Freedom as an Incentive

If you caught Paul’s appearance on The Line last night, the discussion on government incentives to attract businesses to the state was especially useful. When a business is looking to locate in the Southwest, New Mexico is in competition with its neighbors. Two chief strategies come into play in this competition. States can either 1) create a business-friendly environment through low taxes, unobtrusive regulations, and protection of private property, or 2) use high taxes and an active government to bribe favored companies.
According to an index developed by the Pacific Research Institute, New Mexico ranks 37th in the nation for economic freedom, based on a number of indicators in the fiscal, regulatory, and judicial policy sectors as well as government size and state welfare spending. A color map is available, but New Mexico’s situation stands out most clearly in black and white:

That big dark blip in the middle of the Southwest, that’s us. Here’s how New Mexico compares to its immediate neighbors.

Rank State
2 Colorado
5 Utah
6 Oklahoma
11 Arizona
17 Texas
37 New Mexico

While its neighbors have generally proceeded with the first strategy, fostering economic development through economic freedom, New Mexico has stood out in its zeal for the tax-and-bribe approach.
Has this been a successful strategy for New Mexico? As Harry pointed out last week, New Mexico lags behind its neighbors in private sector generated income. Indeed, most economic comparisons with neighboring states are unfavorable.
With taxes from the oil and gas industry filling the state coffers, New Mexico is in a good position to create a climate more friendly to all business in the state, not just to a handful of bureaucratic favorites. Give home-grown businesses a better chance, and the entire state will be more attractive to outside investors and entrepreneurs.
In case you missed it, KNME will rebroadcast The Line Sunday at 6:30 am.

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