The Exodus Scenario: Round II
A few weeks ago, I challenged the notion that California companies are fleeing the state to escape a business climate that, to borrow our governor’s terminology, “stinks.” I also wondered whether all this mass-exodus talk might be a scare tactic, a ploy by conservative politicians and certain business leaders bent on rolling back onerous environmental regulations, taxes, work safety rules and other familiar hobgoblins.
Well, I’ve learned my lesson. I’ll never again say a kind word about the California economy. Owners of several firms, large and small, have written to accuse me of sticking my head in the sand, of silliness, cynicism and telling lies. Many have volunteered to set me straight in a variety of ways. What excited me most, though, was one executive’s promise of a cold beer if I could produce a single credible study to support my contention that the great business flight is a myth.
Now we’re getting somewhere . . . .
Let me begin with an analysis from the Center for Continuing Study of the California Economy, a well-known economic research firm based in Palo Alto. It has concluded that California’s loss of an estimated 660,000 jobs last year had little to do with fed-up businesses fleeing. Rather, the national recession and, to a lesser degree, defense cutbacks, mergers and similar structural developments were to blame.
“The business climate piece of this,” said economist Stephen Levy, who co-authored the report, “is between zilch and insignificant.”
Levy finds it curious that no one has provided a detailed accounting of the departed. “I can give you nine reasons why it is implausible that the list would be large,” he said, “but if the list is large, let’s see the list. Where’s the list? There is no list.”
Ted Gibson, principal economist with the state Finance Department, conceded that only a small fraction of California’s lost jobs can be attributed to out-of-state relocation: “It’s hard to document at all, but basically the evidence is anecdotal. You read about firms relocating, but in terms of the last 18 months, it’s mostly the recession.”
Other studies suggest that California--”a bad product,” Wilson calls it--remains attractive to many businesses. Conway Data, an Atlanta concern that tracks site selection trends, will report this month that 82 major manufacturing plants opened in California last year, up from 59 in 1990. Arthur Andersen’s real estate newsletter has reported that, of the nation’s top 13 metropolitan areas for new industrial construction, six are in California, with Los Angeles and Riverside the top two. Fortune magazine’s current list of the 100 fastest growing U.S. companies contains 33 California firms--and none from Arizona, Nevada and Utah, states that supposedly have been plucking off our finest.
Wilson and Co. like to cite a survey by the California Business Roundtable. They say it indicates one in four California businesses have contemplated departure. It doesn’t. Roughly 7,000 copies of the survey were mailed out, and only 1,500 came back. Of those, 333 respondents did indicate that they had entertained thoughts about leaving. What the 5,500 executives who tossed the survey are thinking is anybody’s guess.
The best case for exodus is made by Barry Sedlik of Southern California Edison, who tracked down 160 firms that, in the past five years, did relocate in Nevada, Arizona and Mexico, taking 20,000 jobs with them. As Levy and others have pointed out, Sedlik’s work, while impressive, still leaves unexplained the loss of 640,000 jobs.
No one can challenge the contention that state and local bureaucracy is burdensome. If you don’t believe it, just go to any office of the DMV. Also, there is nothing wrong with discussing the way California treats business. But it shouldn’t be done with a gun at the back of our heads.
At issue is not whether a relative handful of businesses have found places like Fallon, Nev., more attractive because of looser regulations and lower taxes. Big forces are at work in this state. We rode the Cold War buildup for 40 years, made a lot of money, but that is over. The good old days of build, build, build, of cheap land and cheap water, are done.
All of this poses important questions: What kind of companies do we want to attract, how do we achieve both clean air and full employment, can we retrain and mobilize the defense industry’s computer warriors, make conservation profitable, harness the tide of immigrants into an economic advantage, and so on?
California is a state on the cusp of great things, and that’s what makes this dispute so frustrating. But I doubt we’ve heard the end of it. I also doubt the nice man will believe I’ve earned my free beer. If I’m wrong, though, please make it Anchor Steam--it’s still brewed in California.
