April 2000
Cable, Internet Access and the Commonwealth: Evaluating The Ballot Initiative's Impact on Government and Consumers
By Stuart N. Brotman

C. Government Competition to Attract High-Tech Business

In the Information Age, competition is not just a function of the private sector. Rather, individual states now are vigorously in competition with each other to attract and maintain high-tech companies that create jobs and contribute to economic prosperity.

Massachusetts has a number of outstanding virtues it brings to this competitive arena, including its institutions of higher education, skilled workforce and attractive quality of life. But as Gabriella Mrad of Boston's Pioneer Institute recently noted in the The Boston Herald, "We may no longer be 'Taxachusetts,' but the Commonwealth still has a long way to go. A recent study comparing economic freedom among the fifty states placed Massachusetts in the bottom five, ranking the Commonwealth among the least hospitable states for taxpayers and business."⁴ The study she referred to was conducted by the Center for Legal Studies at Clemson University. It analyzed more than 100 measures of economic freedom, with regulatory activities among the five major categories that were reviewed.⁵

The Clemson study is part of a growing body of literature that analyzes and ranks why and where businesses choose to locate. As Dale N. Hatfield and David E. Gardner noted in an essay, "Competition, Innovation and Investment in Telecommunications," which was presented at the Aspen Institute's 12th Annual Telecommunications Policy Conference, "[I]nvestments may flow to particular regions because of large pent-up demand for telecommunications services, rapid economic growth, growing per capita income . . . and a host of similar reasons."⁶ Balanced against these considerations, the authors note, "are the costs and delays associated with the regulatory process itself."⁷ In short, they contend that the risk of government regulation can be transformed into an attribute if government regulations are not "unnecessarily intrusive (e.g., in economic terms, the minimum necessary to correct for marketplace failures)."⁸

Viewed from another perspective, advisers to companies about where to locate or relocate focus on issues such as the local labor market, education, training opportunities and capital availability. Key among the risks are perceptions about business climate and taxes and regulations.⁹

Another type of analysis focuses on quantitative and qualitative measures of the attractiveness of different regions, states and cities for nurturing and retaining high-tech businesses. In many ways, these published rankings may be the most significant data because they present comparative perspectives that many businesses consider when making decisions about moving, staying or expanding.

As Boston-based Inc. magazine noted in its most recent survey of "Hot Zones: Best Cities in America for Starting and Growing a Business": "In this Internet, wireless, telecommuting world, shouldn't you be able to start a company anywhere . . . In the end, does location really matter to a growing business? You bet it does."¹⁰

Inc.'s rankings were developed by Cognetics Inc. and reflect two categories, the 50 Best Big Metro Areas and the 50 Best Small Metro Areas. In 1999, Boston ranked 36th in the first category, behind Dayton-Springfield, Ohio; Birmingham, Alabama; and Nashville, Tennessee.¹¹ No Massachusetts small metro area (e.g., Worcester) made the second category, which included Sioux Falls, South Dakota; Reno, Nevada; and Montgomery, Alabama in its top 10.¹²

The Wall Street Journal's recent survey of leading high-tech regions had better news for Massachusetts, including coverage of the Silicon Village area around Williamstown and North Adams. Route 128 was featured prominently as well, leading the Journal to proclaim Massachusetts as "the number two tech region in the country."¹³

Thus, Massachusetts is in an interesting competitive position compared to other states. It has a prominent national profile in high-tech, yet there are signs that its stature is not a laurel to rest on, but, rather one that must be earned continually. This is especially so as Texas (Austin, Dallas/Ft. Worth), Virginia (the Silicon Dominion)¹⁴ and Washington State (Seattle-Kirkland-Bellevue)¹⁵ are aggressively staking out their claims to rank higher on the competitive charts.

The reality of "Taxachusetts" has not been with us for a decade, yet the perception remains, demonstrating that a negative image conveyed to the business community can have long-term implications for the Commonwealth's sense of prosperity and the livelihood of its citizens. The ballot initiative has the possibility of becoming the "Taxachusetts" label for our Internet economy, a signal that the Commonwealth is willing to experiment with regulatory schemes that compel Internet businesses to follow a business model that government develops and enforces. With Massachusetts as the sole state that will be having this issue as a ballot initiative in 2000, there will be tremendous national attention on the election. It is likely that an affirmative outcome will send just the signal that we have been trying to dispel, with considerable success, in recent years: "Massachusetts Welcomes You With Open Arms, But Also With A Club to Make Sure You Do Business Our Way."

Little wonder that the initiative's proponents have not addressed how their regulatory approach would actually create, on a net basis, new businesses, jobs and tax revenues. If these same businesses can locate in equally attractive areas without corresponding regulatory restraints, it seems logical that they would do so. As we begin to reposition Massachusetts as the dot.commonwealth, it may be counterproductive to end that tagline with a question mark, which is what may happen if the ballot initiative is approved.

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