Firms’ Gripes About State Stir Backlash : Commerce: There is no job flight, some experts say, and they contend that grousing about a hostile business climate is counterproductive. But many executives are unconvinced.

Go ahead. Ask Hi-Rel Laboratories General Manager John Level about California’s business climate, the latest hot topic from Sacramento to San Diego.

But be prepared for a tirade about red tape, bureaucracy, workers’ compensation costs, utility rates, taxes and congestion.

About how it was going to take six to 12 months to get the necessary clean-air permits to move his defense-related Monrovia operation four miles, until a state assemblyman intervened. About how Level has already moved a few employees to Washington state, and how he’s threatening to move the whole kit and caboodle.

“I can’t afford the cost of business here,” he said vehemently. “The bureaucracy is unbelievable. The forms to fill out . . . just go on and on. We’re tired of fighting it.”

Then ask Jock O’Connell, a consultant in Davis. When an overseas client balked at considering choice manufacturing sites in the state because of the “terrible” business climate, O’Connell was annoyed.

“How many others,” O’Connell wondered, “are being influenced by the kinds of (negative) statements that were being made last year (by Gov. Pete Wilson and business leaders)? They were helping to foster the impression that things had gone uniquely wrong with California.”

In this recession-troubled time, it seems that just about everyone--politicians above all--is talking about California’s business climate. Most executives are saying how hostile it is. Massive job losses, they contend, have resulted from firms bolting the state because it has lost its competitive edge.

Many economists, on the other hand, keep reiterating that California’s malaise stems primarily from the recession and Pentagon cutbacks, not from onerous laws and regulations.

There is no evidence of “job flight,” these experts say, and they warn that basing public policy on the mistaken notion that the business climate is to blame could create bigger problems down the road.

“The misinterpretation of the economics is not benign,” said Robert K. Arnold, senior economist at the Center for Continuing Study of the California Economy, an influential research firm in Palo Alto.

“It leads to misdirecting potential investment in the state. It creates the wrong policy focus. What we have to concentrate on . . . is investment, investment, investment, particularly in education and the public infrastructure.”

The business climate debate has the aura of a chicken-and-egg question. Is the business climate in California really all that rotten? Or has the grousing by business leaders set the state up for a fall by ensuring that discouraged companies will look elsewhere to set up shop or expand?

To a great extent, many economists say, the business community’s fears are exaggerated. Despite ongoing setbacks in defense and aerospace manufacturing, California’s economy--the eighth largest in the world--remains vibrant.

The state continues to build trade bridges with fast-growing Asian nations, and its university system still attracts many of the world’s brightest minds. The Bay Area and Southern California continue to be incubators for myriad start-ups in high technology. Moreover, California is scarcely alone in suffering many of the drawbacks mentioned by the business community.

But it does seem clear that California’s thousands of small businesses stand to be the most severely squeezed if regulatory burdens, taxes and fees increase when the economy is sour. Many legislators acknowledge that these business owners need some relief.

For months, business groups such as the California Manufacturers Assn. have bemoaned the “exodus” of jobs. A California Business Roundtable survey found a “highly pessimistic” mood about business conditions in the state. Nearly one-quarter of the companies responding said they had plans to leave.

The California Chamber of Commerce, normally the state’s biggest booster, has railed against the workers’ comp system, environmental rules and other problems. In a perverse attempt at rousing complacent legislators with “a wake-up call,” the chamber used as a key spokesman on keeping jobs Wilford D. (Woody) Godbold Jr., chief executive of Zero Corp., a Los Angeles-based maker of electronics cases and cabinets.

At the time, Godbold was in the process of moving 450 Zero manufacturing jobs to Utah from California. The strategy sent mixed messages, to say the least.

Bad-mouthing the Golden State has become sport even for Gov. Wilson, the business community’s longtime ally. “I believe in merchandising California,” he told a gathering of executives in January, “but you can’t sell a bad product.”

In this election year, others have joined Wilson in jumping aboard the pro-business bandwagon. So far, few substantive changes in the state’s massive bureaucracy have been made. But that’s not for lack of people looking into the matter.

Last September, Wilson named Peter Ueberroth, who organized the 1984 Olympic Games and then served as baseball commissioner, to head a blue-ribbon panel to examine the problems and come up with ideas to make California more competitive. The group’s conclusions are to be presented to Wilson next month.

The state Senate in January created a select committee to assess the troubles and recommend ways that the state could foster a climate that encourages business growth. Assembly Democrats, led by liberal John Vasconcellos of San Jose, have formed their own “economic prosperity team.”

Hearing rooms in Sacramento for weeks have echoed with the gripes of entrepreneurs. Often with business groups as co-sponsors, legislators have introduced a raft of reform measures. For workers’ comp alone, more than 30 measures are circulating through the Legislature.

Some see a motive in the in-house California bashing.

“I think (business) has a political agenda,” consultant O’Connell said. “They’re using the recession, when a lot of companies are in trouble, to create an atmosphere where they could approach the Legislature and say, ‘To keep jobs, we’ll need tax relief, protection from (certain) legislation and workers’ comp reform.’ ”

Agreement comes from Joel Kotkin, a senior fellow at the Center for the New West in Denver and an international fellow at Pepperdine University’s School of Business and Management. “(They) adopted an extraordinarily stupid strategy of blaming everything on the state of California,” he said. “It’s a very short-term strategy.”

It also, Kotkin said, allows business to conveniently circumvent a need to address the problem of “incompetent managers.”

No one disputes that California, tarnished symbol of the American dream, has taken an unexpectedly rough beating and, like many states, has some enormous problems.

Gone is the era of heady job growth in the 1980s, when California could wave goodby to one business and, without lifting a finger, expect two to crop up in its place. Back then, the business community’s complaints about over-regulation and high taxes fell on deaf ears in Sacramento.

The defense buildup, immigration, the huge market, overseas capital and booming Asian trade helped overcome the usual negatives about operating a business in the state: high costs, congestion, pollution.

But first the recession and then the defense slowdown took their toll. Since the mid-1990 peak, the state has lost between 400,000 and 660,000 jobs, most of them in manufacturing, construction and retailing. But, far from representing “job flight” to other states, economists say, the losses reflect the economic downturn and, to a lesser extent, defense cutbacks, mergers and other economic shifts.

Some in the business community resent the quibbling.

“We’ve had this debate” over what caused the job loss, said Kirk West, president of the California Chamber of Commerce in Sacramento. “It really is irrelevant. Any percentage at all (resulting from the business climate) is a problem.”

He acknowledged that a softening of tone has been called for lately.

“We’re certainly trying to emphasize the positives of the state,” he said. “We want to simultaneously emphasize what’s right and point out what’s wrong and can be fixed.”

The complaints from small businesses, in particular, are understandable.

“When I start talking about it, my blood pressure goes up,” said John A. Rini, president of Grissini Foods Co., a Los Angeles company that bakes bread sticks.

In a letter to state Assemblyman Richard Polanco (D-East Los Angeles), he told how workers’ comp claims have “soured my feelings for all of my employees.” Ever-rising premiums have exacerbated problems caused by the economic downturn. If reforms don’t come, Rini wrote, “small businesses and big business will either close shop in California or go out of business altogether.”

His own company, he said in an interview, is “living from day to day.” Even so, Rini said he’s stuck because “I couldn’t afford to move.” For that very reason, economists note, a mass exodus of companies is unlikely.

O’Connell, the Davis consultant, is fond of reciting a recent newspaper story about the workers’ compensation mess. The story called the system a disaster that “wastes millions of dollars each year, (destroys) employer-employee relationships (and) distracts the state’s attention from other vital issues.” It also “fosters greed, confusion and distrust” and “crushes businesses with outrageous premiums.”

A perfect description of California’s system? No, an expose of the situation in Maine.

O’Connell’s research shows that California’s premium rates might seem unusually high but that for some types of highly valued companies, including computer makers, the rates are “surprisingly competitive.”

It certainly can’t hurt to have lawmakers focusing on improving the business climate. Or can it?

There is the risk of decisions made in haste.

“That’s always a problem if you rush things through,” said Sen. Robert B. Presley (D-Riverside). “We don’t want to succumb to a degrading of the environment.”

The state’s fragile environment is forcing California to be in the vanguard of those addressing problems of air and water quality. That early focus, some observers say, could put California companies ahead of the game when other states and nations fall into line, as they eventually will.

“The fact that the state is stringent in rules about health, safety and the environment . . . should be viewed as an opportunity,” said Michael Borrus, co-director of the Berkeley Roundtable on the International Economy. “If companies can compete in California with the restrictions, they will be able to compete anywhere.”

Sweeping changes in Sacramento could come too late for Hi-Rel Laboratories. To avoid having to implement a ride-share program next year, Level, the general manager, plans a simple solution: Keep the staffing at 24, below the number at which the requirement kicks in.

As for the clean-air permits needed to move the defense-microelectronics testing facility to nearby Irwindale, Level has been assured by the South Coast Air Quality Management District that, because he was “a squeaky wheel,” the request will be processed in a relatively speedy one to two months. By then, Level expects to have decided whether to stay or relocate.

When he moved seven employees to Washington in 1990, “we found a site, moved in and three weeks later we were in operation. You couldn’t even fill out the forms in that time in California.”

Not only that, he added. When he filled out his first sales-tax form, a Washington state processor called to compliment him. “In California,” he said, “they just don’t care.”