‘We’re No. 5!’ Texas slips again in ranking of best states for business

About this time last year, I referred to Texas falling to fourth in the CNBC rankings of top states for business as “eerily disturbing.” That remark got more attention than I anticipated. My concern was only enhanced when the 2022 roster came out and Texas dropped further, to fifth. North Carolina, Washington, Virginia, and Colorado all topped the Lone Star State. Although fifth certainly isn’t catastrophic, it perpetuates a trend that needs to be reversed.

CNBC evaluates 85 areas within 10 broad categories. In most areas, Texas compares relatively well. Texas ranked second to Colorado (after topping the rankings for several years) in the most important category to the overall rank – Workforce. This measure includes the concentration of science, technology, engineering, and math (STEM) workers; educational attainment; talent attraction; net migration of educated workers; worker training programs; right to work laws; and productivity. Companies can’t locate or expand in areas where they can’t get essential workers – this measure is crucial, indeed.

Texas also compared reasonably well in several other areas. In addition, the rankings rely on some methodology decisions that may skew the outcome to some extent (including strength of the economy). The two rankings where Texas received a failing grade are Business Friendliness (a D) and Life, Health, and Inclusion (an F). Nothing else was less than a B-, which was the grade in both Education and Infrastructure, two areas where Texas must invest to prepare for the future. The state lost its coveted perennial top spot in Workforce, and will no doubt fall further in the absence of world-class learning opportunities.

Business Friendliness includes the regulatory framework, legal climate, and overall bureaucracy. CNBC also looked at “how hospitable states are toward emerging industries including cryptocurrency and cannabis.” Surveys indicate that CEOs think Texas is an attractive location, so this segment of the ranking is less concerning than others.

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More problematic is the almost-bottom-of-the-barrel rank of 49th in Life, Health, and Inclusion (Arizona came in at No. 50). The big issues for Texas in this category  are the high uninsured rate and the lack of inclusiveness in state laws. As CNBC puts it, “Combine an era of enhanced social consciousness with a growing worker shortage, and it explains why, now more than ever, companies are demanding that states offer a welcoming and inclusive environment for employees.”

Although Texas has many advantages, the state needs to be more inclusive to successfully compete for many types of high-growth companies. Our firm has measured the potential effects of a variety of social policies (such as voting rights and gender identity). The benefits of being more inclusive are measurable and real, and, in the wake of the recent reproductive rights decision, are likely to become much more important in the future. Stay safe!

Dr. M. Ray Perryman is President and Chief Executive Officer of The Perryman Group (www.perrymangroup.com), which has served the needs of over 2,500 clients over the past four decades.