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Wednesday, August 27, 2014 |  Madison, WI: 60.0° F  Partly Cloudy
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Citizen Dave: Madison's economy is better than Forbes rankings say
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A year ago, Forbes released its annual "Best Places for Business and Careers" rankings. Madison, which once ranked as high as fifth out of the 200 cities on the list, came out 89th last year. We were ranked 60th in 2010. The 2013 list from Forbes should be out any day.

Mike Ivey wrote a thoughtful piece in last week's Cap Times about our city's perceived fall from economic grace, but he only mentioned what I think should be the centerpiece of the story: the measures of success are wrong. The problem isn't with Madison but with the magazine. And it sparks some reflection on the values hidden in these kinds of comparisons in the first place.

Let's start by cataloguing just three of the problems with the Forbes rankings.

First, there's inconsistency. Here are just two examples. In 2010, Huntsville, Alabama and Lexington, Kentucky were in the top ten, but in the most recent list they're ranked 55th and 37th respectively. If the measures were useful and consistent, then nothing could have changed so much in a couple of years to justify that kind of drop.

Second, there's the black box. Forbes doesn't tell us much about how they do their rankings short of who they pay to run their numbers. But we do know that they look at a dozen factors and that they weight them somehow, but they don’t tell us how they assign the weights. They say they apply the greatest weight to cost of doing business. But how is that defined? In fact, how can it be defined with so much variation between cities and states and how they levy taxes and fees?

Third, there's value bias. Madison gets hurt because Forbes ranks our cost of doing business at 129th out of the 200 largest metropolitan areas, meaning that it's supposedly cheaper to do business in 128 other cities around the nation. Since they weight that factor the heaviest, we take a hit. But even if that were true -- and since we don't know how they define "cost" we don't know if their ranking is valid -- so what? Why is that the most important factor? The cost of doing business was lowest in Shreveport, Louisiana and yet that city ranked 110th on Forbes list of best places for business and careers. Austin's cost of doing business was higher than ours (they ranked 165th) and yet their job growth was third highest and Forbes ranked them 10th overall. Doesn't seem to add up, does it?

The problems with measures provided by the regional economic development group formerly known as Thrive are even more significant. Thrive wants to say that we lag our peer cities in a number of areas, but they make a fundamental and glaring mistake by comparing the contrived eight-county Thrive region with metro areas in our peer cities. If we made accurate comparisons between standard metropolitan statistical areas we’d look much better.

So, I tried my hand at this myself, creating my own matrix according to my own values. What I care about in a local economy is basically three things: unemployment, poverty and median income. If you can achieve low unemployment and poverty and high median income and your cost of doing business is high, so what? And if your cost of doing business is low but you have high unemployment and poverty and your median incomes are low, again, who cares?

So, I sized up Madison against Forbes' 2012 top ten using my criteria. Here's how we came out:

I used U.S. Census data for poverty and average median household income, and I used U.S. Bureau of Labor Statistics data for unemployment. The Census data is for the cities proper and the Labor Statistics data is for the metropolitan statistical area. What's important is that we're using the same definition of a place in each category.

In this comparison, Madison comes out with the highest per capita income, the third lowest poverty rate and the fifth lowest unemployment rate. Provo, Forbes' number one city in 2012, had the highest poverty rate at 31% and the lowest median income at $39,000. I weighted the three factors equally and did a simple ranking of each to produce the final overall ranking. If I had taken into account the size of the gaps (Madison's 18% poverty rate versus Provo's 31%), Madison would have come out even better.

And, of course, if I had taken the time to run the numbers for all 200 cities on the Forbes list many in their top ten wouldn't even show up on mine.

Measured by the things I believe this community actually cares about, Madison could improve of course, but we're actually doing pretty well.

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