The Kauffman Foundation of Kansas City, Missouri is the world’s largest foundation devoted to entrepreneurship. In late May, Kaufmann announced its annual Index of Entrepreneurial Activity for 2009. Montana and Oklahoma were the entrepreneurial leaders and I was surprised—why Oklahoma?

I actually have a warm spot for that state, I’ve had only good experiences there—but who fantasizes about living in Oklahoma? During the decade ending in 2008, Montana, with a population only one fourth as large, had nearly twice as many migrants. What’s going on? Simple economics doesn’t provide the answer. Let’s plumb ecology for explanations.

Decades ago I argued that economics, especially entrepreneurship, is best understood as a subset of behavioral ecology. This annoyed both my economist and ecologist friends. Economists consider ecology too “squishy” and soft, while ecologists find economics too crass and insensitive.

Later, ecologists began using economic models to explain adaptive strategies, for example using optimization theory to explain adaptation. Essentially, the environment “judges” the advantages and detriments of a behavior. If the costs outweigh the benefits, then that behavior will be discouraged or eliminated. If the benefits are high, that behavior is rewarded. In brief, that’s how things evolve.

While biological mutations are not deliberate, entrepreneurial activities are. Someone thinks, “I have an idea or innovation that generates benefits greater than costs.” This is easy to understand in a market context, prices provide information. The logic carries to social entrepreneurship, but there measurements are far more difficult. Who would dare say what Eagle Mount or Warriors and Quiet Waters is worth?

Real entrepreneurial activity is innovative by definition. While Ray Kroc was an entrepreneur, the buyer of a McDonald’s franchise is a businessperson. Not everyone beginning a new business is a genuine entrepreneur, few are. The Kaufmann Report, however, merely counts business starts in making its annual rankings, lumping them together. Still, it’s the best measure we have.

Back to why Montana ranked with Oklahoma as number one, with 470 business starts per 100,000 people. This implies that we had some 4,550 business starts in 2009. Some unknown number, we’ll never know for certain, were innovative. Still why here?

Consider the national context. The best predictor of starting a business is losing a job. And many people have. Nationally we had the largest number of business starts in at least 14 years.

There is also generalized disenchantment with large organizations. Could we prudently trust our life and family well being to Government Motors, AIG, or Fanny Mae? Even when it’s more precarious to do so, some people want the sense of control emanating from running one’s own business.

Next, and related to the above, government controls an ever-higher portion of the economy. This greatly increases volatility. One czar can sway an entire industry. Consider the EPA’s decisions on some CO2 producers, perhaps makers of barbeque grills or lawn mowers. If a ruling has adverse implications, “Let’s get out,” may make sense. What’s next? How about moving to Montana!

Lastly, as technology reduces the costs of distance, cultural isolation, and the discomforts of winter, Montana becomes an ever more attractive place, especially to those who appreciate the outdoors and remnants of American culture. Business success increasingly depends on communication, coordination, and cooperation. Technically, this is ever easier and independent of distance. Physical remoteness may become an advantage, especially if urban dis-amenities grow.

Behavioral ecologist, and former Economist editor, Matt Ridley wrote what I predict will be a seminal piece in a recent Wall Street Journal feature, “Humans: Why They Triumphed.” He observed, “Once human progress started, it was no longer limited by the size of the human brain. Intelligence became collective and cumulative.” This “collective intelligence” is the amount of interaction among individuals. Thanks to the internet, Montanans can now interact seamlessly. RightNow Technologies exemplifies this.

Montana attracts creative people with high human capital. As Kaufmann reported, the result is increased entrepreneurial activity. This trend will continue.