Twenty years ago, CFED created the Development Report Card for the States to put forth a simple but radical notion: economies are fundamentally about people.  Healthy economies offer greater opportunities for everyone.  They should provide economic livelihoods, financial security, and an environment of opportunity for the people who live there.  State and local economic development efforts should foster creativity, productivity, and inclusion.

In the 1980s, “economic development” was frequently viewed as primarily about companies.  This outlook was further popularized by the many tools available that compared states’ “business friendliness.”  While these ratings captured some important points, they often emphasized “low cost” instead of “high value.”  The cheapest locations—those with low taxes and wages—got the best grades.  These tools encouraged policies to weaken regulation, even if that regulation protected things like the environment and worker safety.  An area’s good business rating could be damaged if workers were paid wages and provided benefits that were sufficient for their needs, even when public incentives were provided to their employers.

In 1987, the Development Report Card for the States offered a different way to assess state economies and a different way to think about economic development.  It continues to do so in 2007.  Measuring the standard of living and working in a state and how well the state is building foundations for future growth is just as important as how hospitable that state is to businesses. 

Economic development is a complicated thing, but fundamentally, it should strive to serve the needs of everyone in a community.  It certainly includes providing an environment in which companies can thrive, but that should not be the exclusive goal.  State policies that focus only on reducing business taxes and regulation, without also looking at the overall needs of the community, are short-sighted for the citizens of those states.  They are also short-sighted for the businesses of those states because, at the end of the day, businesses share the same needs as their employees, suppliers, and customers.  Both businesses and individuals benefit from dependable infrastructure, good schools, a healthy environment, a good quality of life, accountable and transparent government, financial security for households, and a lack of strong divisions across, for instance, class and race.

In 20 years, CFED has collected thousands of pieces of information on each state, ranked the states, and graded them on how well they foster a good environment for residents, workers and businesses.  Based on this, we believe that good government is an indispensable partner in the process of economic development.  A good government focuses on the fundamentals: providing the public goods that only the public sector can and letting the market do its job but being willing to step in when the market is not working.  The public sector in the U.S. has a long history of protecting against the excesses of an unfettered market system and looking out for those who would otherwise left behind.  Our whole society, and whole economy, benefits when this is done well.

Today, there are still those who promote a simplistic worldview that focuses principally on companies.  Too often, the bulk of economic development efforts and budgets are allocated to smokestack chasing.  The economy and economic development include so much more than recruiting new companies.  CFED believes the economy should revolve around the people who own those companies, work for those companies, supply those companies, buy from those companies, and would like to work for those companies but are being left behind. Their needs are often similar, and they can best be met by focusing on the fundamentals of good government, not by giving tax breaks, for instance, that benefit a few at the expense of the rest of the community.  Admittedly, this is a complicated view of the world, but economies are complicated.  Quick-fix solutions are easy to grasp but do not address the fundamental needs of most communities.  This view of the world is what the DRC has striven to measure over the past 20 years.