01:00 AM EDT on Wednesday, April 20, 2005

EVERY YEAR, the free-market Pacific Research Institute ranks states on its U.S. Economic Freedom Index. It gives good grades for low wages, liberty to pollute, and tax policies that let the rich off the hook. Last year, Kansas was number one.

If Kansas is such a great place for businesses to roam free, why aren't businesses charging in? The institute asserts that gains in a state's economic-freedom score are tied to a rise in per-capita income. That's interesting, but the fact remains that Kansas's average per-capita income, $30,811, is lower than that in all 10 of the bottom-ranking states. Third-from-last Connecticut has America's highest, $45,398.

Perhaps companies look for something other than servile state governments. Perhaps they want educated workers. And perhaps educated workers want to live in communities where schools don't worry about teaching evolution science. Freedom comes in many forms.

The Pacific Research Institute itself chooses to live in regulation-happy San Francisco. And its "economic freedom" index pans California as the second-most "tyrannical" state in America. (New York is apparently worse.) Why would a think thank dedicated to limited government stay in such a sinkhole? Guess life is kind of good in Frisco.

For all their econometric lingo, these surveys are mainly exercises in ideological posturing. And they don't always get the ideology right, either.

How odd that a group promoting a "free economy" would praise states for attracting companies with special tax breaks. After all, when one corporate citizen pays fewer taxes, others have to make up the difference.

The 2004 Economic Freedom Index report uses an especially gruesome example, which actually hurts the argument. It hails South Dakota for luring the headquarters of Gateway, the computer company, out of Iowa, in 1989.

The report neglects to note that nine years later, Gateway again moved its headquarters -- this time to a San Diego suburb. And, by the way, Gateway last year laid off 75 percent of its workforce, including hundreds of employees still remaining in South Dakota.

Many other states have given the store away to prospective employers, only to be abandoned. Putting all the corporate betrayals together would make one very long book of sorrows.

Nonetheless, states still jump into bidding wars for new companies -- the winner being the most pliant government. These contests used to involve mainly automotive factories planning to employ thousands of people.

Now any industry can play. Dell Computer recently managed to wrestle an astounding $242 million in tax breaks from North Carolina over 15 years. That tax incentive comes to $10,756 a year for each $28,000-a-year job. Observers say the Dell deal has upped the ante for other companies demanding tax breaks. As one corporate-site consultant put it, this arrangement "will be referenced in the next trophy project that comes down the pike."

Intel, meanwhile, is busy shaking down Oregon and Arizona at the same time. Despite annual sales of $34 billion and handsome profit margins, Intel is threatening to lay off thousands of workers unless it gets tens of millions in tax breaks. If it doesn't get the money, the company says, the jobs are off to China.

There's a punch line. Intel's retiring CEO, Craig Barrett, has been out giving speeches about how American companies are moving overseas because American kids are getting such lousy educations. So what Intel really wants are better-educated workers without having to pay the taxes that support schools.

Of course, states have found other ways to deal with education costs. Some simply cut education. To save money, school districts from Oregon to Louisiana have reduced their school weeks from five days to four.

Many states just let the gambling joints milk their poor- and working-class residents. Casinos, the officials say, are "good for education."

My favorite idea for creative school funding comes from Nevada. Brothel owners there have offered to pay taxes, mainly as a goodwill gesture. Anything for the schools.

The truth is, a healthy civic culture makes a "good economic climate." The state that offers an educated workforce, clean environment and fair tax structure need not beg for jobs. Local pride is a virtue that "pro-business" think tanks almost never measure.

Froma Harrop is a Journal editorial writer and syndicated columnist. She may be reached by e-mail at: fharrop [at] projo.com