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Andrew Young: Wild and Wonderful, but not so free

CHARLESTON, W.Va. -- How can a state be Wild and Wonderful but not also be free? Surprising as it might be, it's true. The numbers don't lie. For the second year in a row, West Virginia ranks at the very bottom among U.S. states in economic freedom -- 50th -- according to the latest Economic Freedom of North America report, published annually by the Fraser Institute.

This result means that, nowhere else in the country more so than in West Virginia, will individuals and businesses face a maze of onerous regulations enforced by a bloated government and funded by unwieldy tax structures. These obstacles reduce the economic freedom necessary for businesses to grow and create jobs.

Economic freedom is essential for progress. When taxes are low and regulations are simple and stable, businesses and their employees thrive. The "rules of the game" for businesses are easy to understand and there is maximum room for entrepreneurial experimentation.

Alternatively, in an unstable regulatory environment with high taxes, businesses face onerous obstacles to planning for the long run.

Now, there's a paradox here. Any single West Virginia business could well be found asking for particular government encroachments on economic freedom -- for example, a coal mining company seeking a coal subsidy. Voters and policymakers too often clamor for subsidies, tax breaks or even new government agencies. Where individual businesses see short-term gains, though, the net effect on the general business environment is losses.

Consider the Marcellus Shale. Coal interests are pushing for burdensome regulations on natural gas "fracking," which treads close to coal reserves. Natural gas interests are pushing for their own preferred regulatory structures. At the same time, coal and natural gas interests argue that their economic importance to West Virginia justifies various incentives and subsidies.

What we then see in proposed legislation is a Byzantine mess of encouragements and admonishments to businesses. In a burdensome, complicated and uncertain environment, businesses looking into the future will be loath to invest and create new jobs.

When businesses are free to provide goods and services that consumers want -- unfettered by complicated regulations and stifling taxes -- they can grow and create jobs. Alternatively, in West Virginia, businesses' success, as we see with the natural resources industry, is determined by how well they navigate regulatory structures and succeed at winning subsidies. (This is what economists refer to as "rent-seeking.")

Need proof that the lack of economic freedom in West Virginia is damaging? West Virginia ranks near the bottom (43rd) on the Forbes list of "The Best States for Business and Careers." Is this because business owners have an aversion to whitewater rafting and scenic drives through the mountains? Of course not. It's because West Virginia ranks second to last (49th) in terms of "regulatory environment."

In other words, why are businesses not coming and staying in West Virginia? It is not because they don't like Wild and Wonderful. It's because they want economic freedom!

Young is an associate professor of economics at West Virginia University and a 2009 recipient of the Charles G. Koch Charitable Foundation Mentorship Program.


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