There are a number of groups and think tanks comparing communities in an attempt to set a standard for all to aspire. It should be no surprise that many of these groups base their rankings not on objective criteria but on certain biases about taxes, social judgments or economic agenda. Peter Fisher, in a 2005 study for the Economic Policy Institute - Grading Places, What do the Business Climate Rankings Really Tell Us? - looks at ranking systems and how they stack up to testing judgment criteria with more objective performance measures. This revealing work documents that rankings are often aimed at setting policy agenda for government and in so doing are not instructive in establishing effective innovation strategies for competitive communities. Have you been confused trying to understand state and community rankings? This document presents a new perspective. Peter explains underlying agenda and shortcomings in methodology for the eight indexes evaluated. The following are several excerpts from the report:

“Newspapers love rankings. Their readers have an apparently insatiable interest in how a particular state or city compares to others. Recognizing this, a number of advocacy think tanks have accommodated the press in recent years by creating and publicizing rankings that purport to show which states or cities have the best “business climate,” the most “competitive” tax and regulatory environment, or the conditions most conducive to small business growth and entrepreneurialism…The purpose of this report is to dissect these various indices to see what really drives them. Are they based on science? Do they have biases? Do they in fact work as predictors of economic activity?”

“Thirty-four of the 50 states can brag that they are in the top 10 in terms of business climate or competitiveness; they just have to pick which of the five indexes they want to point to. Forty-four states are in the top 20 on at least one of the five. Only two states are among the top 15 on all five rankings; no state is in the bottom 15 on all five measures. The average state’s best ranking is 26 positions above its worst.”

“The underlying problem with the five indexes, of course, is twofold: none of them actually do a very good job of measuring what it is they claim to measure, and they do not, for the most part, set out to measure the right things to begin with.”

“It is precisely because the competitiveness indexes produced by the ideological think tanks are aimed at promoting particular kinds of legislation that they do a poor job of predicting state economic growth: the measures used must pass an ideology screen, so the validity and relevance criteria go by the wayside. This is also why the indexes are probably ignored by the business people actually making the decisions. They should be ignored by policy makers for the same reason.”