The Truth: California is a Mecca for Business and Jobs

As yet another election year begins (2006 will be the fifth
consecutive election year in California), get set for another
barrage of complaints about this state’s business climate.
As yet another election year begins (2006 will be the fifth consecutive election year in California), get set for another barrage of complaints about this state’s business climate.

High taxes, high housing prices, too many regulations, a minimum wage that tops federal levels – all these factors lead thousands of businesses to leave California every year – if you listen to some politicians.

This complaint has been a longtime staple for Republican politicians who want voters to feel putting them in office or keeping them there is the only way to save their own jobs. It’s a theme they’ve sounded since 1982, when George Deukemjian used it effectively while beating Tom Bradley, the late Democratic mayor of Los Angeles, in a tight race for governor.

No one uses this material more dramatically than Gov. Arnold Schwarzenegger, who once drove a moving van down the Las Vegas Strip while loudly inviting businesses which had fled California to come back, now that he is holding the line against the “job-killing Legislature.”

Effective as this tactic often can be, it turns out to have one basic flaw: it’s just not true. This, at least, was the finding of a landmark study by the non-partisan Public Policy Institute of California, which runs on money provided by the estate of one of the founding partners in Hewlett-Packard, a hugely successful job engine headquartered firmly in California’s Silicon Valley.

The study showed that while approximately 44,000 California jobs were lost to relocation in the period from 1997 to 2000, about 20 times that many were created by expansion of existing businesses and creation of new ones.

Added the report, “One can argue that when companies such as Gateway (in 1998), Iomega (2001) and Sony Electronics (2004), moved their headquarters from other states to California, this was a positive development that mitigated the negative effects of out-of-state relocations.”Even in years when out-of-state relocations cost California the most jobs (the worst recent years were 1994 and 1997, both during the tenure of Republican ex-Gov. Pete Wilson, ever a business climate hawk), the loss never amounted to even one-tenth of one percent of California’s total jobs.

When large numbers of jobs have been lost, the study found, it’s usually been because businesses closed down (71 percent of losses during the 1990s) or downsized (27 percent of all losses).

“Policies that focus on preventing business relocation will have little effect on job growth'” the report concluded. “Those that promote new business formation and help existing businesses survive (are) critical.”

Which means that the headlines spawned when the maker of Buck knives left San Diego County for Idaho, taking 200 jobs to the Boise area, should have been dwarfed by others heralding the creation of new businesses. But that didn’t happen – mostly because news outlets tend to focus on what’s wrong more than on what’s right.

What is right about California? The most populous parts of the state enjoy weather allowing businesses to operate full-blast year-round, without closures and time lost to blizzards and hurricanes. As ever, that climate is still a draw for millions of the most talented Americans.

The state’s public higher education system – most extensive in the world, when the student bodies and alumni of the University of California, California State University and the myriad community colleges are lumped together – has provided a huge work force (more than 20 million graduates at last count) more highly educated than in any other location in the world.

A constant influx of immigrants, both legal and illegal, gives businesses a solid corps of workers to handle unskilled labor, too. Even high home prices have an upside: There is no formal count, but analysts say thousands of new businesses open each year funded by loans that use real estate equity as collateral.

All this does not mean California can be smug. Both Canadian provinces and other states in this country are offering more and more incentives to draw film production and electronic manufacturing away from California. Tennessee will soon take Nissan Motors’ U.S. headquarters from Los Angeles County.

This state needs to find carrots of its own that don’t exploit workers or see taxpayers funding movie and electronic production.Yes, there will always be the occasional firm that bites at the lures constantly offered by nearby states from Oregon and Idaho to Nevada and Arizona. But there is no cause to panic, and there never was.

“Don’t keep trotting out the claim that we’re losing lots and lots of jobs because businesses are leaving'” labor economist David Neumark, one of the PPIC study’s authors told a reporter.

Good luck, David. Griping about the business climate has been an effective Republican tactic for more than two decades, and the GOP will use it as long as it works – whether it’s true or not. But voters now have information that should let them see through the claims of flim-flam men (and women).

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