Hardly Lean, We Are No Longer Hungry
Is California becoming uncompetitive or, worse, anti-business?
The quick answer is that anti-business is a loaded and often misleading term, but uncompetitive comes closer to identifying worrisome failings in the Golden State today.
To understand why you have to look beyond prosperity that is currently so great that California recently took a 16-page advertisement in Forbes Magazine to proclaim its status as the world’s eighth-largest economy. At roughly $600 billion in annual output of goods and services, California ranks ahead of Canada and just behind Britain.
In contrast, local business people at a Los Angeles Chamber of Commerce luncheon last week weren’t boasting. They were expressing concern about job losses in Southern California and about environmental restrictions and their administration by many levels of government.
“There is no coherent policy to balance environmental regulation with the need to create jobs,” said attorney Dan Garcia, a partner in the law firm of Munger, Tolles, & Olson. Anti-growth policies were shortchanging millions of poorer people in Southern California by denying them jobs, said Garcia.
“The area has lost 38,000 manufacturing jobs since 1987, and is on its way to losing 100,000,” said Jack A. Kyser, chief economist of the Chamber of Commerce. Kyser quickly added that California overall is still projected to gain jobs this year.
Nonetheless, the phenomenon of jobs leaving California, because companies are moving out or choosing to expand in other states, is unsettling.
The major aerospace companies have indicated that future expansion will be elsewhere. Lockheed already is moving major military aircraft programs to Marietta, Ga.
Smaller manufacturers, many of them suppliers to aerospace, are moving too. Alcoa Composites of Santa Ana, which makes airplane parts, will continue operating plants in California. But future expansion will be in Texas, where the company is moving its headquarters.
Service firms, also, are expanding outside the state. Capital Group, the Los Angeles-based financial services and mutual funds giant, will open its next communications center in San Antonio. Why? Because it couldn’t get the employees it needed in California.
California can’t do much about some moves, such as those stemming from the defense budget downturn. But others represent a competitive loss. Most companies expanding elsewhere cite high local costs for labor, housing, worker compensation, health insurance and traffic congestion as reasons for moving. When they cite tightening environmental regulations they unfailingly complain also of the attitudes of regulators and local government officials.
Economic development recruiters from other states--from nearby Nevada and Arizona to Texas and Colorado--take advantage of such discontent. One such recruiter, Mario Hernandez, president of the San Antonio Economic Development Foundation, says he finds California “a very productive place to look for companies because Texas today is what California used to be--eager for business.”
The division head of one national company, who proposed building a major plant in California, certainly found state officials less than eager. They showed little interest in getting a $100 million-plus investment, he reports, and as a result the company built elsewhere.
“You know, when you’re looking at building a fairly large facility, you’d like to be welcomed,” says the official, in an afterthought about California. “Based on our experience, we’re not inclined to look first to California the next time. That’s the sad thing.”
That’s the price of a bad attitude, but one that may be more slipshod than anti-business. In many parts of the state projects are going forward, even in industries that arouse environmental concern.
Many cement companies, for example, have deserted Southern California for Arizona and New Mexico rather than face the cost of complying with tighter air quality restrictions. But in Lucerne Valley, near San Bernardino, Mitsubishi of Japan is spending heavily to equip a cement plant with the very latest in environmental controls.
Mitsubishi figures that Southern California will be a great market for cement and that spending on environmental controls is cheaper than trucking in cement from New Mexico--not to mention that the federal Clean Air Act will soon tighten environmental restrictions in other states, too.
Truth is, anti-business is too strong a term for the tension between business and government that is a California tradition. This is a state after all that was built by land-grant ranchers, gold rush speculators and railroad barons but brought to political maturity by Hiram Johnson and the reform forces of 1911, which gave the state its progressive constitution.
On the other hand, uncompetitive is not too strong a word for what business people complain is a pattern of high costs and political weakness that now characterizes California. Repeated ballot initiatives that threaten wrenching effect on industries and companies--such as this year’s Prop. 128, or Big Green--look to business like an abdication of leadership, not Athenian democracy.
Even in its traditional strengths, California has lost half a step in recent years. In high technology, for instance, California lost out on every one of the government-industry initiatives of the 1980s. Microelectronics and Computer Corp. (MCC) went to Austin, Tex., in 1983, then Sematech in 1987 went to Austin too. In 1988, the Supercollider went to Waxahachie, Tex. And even the National Research Center for Earthquakes--a natural for California--went to Buffalo, N.Y.
“It’s too bad,” says the head of a Silicon Valley company. “Any one of those institutes would have been the equivalent of another university for California.”
The consequences of such losses are not instantly measurable, but they could show up over time. For more than 40 years, California has been the place where new trends begin in America. In the next 40 years, maybe the trends will begin somewhere else, someplace as “eager for business” as California used to be.
