The Tarnished State

While driving last week I heard reporting of the latest annual survey of US CEOs by Chief Executive magazine, which ranked California #50 out of 50 for its unfavorable business climate.

As the San Jose Business Journal reported:

"CEOs tell us that California seems to be doing everything possible to drive business from the state. Texas, by contrast, has been welcoming companies and entrepreneurs, particularly in the high-tech arena," said J.P. Donlon, editor of the magazine, in a prepared statement.

The magazine said that CEOs surveyed said California's poor ranking is because of its hostility to business, high state taxes and overly stringent regulations, which it said is driving investment, companies and jobs to other states. According to Spectrum Locations Consultants, 254 California companies moved some or all of their work and jobs out of state in 2011, an increase of 26 percent over the previous year and five times as many as in 2009.

One company that's leaving is CafePress, the crowdsourcing innovator that was launched in San Mateo. Apple is not leaving, but is adding 3,600 new jobs in Austin Texas (the state that ranked #1 on the business climate survey).

In the CEO scorecard, California earned the worst possible rating for taxation and regulation. It also has a terrible economy, with negative 2.1% growth from 2007-2010 (1.7% worse than the national average), unemployment in Dec. 2011 at 11.1% (2.6% above the national average), and net out-migration from 2000-2009 of 1.49 million (#49 in the country). About 5% of the state’s population are state or local government employees (5% of the whole population, not 5% of the workforce.)

Chief Executive offered these choice quotes:

“California continues to head in the wrong direction as its tax policies will drive more businesses and people to relocate in other states. State politicians feel business and commerce are “necessary evils” that provide the funds to enable pursuit of their misguided agendas.”

“California government is difficult to work with and very bureaucratic. Taxes and regulation are high and unruly.”

When google’ing to find the story, I also found a series of pro-California claims being made by Gov. Brown and the Commerce Secretary Bryson during an April 24 meeting of the “CEO Business Climate Summit 2012”. Gov. Moonbeam (as he called himself) was bragging about being unconventional — and about all the innovative companies being formed in the Bay Area — but not about the performance of the economy under his tenure.

The website reporting on the April 24 event is also advertising a May 11 “California Economic Summit” which — as in Brown’s earlier tenure — will likely be long on symbolism and short on actual results. The summit is sponsored by the Think Long Committee for California, an effort sponsored by the center-left Nicolas Berggruen Institute.

Brown’s plan to help turn around the economy is now to join the American Federation of Teachers to promote a $7-9 billion annual tax increase, to protect government employee jobs at the expense of the private sector. (The tax increases are claimed to be “temporary,” but the “temporary” transit taxes in the state’s major cities seem to have lasted 20-40 years thus far.)

California right now is behaving like New York in the 1970s — assuming that it can jack up taxes and regulations because companies have to be here. Back then, the major NYC-based companies reacted to high costs by either moving the entire company out of state (the airlines) or the bulk of the back office jobs (the retail banks).

Of today’s companies in California, some of the highest value-added jobs — like Apple and Google — are likely to remain in Silicon Valley, just as the top Goldman Sachs and Morgan Stanley jobs stayed in Manhattan. However, no matter how successful they are, Apple and Google are not going to provide jobs for the state’s 37 million population.

The apparent indifference by California’s ruling caste to its destruction of the state’s economy — and its denial of its culpability in this outcome — pains me greatly. I was born here and will die here, as my ties to the Golden State run deep: my paternal grandfather came to California over 100 years ago, while my mother’s side was here 150 years ago. But I can’t recommend that my students start companies here; worse yet, I don’t expect that my daughter will settle here after college, unless she lands one of those elite Silicon Valley jobs.