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WV Needs freedom to be ‘open for business'

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Kathleen Sheehan Kathleen Sheehan

Kathleen Sheehan is the W. Marston and Katharine B. Becker Doctoral Fellow at West Virginia University in the Economics department.

Why does West Virginia have one of the lowest per capita income levels as well as one of the lowest job growth rates in the country? One reason is because West Virginia is not very free. In a recent report on the "Economic Freedom of North America" released by the Fraser Institute, West Virginia ranks 49th in economic freedom across US states. Only New Mexico has less economic freedom than West Virginia!

Economic freedom is present when regulations are simple, taxes are low and the size of government is small. When a state has economic freedom, businesses understand the "rules of the game" easily. This means they can spend more time and resources on entrepreneurial activity and less time navigating regulatory structures, resulting in more growth, better jobs and a greater number of opportunities. When freedom is absent, it is hard for existing businesses to grow and the business climate is not an attractive environment for new businesses to locate. This means fewer high-paying jobs, opportunities, and wealth for the state's residents.

Economic freedom has been linked to prosperity in many studies, and a brief look at states' per capita income levels highlights its importance. The 10 states with the highest levels of economic freedom have an average per capita income of $51,7337, compared to $44,889 for the other 40 states. The 10 states with the lowest levels of economic freedom have an average per capita income of only $38,017.

The low ranking for West Virginia shows the state's business climate is not conducive to economic growth. Freedom is necessary for entrepreneurial experimentation. Having freedom gives individuals and companies the opportunity and ability to start, build, expand, move and manage businesses. Without freedom, this opportunity is thwarted by unnecessary burdens imposed by the government. Governmental policies and restrictions make it hard for business to operate in West Virginia.

West Virginia suffers from excessive business regulation, increasing the costs of starting or running a business. For example, consider the "minor source air permitting" rule from the West Virginia Division of Air Quality. This rule requires an air pollution permit before businesses begin to build and operate. In neighboring states, businesses can acquire similar permits during the construction and operation of their business. This means that to meet the regulatory standard in West Virginia, businesses have to wait anywhere from 45 to 120 days before beginning construction. In neighboring states, this wait time is not required. This excessive regulation makes it more attractive for businesses to locate in neighboring states than to locate here.

In West Virginia the maze of regulations and the tax code are more complicated than almost anywhere else in the country. By spending and taxes per capita, West Virginia has the largest government amongst US states. This hurts the state's appeal to businesses. In Forbes' Best States for Business, West Virginia ranks 47th in regulation, 48th in growth prospects, and 45th overall. The overly burdensome regulations and taxes in the state are stifling businesses and making it unattractive to locate here.

As the government adds overly complicated restrictions, businesses must take resources away from producing goods and services and use them to make sure these restrictions are followed. This raises their costs and leads them to decrease employment or, worse, shut down completely. This makes everyone worse off.

Businesses chose not to locate in West Virginia because of bad policies, not bad luck. For West Virginia to be truly "Open for Business" the state must simplify regulations and taxes and decrease the size of its government.