cortright of City Observatory joins the show to break it all down. Drawing on national data and decades of experience, Cortright explains why the claims by the business community about Oregon’s “business climate” don’t hold up — and why Oregon’s economy has actually performed quite well compared to other states.

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Transcript

[We make this transcript available for your convenience and to increase the accessibility of our content. The transcript was generated by software and was slightly edited for clarity. If you are able to, we encourage you to listen to the recording.]

Juan Carlos: If you follow the news here in Oregon, chances are you’ve heard a lot about Oregon’s business climate of late, how it’s supposedly in terrible shape.

The loudest voices making these claims are the lobbyists for big business. But is there any validity to these claims? Is Oregon’s economy falling behind that of other states? Not at all, says economist Joe Cortright. To the contrary, by a lot of different measures, Oregon’s economy has done quite well compared to most other states. In this episode of Policy for the People, we explore the myth of Oregon’s business climate with Joe Cortright.

Joe runs the think tank City Observatory, and he recently published a piece titled “The Business Climate is Always Bad, But It Never Matters.” We discuss what’s behind the business community’s negative views of the Oregon economy, what the data actually shows and what really matters when it comes to having a strong state economy. Stay tuned.

Juan Carlos:  Hi Joe, thanks for coming on to Policy for the People.

Joe: Great to be here today, Juan Carlos.

Juan Carlos: So, Joe, you are an economist by trade. Can you tell us a little bit about your background and also about City Observatory, which is the think tank that you run?

Joe: Sure. Yeah. I’m an economist. I do a lot of work on city and regional economies, what makes them tick.

I run City Observatory, which is a little think tank that looks at the 50 or so largest metropolitan areas in the United States and analyzes their economic performance and focuses on a series of issues, including housing, transportation, poverty, economic development, and labor markets. Long time ago, I used to work for the state legislature in Oregon, for about a dozen years.

I ran their Committee on Trade and Economic Development. So I’m very, very well versed in the Oregon economy and economic development policy, both in Oregon and in other states and actually and in other countries as well.

Juan Carlos:  So you recently published a piece in City Observatory called  “The Business Climate is Always Bad, But It Never Matters.”

And I want to get into the substance of the piece in a moment. But I’m wondering if we can begin by you sort of setting the context for us of kind of why it was important to write this piece, what’s going on out there that makes talking about the business climate, a timely topic?

Joe: Yeah, I think the whole term business climate has been around for decades, and I think it’s sort of a general claim or, branding, way of talking about, actually policies, political policies that we have, that might or might not influence the economy.

And there are a lot of people particularly in the business community who use business climate basically as just a rubric for their complaints about not wanting to pay taxes and not having to comply with regulations. And oftentimes there are, you know, valid complaints that people have. But a lot of time is just that, people would rather not pay taxes.

70% of Oregonians say they don’t like taxes very much. Business people are not exceptions to that. And regulations can be burdensome sometimes, but then they also have benefits as well. And the whole discussion of business climate makes some assumptions about the way economies operate, the way businesses operate that aren’t particularly realistic and can lead to, I think, the wrong conclusions about what we need to do in terms of public policies.

Juan Carlos: So you say that, you know, as reflected in the title of the piece that the business community consistently complains about Oregon having a terrible business climate. But at the end of the day, those complaints don’t really matter. Can you walk us through your argument? What the evidence shows?

Joe: Well, you know, first of all, I think whenever you do these studies or ask open ended questions about business climate people, business people take that as an invitation to complain about taxes they’d rather not pay, regulations they’d rather not comply with.

So it’s almost like complaining about the weather. You know, it’s something that, that, is, is part of the background. It’s better in my mind to understand what’s happening with the economy, to look at actual economic indicators, to see how well the economy is performing. And we have some good data for the Oregon economy that are put together, not based on anecdotal complaints from local business people, but really objective economic comparisons based on data that are done by, arguably impartial outsiders who rank how well cities and states are doing.

And, for the most part, they point to a long term trajectory for Oregon, in which it’s doing relatively well.

Juan Carlos: I wonder if you can drill down a little bit into those details in terms of how Oregon is doing? Some of the metrics that you cite in your piece.

Joe: Yeah. So one of the organizations that I follow pretty closely is the Brookings Institution, which, like City Observatory looks at metropolitan economies across the country.

It produces something every year called the Metro Monitor, which compares the 50 or so largest metropolitan areas in the United States, every metro area with a million or more population. And Portland’s kind of right in the middle of that group, with about 2.5 million people. And it ranks them on their economic performance, looking at a range of indicators, including things like income, productivity, joblessness, and the like.

And, basically  it found that the Portland metropolitan areas was among the best performing metropolitan areas in the United States. So Portland is in the category of large metropolitan areas with a million or more population. We have other metropolitan areas, Salem, Eugene, Springfield and Bend, which are in the sort of small to medium sized category, about 250,000 to 500,000 population.

And every one of them is in the top 12 of the metropolitan areas, according to the Brookings ranking. And according to Brookings, the Bend metropolitan area has the strongest sort of small metropolitan economy ranking of any metro area in the United States. So it’s kind of hard to believe that Oregon has a rotten business climate when we have the very best performing metro, small, metro area in the United States.

And all of our metro areas tend to perform in the top dozen or so.

Juan Carlos: What kind of factors did the Brookings Institution look at in terms of sort of coming to this conclusion?

Joe: They look at a range of factors, and it’s not just one number. So they look at things like job growth, productivity as the output per worker, how productive workers are.

They look at incomes and they look at, not just the aggregate income, but the median income and wages to ask what level of wages people are earning. They look at equity indicators about how big the disparities are. They look at poverty rates. And it’s sort of a composite of all of those factors that they look at in grading metropolitan areas.

Juan Carlos: You also spoke not just of how cities are doing, but the state as a whole. And in some respects, over the long haul, Oregon has done much better than most other states. In a number of indicators. And I wonder if you can walk us through what you found when you did this analysis.

Joe: Yeah. So one of the things I should point out is, so back when I worked for the legislature in the 1980s, it was right after we experienced an absolutely devastating recession. About 10% of the Oregon economy went away, between 1978 and 1981. I went to work for the legislature in 1983, and we spent the next decade or more picking up the pieces from that recession.

And I did a report for the Oregon Legislature that said Oregon’s big problem wasn’t so much getting more jobs back. We got the jobs back as the national economy recovered, but our incomes lagged well below the national average. And our incomes, which had been really close to the national average, our per capita income, fell to about ten points below the national average.

And so, you know, the focus then was how do we raise wages and incomes for Oregonians, for Oregon workers and Oregon families? And that’s continued to be a challenge for the last several decades. And it’s really interesting to look back over the last 25 years, basically the century, you know, from 2001 or so to 2026. And right now, Oregon’s income is at 97% of the US average.

That is, the average Oregonian earns about 97% of what the average American earns. That’s as high as it has been any time in the last 25 years. And, you know, if I had to pick just one number to kind of characterize how our economy is performing, I’d say let’s look at that per capita income number, because that tells us a lot about, sort of how in the aggregate our economy’s performing and a lot of other things we’re caring about as well.

We care about poverty rates, low income workers. We care about disparities. But if you don’t have an economy that’s performing well and providing high levels of income, it’s hard to address those other issues. But the indication of that, again, doing as well as we’ve done in the last, you know, 20, 25 years.

Juan Carlos: And just for context, Oregonians dug themselves out of the deep hole that happened after that recession in the late 1970s and early 1980s. So we have climbed back close to the average of per capita personal income. It’s the case, though, that most states are below the average.

It’s only a handful of states that really drive the average higher. That’s my understanding. I wonder if you have seen that information.

Joe: Yeah, it’s kind of a one tailed distribution so that you have a few big states with high incomes, like  New York and California that are more populous and have higher levels of income.

And that pushes up the average somewhat. So we’re probably a bit above the median state. The typical state would have a somewhat lower income than we do. But again, we use that benchmark just to say how we’re doing relative to the average Americans and that distribution that we’re comparing to is pretty similar. Over time.

Juan Carlos: Since we’re talking about the business climate, I wonder if you think that that’s a phrase that even a term that can even be properly defined for a state in the sense that there are all kinds of businesses in the state, that are affected differently by the regulatory system that we have, by the tax system that we have.

So, for instance, my spouse has her own business, she’s a sole practitioner, she’s a mental health therapist. And how the tax system affects her is different than how the tax system affects the insurance companies with which she contracts. Or not to say, like an Intel, which is a major exporting company that deals with clients all over the world.

So I wonder if it’s even possible to talk about this notion of a business climate.

Joe: Yeah, you make a very good point because every business is different. There are different sizes of business, different structures, corporations, sole proprietorships. They’re people who are in different industries. And every state has a slightly different system of taxing businesses.

Most states have sales taxes. We don’t have sales taxes. One of the things people don’t realize is that across the United States, businesses pay 42% of all the sales taxes that are charged. So if you’re a business in a state with a sales tax like Washington, you pay sales taxes on most of the stuff that you have to buy for your business.

And I think people don’t necessarily recognize that there are all those differences. But the proof, again, is in the pudding in terms of the economic data, where we would continue to have, by a lot of measures, a very robust economy. And, just to go back to that per capita income number, we know that per capita, the single most important factor in determining a state’s per capita income is how good a job it does of educating its citizens.

We can explain about 70% of the variation in per capita income among states, by knowing what fraction of the adult population has gotten a four year college degree, and that’s really just an indicator for how well-educated a state’s population is. So basically, if you want to have a successful economy, you need to have a very well-educated population.

If you don’t do a good job of that, it doesn’t matter what tax breaks you have or you know how easy your regulations are. And similarly, states consistently that are very well-educated tend to have very high incomes. So that’s the single most important factor to be paying attention to. And what that means is, I think for public policy, two things.

One, you got to do a great job of educating your kids and your population to make sure that they have the skills that they need to be productive and to compete in the modern economy we find ourselves in. And the second thing is, you’ve got to have a place well-educated people want to live, want to stay, spend their lives and grow their families.

And that’s actually been one of Oregon’s pretty distinctive advantages over the last 30, 40 years is the high quality of life that we have here, the environmental advantages that we have, great urban advantages that we have in many of our cities, including Portland. Those attract and retain a lot of talented people that then turn out to be the fuel that makes businesses be successful.

Juan Carlos: And, Joe, you just published a new piece in City Observatory looking at new businesses coming to Oregon. What can you tell us about that?

Joe: Yeah. So one of the things that we pay particular attention to is a leading indicator of what way our economy is going is whether new businesses are getting started in your area.

And for a lot of times they fly under the radar until they get fairly large. But, there is a good source of data put together by the Economic Innovation Group in Washington, DC, which ranks every one of the large metropolitan areas in the United States on how many new manufacturing businesses were created in the last five years.

And the number one metropolitan area, a large metropolitan area in the United States over the last five years has been Portland, the Portland Vancouver metropolitan area. And this is not by a narrow margin, by a wide margin. The Portland area has about 250 more manufacturing businesses started over the last five years than you would expect if Portland just added new manufacturing businesses at the same rate as the typical large metropolitan area.

So that’s a very hopeful sign and it runs counter to this idea that somehow we have a lousy business climate.

Juan Carlos: Given that, I wonder why it is that right now, in this particular moment, you are hearing so much from the business community, especially the lobby that represents Oregon’s largest businesses.

They really have been pounding the table on this notion, as you say, that Oregon has a terrible business climate. What do you think is going on right now that you’re hearing so much about it and hearing it repeated, in the press without much reflection as to whether that connects with reality?

Joe: Well, I think a lot of it is just self-interested and self-serving.

It’s like, I’d rather pay lower taxes and I’d rather have less regulation. So I’m going to use the fact that people are worrying about the economy to make the prescription for what we should do. We should make life easier for businesses. There’s no evidence that those kind of tax cuts or whatever regulations are talking about would make very much difference to the long term health of the economy.

And the evidence actually is that having a very high quality of life, having, for example, great environmental protections to protect the quality of life and help develop our distinctive advantage, our distinctive attraction, particularly to well-educated people, those things are really important, particularly going forward.

Juan Carlos: One person who seems to have bought into the idea that Oregon’s business climate is in bad shape, and that it is something to be concerned about, is Governor Kotek.

She, some months ago, released a document called the Prosperity Roadmap. And in it, she sets a number of key economic goals for Oregon. One of them being placing Oregon in the top ten of a state business ranking, put together by CNBC. I wonder what you think about this idea of business rankings generally, but also, more importantly, the Governor Kotek Prosperity Roadmap.

What’s your take on those?

Joe: Well, I think if you’re getting your economic advice from a television or a cable news network, you ought to look very carefully at what indicators they’re using. And the CNBC index, which I’ve looked at, you know, rate states very highly on something they call business friendliness.

And if you look at the states that are the most quote unquote “business friendly”, they’re pretty consistently a lot of low income states that pay families low wages. And, just for example, you know, Oregon’s lowest paid workers, what we call the 10th percentile, they make more than the lowest 10th percentile workers in the rest of the United States, about 15% more.

That’s in part, large part because we have had and continue to have a relatively high minimum wage here in Oregon. We made a decision to have a higher minimum wage. The states that get marked really high on business friendliness have very low minimum wages, and they pay their lowest wages workers the least. So I think again, if you’re going to rely on one of these rankings, you should know what’s behind it.

And, it’s really espousing a set of values that I think most Oregonians don’t agree with. And I don’t think there’s been a lot of controversy about the minimum wage in Oregon being of benefit. It puts more money in the hands of working Oregonians and particularly helps the wages of low and moderate income Oregonians, which benefits them directly.

And then also, you know, provides more spending power that goes into the economy that helps propel businesses.

If we’re talking about what it truly would take to create prosperity here in Oregon, you already alluded to it. A lot of it goes to education. I’m wondering what else are important factors in terms of creating broadly shared prosperity, prosperity that’s not flowing to just a relative few, but the vast majority of Oregonians and what kind of policies do we need to achieve that?

Joe: Yeah, that’s a big question. I think the most important one, as it turns out is education and skills and increasingly that’s about, not just college but lifelong learning. How do we enable people to deal with the increasing complexity of the modern world? And so that’s kind of got to be job one.

And then you have to recognize that well-educated people, highly skilled people are highly mobile. They have lots of options. And having a place that’s got a distinctive quality of life. And I think that’s the other thing that I particularly recommend here is, there is no generic strategy that makes sense for economic development. You have to have a strategy that works for your state’s particular advantages.

We can’t “out-Mississippi”, Mississippi, nor should we want to. We don’t have the same advantages as, say, California or New York. We have to work with the particular advantages that Oregon has. And I think we know what some of those are. I think our governor, Tom McCall, espoused them, you know, like five decades ago when he was talking about Oregon and saying, basically, we need to build on our quality of life, our commitment to the environment.

And then a lot of the social policies that assure that everybody has equal opportunity. The other thing I’d say is, particularly in light of what’s going on at the federal level, where the federal government is very anti-immigrant and very anti international trade. Those are two things that have really benefited the Oregon economy is our openness to immigration and our participation in international trade.

We’re like the sixth most exporting state in the United States. So having a state that stands up to a federal administration that is espousing these anti-immigration and anti-trade values, I think is really important to demonstrate to ourselves, to the world, to business people everywhere that that we still espouse, you know, the same values that that America has always stood for and that really have, underpinned our economic success for, you know, 200 years.

Juan Carlos: If the most impactful thing that the state can do to improve our economic outcomes is education, that may take resources, additional resources to pay for making college more accessible to having universal preschool. Which, by the way, Governor Kotek, to her credit, has launched a study group that will look into creating a system of universal preschool here in Oregon.

It seems doing some of those things requires money. It requires resources. Which, of course, the way the public sector pays for things is through taxes, usually. So, it seems that we should be talking about ways, smart ways of raising revenue, not more, not going the opposite way and talking about cutting taxes for corporations.

What are your thoughts on that?

Joe: Yeah, I think that you’re right that the critical question is  how do you pay for these public services? I think there’s a very powerful economic case in favor of pre-K. It’s helpful to the kids, and we know it improves lifelong learning’s lifelong learning opportunities.

We know it is particularly helpful to kids from disadvantaged backgrounds and poor communities who don’t necessarily have the opportunities and resources that other kids do. We know it’s a huge factor for working families to enable both parents to be able to work. It’s a cost of living factor because of the high cost of childcare.

So there are a lot of reasons to think about doing that and investing in it. So, that’s a real positive. And then taxes, you know, every state in the United States, levies taxes that amount to between about nine and 11% of the total income in the state, whether it’s sales taxes, property taxes, income taxes, business taxes, what have you.

Oregon has a somewhat different mix, but  there are a lot of different ways to extract that money from people and businesses, but we’re not talking about a hugely different amount of money than other states are charging. And I think the challenge is to get political agreement around what’s the best way to levy those taxes.

And in a way, when people say business climate, they’re making a surrogate argument for ‘I don’t think I should pay those taxes. I think somebody else should pay them.’ And, you know, I think its a legitimate debate to have, but we shouldn’t automatically assume there’s a lot of credence or give a lot of credence to that idea that you can’t tax them because it would devastate the economy somehow, too.

Juan Carlos: I wonder if you have any final thoughts on this idea of the business climate. And also, perhaps more importantly, what we can do here in Oregon to really improve the quality of life of our people?

Joe: Well, again, I think, we have to recognize that there isn’t, like I said, a generic economic strategy that you can pursue.

And I think that’s the concern I have about business climate. And, something like the CNBC ranking, it implies that if you’re just the cheapest version of what any other state could offer, that that will somehow make you more competitive. And I think we all understand that Oregon is different from other places. And rather than run from those differences, we ought to celebrate and build on those differences.

What are the unique strengths, the distinctive advantages that we have, that nobody else can, can outcompete because those are the sources of defensible long term competitive advantage. So, we should think about the things that make Oregon the best Oregon it can be and not worry about whether we’re, you know, 1 or 2% cheaper or more expensive than some other place.

Juan Carlos: Great. And, Joe, if the listeners want to read your work, where can they go?

Joe: They can go to City observatory.org. That’s just a real simple website. And we have a weekly newsletter that we do as well that’s free to anybody who wants to sign up for it.