State Government a Roadblock on California’s Comeback Trail

California’s business climate has been as bad in the past as it is today, and it has always zoomed back. This time, though, things could be different if state leaders aren’t careful.

In the late 1970s, the Fantus consulting firm advised companies seeking to locate offices and factories that California was the least friendly place in the entire nation to do business. But in the 1980s, the Golden State rebounded, creating new jobs and a new image, thanks to a buildup of national defense spending and a helping hand from the glittering success of the Los Angeles Olympics.

In the 1990s, California was struck anew by recession and ridicule, this time caused by a steep decline in defense spending and the physical and psychological devastation of fires, riots and earthquake. But then, the high-technology boom gave the state an outsized reputation for effortless brilliance, not to mention a huge pot of disposable income.

Today, Fantus is known as Deloitte & Touche Fantus Corporate Real Estate Services, and the firm is once again warning clients that California’s business climate is “challenging.”

The state continues, says Mark Klender, Western representative for the firm, to boast the advantages of “great spirit” and innovation, which it has often called on to dig itself out of economic messes. But now, Klender suggests, there is a troublesome departure from the past: State government “lacks long-term vision” and quite simply “does not know how to do economic development.”

The recovering national economy might supply the rising tide that will lift California, as the UCLA Anderson Forecast released today suggests. But that tide will need an assist if the state is ever to fully recover its standing as a desirable place to start a business, or even to keep one going.

Simply put, two giant shortcomings must be repaired, and it falls to state government to attend to both: The education system needs attention, so that California can produce workers with the skills that modern companies need, and the state Legislature needs an education -- a remedial course in the reality of California’s 1.1 million small businesses.

On the first shortcoming, listen to Lonnie Kane, president of Karen Kane Inc., a 24-year-old apparel firm based in Vernon, who complains that “design workers coming out of school lack basic knowledge and even the ambition to learn.” Or to Steven Marcussen, executive director of real estate broker Cushman & Wakefield, who reports that clients instruct him to look for offices and factory space “A.B.C., anywhere but California,” because workers here are “less motivated and hardworking than employees in other states, but more prone to file lawsuits.” Or to the result of a recent survey of 25,000 companies by the Los Angeles Economic Development Corp., which found a chief gripe of manufacturers was that they cannot find enough skilled production workers.

On the second failing, a point: Much of the grumbling about Sacramento’s sad lack of knowledge about business is misplaced. It isn’t Gray Davis, but the Legislature that has long been at the heart of the problem. In the past, notes Douglas Ring, the politically savvy head of a Los Angeles real estate firm, politicians like former Democratic Assembly Speaker Willie Brown and former Republican Gov. Pete Wilson “would work out compromises.” Now the extreme wings of both parties are in charge “and there is no compromise.”

The result is a growing belief among business owners that state government is not so much stupid about what it takes to run a company as it is downright hostile.

So again there are widespread fears that businesses may be leaving California, as scores of firms did during previous bad times, including the early ‘90s. Evidence shows at least some exodus. The UCLA Anderson Forecast, in a survey of 400 firms, found that 2% acknowledged plans to “relocate operations to another state” and that “more ominously, 12% of companies surveyed were looking to expand in other states.” The Los Angeles Economic Development Corp. survey found that 8% of respondents -- or 2,000 companies -- planned to move out of California.

Saint-Gobain Calmar Inc. is one of them. Next year, it will move its manufacturing of plastic spray dispensers from the City of Industry to Kansas and a new factory in Mexico. John McKernan, president of the firm, lists the reasons in two words: high costs. Specifically, he says, “property and sales taxes, insurance, energy and workers’ compensation have forced us to look at other options.”

Those planning to relocate may be only a fraction of all the companies in California. But as Lee Harrington, president of the Economic Development Corp., points out, 2,000 businesses “represent a loss of approximately 2.5% of our potential job growth.”

What is to be done? There are some ideas surfacing for reforming state government -- by, for instance, taking away some of its power, which would at least make it less dangerous to businesses, and everyone else. Former Assembly Speaker Robert Hertzberg advocates returning $14 billion in annual tax revenue, and the responsibility for spending it, to local communities. He plans to put such an initiative on the ballot in March.

Meanwhile, the latest Deloitte Fantus report proposes something original: that the state appoint an ombudsman to review the effect on business of proposed legislation and regulations.

“This may smack to some of business running the state,” the consulting firm concedes, “but the pendulum has swung too far the other way.”

James Flanigan can be reached at jim.flanigan@latimes.com.