Our Business Climate Matters

The current national economic downturn is the worst the nation has experienced since the economic malaise of the early 1980s. Many of us in Louisiana remember well how that terrible recession and the plunge in energy prices devastated our state’s economy. Thousands of Louisiana businesses went bankrupt or left the state, and millions of our workers moved away to find employment elsewhere. It took a full decade for our economy to begin to find solid footing again. It was the most painful economic era since the Great Depression for our people.

It is interesting to contrast that economic downturn with the current one. Things certainly have not been a bed of roses in the Bayou State since the financial market upheaval hit in the fall of 2008 and toppled the national economy. But, compared to other states, Louisiana is weathering the storm.

What is different? There are several factors. Energy prices have rebounded somewhat since they plummeted in 2008. A chronically weak dollar not only has helped to push the price for oil and other commodities upward, it has also been a boon to exports. Most people don’t realize that Louisiana is one of the top manufacturing and exporting states in the nation. While the plunging dollar has caused distortions in other areas of the economy, it has helped many of our key industries.

There is another factor that many tend to forget when pondering the question of why Louisiana is doing better in this economic downturn than in the one 30 years ago. It is the fact that many steps have been taken to improve our business climate.

During the devastating period of the 1980s, employers were hit hard by skyrocketing Unemployment Compensation (UC) costs, adding to their financial woes. That same problem is wreaking havoc with business in other states at the moment, but in the Bayou State, we have one of the three healthiest UC trust funds in the nation.

Back in those tough times in the ‘80s, businesses had to pay large tax bills even when they were losing money, taxes that businesses in other states didn’t have to pay. Reforms since that time have phased out the inventory tax, the tax on business debt, and the sales taxes on manufacturing machinery in production. That has been a positive impact on economic development in the current downturn.

Additionally, 30 years ago businesses in Louisiana were being sued with impunity in our state courts. Civil justice reforms since that time have brought a more level playing field in such areas as strict liability, joint and several liability, and punitive damages.

One of the major causes of Louisiana’s budget woes in the 1980s was the lack of budget controls and the excessive use of volatile oil and gas revenues for funding state government. When the money ran out, business was the major target for tax revenue. Since that time, changes to the Constitution have been made for a balanced budget requirement, a spending cap, a Budget Stabilization Fund, and the Revenue Estimating Conference that must recognize any sources of revenue before they are included in the budget.

There are several reasons why Louisiana is faring better in this economic downturn than the tragic one 30 years ago. The numerous changes made to improve the state’s business climate should not be forgotten as a major contributing factor. Some entities are targeting those advancements in the current legislative session. If Louisiana had been forced to endure the current economic downturn with the business climate of the 1980s, there would have been much more wailing and gnashing of teeth.



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