1. New Hampshire 6. Florida

2. Colorado 7. Georgia

3. Alaska 8. California

4. New Jersey 9. Massachusetts

5. Connecticut 10. New York

Numbers don't often reflect the sort of drama to be found in this year's indicators of business activity. Of last year's 10 most active states, 4 have fallen from grace, with 1 dropping a full 19 rungs on the ladder. All 4 are Sunbelt states: Texas, Oklahoma, Arizona, and New Mexico. As measured by two of the most significant indexes, personal income and employment, their growth has slowed significantly. In Oklahoma, for example, personal income and employment declined 13 and 12 percentage points, respectively, while population grew. Texas's slowdown was even more dramatic -- employment down almost 15 points from last year, income down almost 13.

The cause is not hard to find: the glut of oil and gas. The Northeast states that replaced last year's most active states at the head of the pack -- Connecticut, Massachusetts, New Hampshire, and New York -- clearly did not gain the business activity that the Southwest lost. Populations in the New England states, for instance, grew at an even more lackluster rate than last year. And although Connecticut and New Hampshire posted improvements in employment -- about 2 points each -- Massachusetts lost a point. All of these states showed declines in the income category of about 3 percentage points.

The INC. study weights two factors -- capital resources and state support of small business -- more heavily than it does the indexes of business activity. States, after all, have more control over such matters. In the overall rankings, therefore, the Southwest did not suffer drastically. Furthermore, 1 of the dropouts from last year's top 10 in business activity -- Texas -- continues to be very fertile soil for companies on INC.'s list of the 100 fastest-growing public companies in America.

STATE SUPPORT: INDIANA WANTS YOU

1. Indiana 6. Michigan

2. Connecticut 7. Ohio

3. Pennsylvania 8. Louisiana

4. Massachusetts 9. Illinois

5. New York 10. Minnesota

A state's eagerness to help small companies can't make up for a basic lack of capital. Increasingly, however, states are choosing to exercise whatever influence they can muster to create better environments for smaller companies.

As in past years, INC. surveyed the 50 states to determine the levels of official small business support. We measured "support" in terms of whether or not states had small business assistance offices, ombudsmen, governor's advisory councils, legislative committees, statewide conferences, and procurement set-asides for small businesses.

Two years ago, only 29 states had advisory councils on small business; this year, 42 states have them. Similarly, the number of legislative committees on small business has jumped from 26 in 1982 to 33 this year.

The states that made this year's top 10 not only offered all six programs, but also demonstrated energetic efforts to expand existing programs and add new ones. Seven of last year's top 10 -- Pennsylvania, Michigan, New York, Illinois, Indiana, Massachusetts, and Ohio -- maintained the types of initiatives that put them on the list last year. Indiana's advancement from #6 last year to #1 reflects its ongoing efforts to upgrade both its ombudsman's office and the governor's advisory council. Connecticut's placement in the #2 spot is a result of having set up a new advisory council and two legislative committees on small business. Massachusetts, Illinois, and Pennsylvania each expanded or revamped existing programs to better serve the needs of the small business sector. Of all the 50 states, only Wyoming continued to report that it had none of the programs INC. was looking for.

LABOR: PAYING YOUR DUES

1 Wyoming 6. Hawaii

2. South Dakota 7. Idaho

3. Kansas 8. Nebraska

4. Vermont 9. Utah

5. Colorado 10. North Dakota

The labor market is a rental market. Not since the abolition of slavery has anyone sold his or her labor. The INC. survey thus presents the labor environments of the 50 states as though they were so many houses up for rent. As always, the question is, What do you get for what you pay?

On the benefit side of the ledger, we measured the states against a standard of education (percentage of high school graduates among the over-25-year-olds) and a standard of productivity (the dollar amount added by each worker to the value of manufactured goods). On the cost side, we included the average weekly wage per worker by state and the degree of unionization. It should be noted, however, that the "cost" of union labor -- if it is higher at all -- can be greatly outweighed, as in the case of Hawaii, by the productivity factor.

Only 3 states dropped out of 1983's top 10 -- Arizona, Florida, and New Hampshire -- and none dropped very far. The mix of costs and benefits remains the significant thing. Only 2 of the top 10 in this category, North and South Dakota, can be said to have really low wages. By the same token, only 2 of the least unionized states, Kansas and South Dakota, made it to the best of show, and only 2 of the most productive, Wyoming and Hawaii, are included. On the other hand, 4 of the top 10 in educational level managed to attain that same status-in the labor category overall.

TAXES: IS LESS MORE?

1. Missouri 6. New Hampshire

2. Florida 7. Alabama

3. Arkansas 8. Ohio

4. Indiana 9. Idaho

5. Tennessee 10. Texas

If taxes were the bane of business they are reputed to be, then the 10 states with the lowest taxes, listed above, would appear as the top 10 of the whole pageant. As it happens, only 2 do, New Hampshire and Texas -- which reflects the great significance of other variables in creating a hospitable business environment: capital resources, cost and quality of labor, and the like.

It is also true that elected officials nowadays seem ever more sensitive to the view that taxes are a price they will pay, in lost elections, for failure to serve the economic growth of their states. Thus, while New Hampshire's government boasts of its low taxes, Washington's, on the opposite side of the continent, may be heard crowing over its higher taxes. Each, however, plausibly argues that the trade-offs redound to the benefit of doing business in that particular state -- in the form of increased disposable income, in one case, and in the form of superior state services in the other.

Direct comparisons among the states' tax climates are almost impossible to make. Alaska, for example, has the highest taxes -- $496 per $1,000 of personal income -- but because the state's revenues are extracted almost entirely from big energy companies, most residents pay no state or local taxes at all. Nevertheless, INC.'s survey provides a basis for comparison. Examination of taxation on each $1,000 of personal income reveals that the 10 least-taxing states in the Union ranged a neat $10, from Missouri's $87 to Texas's $97.

CAPITAL: THE NEW ACTIVISM

1. California 6. Colorado

2. New York 7. Texas

3. Minnesota 8. Oklahoma

4. Connecticut 9. Rhode Island

5. Massachusetts 10. Louisiana

As INC.'s survey shows, the most striking development in the capital-resources area is the increasingly activist role of state governments in cultivating the growth of small businesses. The trend has been discernible since the late 1970s, when Massachusetts and Alaska established an array of programs -- direct loans, bond and loan guarantees, and venture capital funds -- to fill perceived gaps in the private capital markets. In the past year, the trend gathered steam, as 24 states instituted 31 new programs with the declared purpose of stimulating the small business sector.

For example, Wisconsin, which had no such programs in 1983, has since established four. Of the top 10 states in capital resources, California, Connecticut, Colorado, and Rhode Island all added one program each; 7 of the 10 now have three or more such programs. And 7 new states made initiatives in the venture capital category in the past year: Minnesota, Illinois, Wisconsin, Kansas, Mississippi, Maine, and North Carolina.

To be sure, the funds made available through these programs are not significant compared with the amount of money available at commercial banks. Industrial and commercial loans in 1983 ranged from New York's high of $4,788 per capita to South Carolina's low of $442. New York is a special case, however, a capital resource for the world, not just the state. On the other hand, this year's survey does give a better picture of in-state lending than last year's did. With the help of Data Resources Inc., of Lexington, Mass., our comparisons of bank loans are corrected for distortions caused by overseas lending from U.S. banks.

Venture capital investment surged in 1983, and the top-10 states clearly reflect the fact. SBIC activity declined in only 1 of the 10 -- Louisiana. In 4 of the 10 moreover, the per capita investments of SBICs increased dramatically, by $4 in Connecticut, by $2.17 in Massachusetts, by 86 cents in Oklahoma, and by $1.07 in Rhode Island. For Rhode Island, this was the critical factor in boosting its rank in the capital resources category.

Published on: Oct 1, 1984