What Makes for a "Healthy Business Climate?

Rapid changes in the world economy have transformed national economies during the last 15 years. The insulation that national borders and federal policies provided have largely dissolved, exposing formerly protected state and regional economies to the challenges of the global economy. Today, a state government must act quickly to meet economic challenges created on the other side of the globe. In meeting these challenges, state leaders and policymakers often assume that the most effective response is to work to improve their state's business climate. The term "business climate" generally refers to the perceived hospitality of a state or locality to the needs and desires of businesses located in, or considering a move to, that jurisdiction. In recent years, though, the term "business climate" has become almost synonymous with the pressure to cut taxes, limit services, and remove impediments, particularly employment and environmental regulations. Understood in this way, attempts to improve a state's business climate can lead to quite contradictory policies that ultimately harm a state's long-term economic health