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Arizona can’t afford to be a ‘C’ student any longer

As a place to do business and in matters related to public policy, personal freedom and taxation, Arizona is a solid “C” student. But can it afford to stay that way?

In two recent surveys, Arizona’s business climate and overall freedom ranked in the middle of the pack nationally. CNBC ranked the state 24th as a place to do business, and George Mason University’s Mercatus Center recently placed Arizona at 22nd nationally in overall freedom.

Additionally, the Tax Foundation reported that we’re below the middle for a positive business tax climate, falling to 34 from 28. And Arizona was 23rd best in the 2010 Forbes “Best States for Business” ranking, up from 36th, but still in the middle.

We can’t afford to stay in the middle, particularly when you look at our geography.

Arizona is isolated, with only 7.1 million people (not counting Mexico) within 250 miles of Phoenix, and a large neighbor that’s economically imploding. In comparison, New York City has 52.4 million people within 250 miles, Atlanta has 24 million, Chicago has 27 million and Dallas has 23 million.

We think we’re not isolated because California is huge and right next door, but Los Angeles’s 250-mile radius overlaps our own and only has 25 million people in it — not that large compared to other top markets.

Virginia, Indiana, Florida, Texas, Missouri, Tennessee and Georgia are all economically freer and more accessible to the bulk of the U.S. market than Arizona. We’re isolated from the most populous part of country and we have no access to inexpensive water transportation.

But if that sounds hopeless, it isn’t. To compete against these larger markets, we need nothing less than the lowest taxes, least regulation and best business climate in the nation.

To see the potential, one need look no further than Texas, which has become an economic darling both for its track record of job creation and its business-friendly regulatory structure. The Texas economy has outpaced the U.S. average for two decades, and has resulted in more than two-thirds of all new U.S. jobs since the recovery began.

Texas is a strong example, but there’s an even better one across the Pacific Ocean: To compete, Arizona must become the next Hong Kong, widely regarded as the world’s most economically free region.

Neither geography nor stale policies need ultimately control our state’s economic destiny. But labor and capital are mobile — unless we create the foundations for them to stay and flourish in Arizona, our

C-student status will mean decades of slower growth and lost opportunity.

— Byron Schlomach is an economist and the director of the Center for Economic Prosperity at the Goldwater Institute.

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