Does Massachusetts Hate Business?
CEO magazine says yes, BU entrepreneur says it’s a bum rap
It’s That ’70s Show time at Chief Executive magazine. A generation after Massachusetts was dubbed “Taxachusetts” for its putative hostility to business, the charge has been resurrected in the magazine via its latest state rankings, determined by a survey responded to by 736 CEOs. The commonwealth was rated 47th among states for the warmth of its business climate, slightly better than New York, Illinois, and dead-last California. Texas won the best-of designation.
“If I were designing Hell for a company, I couldn’t do as good a job as Massachusetts has,” one anonymous CEO told the magazine. Another groused that the company was moving operations out of Massachusetts and three other states and firing employees there, as “the regulatory and tax environment has become untenable.” The magazine itself slammed Governor Deval Patrick’s plans to raise income taxes and eliminate corporate deductions (coupled with a cut in the sales tax), proposals that legislators may scale back.
We ran the matter by Vinit Nijhawan, managing director of BU’s office of Technology Development and a School of Management lecturer. He has started or served on the boards of about a dozen technology companies since coming to Massachusetts from Canada a quarter century ago. “The biggest one grew to 400 people worldwide,” he says, “and it had about $60 million in sales.”
BU Today: California and Massachusetts are hubs for technology companies. If they’re so awful for business, why would CEOs cluster in those states?
Nijhawan: It’s really clear why: because a lot more emphasis is placed in those states on human capital and lifestyle. If you’re starting a technology company, you have enormous access to technology and people in those places, more than anywhere else. That suggests that the CEOs they interviewed were from bigger companies, especially companies in low-margin commodity markets, like retail. There, the difference between having a 6 percent state sales tax versus a 3 percent tax probably makes a difference to your bottom line, because your margins are thin.
But retail’s very complex, because your outlets could be all over the country. Your income gets taxed differently if you’re here, so who gets affected? Basically, in-state shareholders and management. In the past 30 years, CEO salaries have increased dramatically. So I could see CEOs getting a big personal hit if they were here, versus, say, New Hampshire, which has no sales or income tax. But people aren’t going to move out of Massachusetts to Texas because of sales or income tax.
So from your perspective, is Massachusetts a lousy place to do business?
If you’re going to start a technology company, this is a great place. I would say 95 percent of the CEOs with a start-up here would agree. If you’re established, big firms, I still think this is a great place, because you’re dependent on a highly educated workforce. And we’ve got the best-trained workforce in the country, by all measures. Even our primary K-12 school system is superior to most other parts of the country.
The significant retailers we have here are TJ Maxx and Dunkin’ Brands, including Dunkin’ Donuts and Baskin-Robbins; Panera Bread is headquartered here; Boston Market is headquartered here. Why wouldn’t they move their headquarters to New Hampshire? It’s just up the street. Increasingly, almost all business, even manufacturing, is requiring a higher-educated workforce. A lot of blue-collar businesses have moved to other parts of the world.
You’re skeptical about this Chief Executive article?
I am pretty skeptical. Most CEOs inside I-95 would say, let’s spend money on transportation infrastructure, which Governor Patrick wants to do. It’s going to allow the productivity of their employees to go up. Even the technology industry has expanded out to the suburbs; I took one of my companies from Cambridge to Billerica when it grew too big.
I wonder if the CEOs they quoted were unhappy with Romneycare, the state’s universal access health care law?
It does give more—I don’t like using the word “power,” but “flexibility”—to employees. If you’re not tied to your employer because of health care, you can move to another job. It does help labor mobility.
Is that something that CEOs think about?
Think about, yeah. Retention is important.
Was the “Taxachusetts” rap fair 25 years ago, and are things different now?
Yeah, phenomenally. To understand Boston, one of my company cofounders said, you’ve got to read this book, Common Ground. It tells you how the place ran. It was cronyism to its nth degree in Boston. We went to look at some houses in Dorchester, and I said, “This is really bizarre, none of these houses have a for-sale sign in front of them.” The realtor said, “People just don’t want the wrong kind of people living here.” This was unheard of where I came from in Canada. It’s nothing like that now.
So the problem back then was crony capitalism?
Fundamentally. In most parts of the world, it’s not the laws that are the issue; it’s how they’re implemented. I think this place is quite centrist, and it doesn’t overreach to the left. I really don’t think taxes and regulation are the heart of the issue. I think the heart is how well does the place run. Starting with Michael Dukakis, we’ve had a run of really professional governors, both Democratic and Republican.
You want the trains to run on time. You want an educated workforce. Do you need regulation and government for that outcome? And the answer is yes.13 Comments