California Has Got to Stop Shooting Itself in the Foot
California in recession is not a pretty sight. Casualties of the economic slowdown are strewn up and down the state, from the high-tech corridors of Silicon Valley to the tourist meccas of Anaheim and San Diego. Out-of-work executives and factory workers, who never socialized together, now meet in the unemployment lines.
A recovery will not be easy. The state was spared the ravages of past recessions because of its diversified economy. Not this time. The Golden State will not bounce back with its usual vigor because the recession is not the only drag on its economy. Industries are going through difficult restructurings, which add new uncertainties to the economic outlook. Even Hollywood is in a slump. California must generate more than 250,000 new jobs a year to prevent unemployment from rising.
Complicating all this is the widely held perception that California is hostile to business--big and small. The state’s high-cost, high-tax atmosphere is made worse by a regulatory quagmire. Government, business and labor need to reverse that image and form a new partnership.
California’s economic interests are changing faster than ever imaginable. It has some bright spots: bustling international trade, continued foreign investment and vibrant small and mid-sized entrepreneurial ventures. But these are not enough to fully overcome setbacks in the state’s more traditional, high-value industries.
STATE POLICIES THAT HURT: Aerospace and defense companies, for example, have slashed 60,000 jobs because of defense cutbacks. Even worse, some are leaving to escape the high cost of doing business in California. Silicon Valley’s once hot, upstart electronics firms are withering under fiercely competitive pressures in the computer business. Banks and other service industries are consolidating and eliminating thousands of white- collar jobs. Real estate problems that hit the Northeast are surfacing in California. Consumers are nervous, so retailers are hurting too.
Just as business has had to run lean and mean to get through the recession, so too should government trim its sails. A survey last fall by the California Business Roundtable, a trade group, showed that more than 70% of executives surveyed said state policies and worker’s compensation, health care and business taxes hurt their business. Sixty percent said the same of toxic waste regulation and the legal system. More than half were negative about state policies toward education, transportation development and air pollution. Two-thirds cited the state Legislature, administration and state agencies as oppressive elements.
Businesses from giant aircraft manufacturers to mom-and-pop dry cleaners complain about environmental regulation. Few argue with the goal of improving air and water quality, but complying with the many state regulations is often a bureaucratic nightmare of costly delays and contradictory rules. The answer to such cumbersome government red tape: a streamlined, one-stop government shop for business.
On the national front, California has lost several lucrative federal contracts to other states because the state’s fragmented congressional delegation has not consolidated its clout. Now after years of trying, California congressional leaders have formed the California Institute, a nonprofit think tank backed by corporate financing, to identify federal money and projects. Let’s hope this helps.
MANUFACTURING WOES: No one has tallied the number of jobs lost as firms leave California. But the California Business Roundtable says 14% of 850 firms surveyed plan to leave the state and 41% plan to expand outside the state. Southern California is especially vulnerable--it provides one in every 15 manufacturing jobs in the United States.
A solid manufacturing base is crucial to long-term economic development, especially with a weakening service sector. A manufacturing job typically generates two other jobs, a far higher multiplier effect than service employment. Saving factories means saving jobs. The California Worksite Research Committee, an unusual joint effort by management, labor, education and government, has spent two years studying four California factories undergoing major change. Policy-makers should take note of its findings at Douglas Aircraft, USS-POSCO, Hewlett-Packard and New United Motor Manufacturing Inc.: Fostering a sense of mutual economic destiny and responsibility is crucial to competitiveness.
WORKER’S COMPENSATION: California’s $10-billion worker’s compensation system is unfair to both employees and employers. It needs an overhaul that goes well beyond the watered-down reform legislation of 1989. For employers, the system is one of the costliest in the country. Yet injured Californians receive some of the lowest benefits anywhere. Rising litigation, fraud and stress claims have added to skyrocketing medical costs. So far, heavy lobbying efforts by medical, legal and insurance interests have thwarted reform. But the costs of everything from insurance premiums to doctor-shopping must be contained. The governor ought to appoint a labor/management task force--sans special interests--to crack this problem.
Such short-term solutions are useful while California rides out the recession. But enhancing competitiveness in the longer term will require comprehensive policy changes in education, housing, transportation, water and health care. Only then will California be truly healthy.
Next Monday: Middle-Class Blues
