When the legislature created the Arizona Commerce Authority at Governor Brewer’s urging, it was justified as necessary for Arizona to compete with other states. The same argument was made for tax subsidies for solar panel manufacturers, convention centers with government-funded hotels, and taxpayer-funded biotechnology research.
No one argues that Arizona should not compete for businesses. The question is how best to compete. Here is a chart that illuminates one of the challenges Arizona has in its quest to compete with the rest of the nation. It shows populations within 50, 100, and 250 miles of six major U.S. cities, including Phoenix.
Populations Proximate to Select U.S. Cities
|City||50 miles||100 miles||250 miles|
|Los Angeles, CA||13,660,110||19,046,776||25,201,651|
|New York, NY||18,324,590||26,448,019||52,396,546|
Despite being the fastest-growing state in the nation for many years in past decades, Arizona’s largest city has fewer people living within 50 miles of its center than the others. At 100 miles out, there are more people near the other cities than live in all of Arizona. There are more people within 250 miles of New York than live in all of California. Phoenix has a mere 7 million, which includes people in Nevada, California and New Mexico. Our relatively limited population pool is one reason it is more difficult for industries that need workers with very specialized skills to locate here, whether or not we subsidize their industry. Another is that we aren’t close to tens of millions of potential customers.
Arizona can try to tax break and subsidize its way to prosperity, but the state’s remoteness is difficult to overcome. A company needing specialized skills and access to large markets is smarter to look east than west. The exception is in areas where Arizona has a distinct advantage, such as mineral production and being ideally situated to turn inputs shipped in from Asia into final goods, given our location between California and the rest of the nation.
While New York outlaws large sodas, Chicago suffers teacher walkouts, and Los Angeles chokes in congestion, Arizona has the chance to compete in ways that really matter. The best way for Arizona to compete lies in economic freedom - i.e., having the leanest government, lowest and most efficient taxes, and most reasonable regulatory regime in the nation. The Mercatus Institute state economic freedom index demonstrates that greater economic freedom results in greater economic growth. Freedom is the competitiveness strategy Arizona should pursue.
Goldwater Institute: Lessons from Texas on Building an Economically Healthier Arizona
Goldwater Institute: A New Tax Plan for a New Economy: How Eliminating the Income Tax Can Create Jobs
Mercatus Center: Freedom in the 50 States