2011 may be the year California gets smart about economic policies

As opinion pollsters and college professors know, the answer you get is always heavily dependent on how you put the question. For the better part of the last decade, we’ve been asking the wrong questions about our state’s economic future, and naturally getting the wrong answers.

With a new administration in Sacramento, 2011 may be the year that California finally begins to get smart about its long-term economic policies.

Gov.-elect Jerry Brown has been making the right noises. During the campaign he was a foursquare supporter of AB 32, the state’s landmark greenhouse gas law, and against Proposition 23, which would have overturned it — outflanking his opponent Meg Whitman, whose support was lukewarm.

He stood up for investing in the higher education of all Californians, whatever their heritage. And since the election he has been quietly conferring with numerous economists and business leaders with a long view of the state’s potential.


Outgoing Gov. Arnold Schwarzenegger, to be fair, shared some of Brown’s viewpoints — he signed AB 32 into law, of course, and outed Prop. 23 as an oil-industry scheme. But the change in leadership offers a chance to recalibrate the all-important debate over what kind of economy California can and should have in the 21st century.

Brown comes into office with one major advantage over his predecessor. The voters’ elimination of the two-thirds-vote requirement for legislative passage of the budget may make it easier to enact a spending plan. Brown also has a chance to sweep away all the budget fakery that Sacramento has become addicted to during the Schwarzenegger years, as painful as the transition to transparency may be.

He has talked about reforming the initiative process, one of the devices that allows voters to rip apart at the seams even a well-designed legislative budget. Brown has talked about requiring that any ballot proposition to spend money also specify a revenue source.

That’s a first step toward sanity, although “it’s too narrow,” says Robert M. Stern, president of the Center for Governmental Studies, a good-government think tank in Los Angeles. Stern advocates requiring legislative hearings and allowing negotiations with proponents before any initiative can go on the ballot, among other reforms.


If Brown can get his arms around the budget crisis, that would be a significant economic achievement. If there’s anything that makes businesses wary of moving to California, it’s the state’s inability to get its fiscal house in order.

But it’s also important for Brown to launch a fact-based discussion of economic development policy. We haven’t had one in a while, as is illustrated by the never-ending discussion about how to make California “business-friendly.”

There’s no question that a debate over economic development is crucial in a state with an unemployment rate of 12.4% (in November).

But as managed by the California Chamber of Commerce — possibly the most useless organization of any kind in the state — this debate begins and ends with taxation and regulation, specifically personal income tax at the top income brackets, the corporate tax and the purported over-regulation of certain discrete industries such as petroleum.


There’s plenty of evidence that those factors are not of paramount importance in corporate decisions about whether to locate or expand in California. A 2007 survey by the Public Policy Institute of California showed that the very notion that the state is “hemorrhaging” jobs to other states is erroneous.

Business migration, the study found, had a minuscule impact on employment change; in the study period of 1992-2004, California lost an annual average of 0.06% of its jobs to net emigration — or about 10,000 jobs a year from a workforce that averaged 17 million workers over that time.

The study’s authors acknowledged that their findings don’t establish whether the business climate here is friendly or hostile, only that “migration is too small to be a reliable basis for claims about the business climate or overall economic performance.”

Far more important to employment change is the balance of birth and death of companies, and on that score California shows a net positive (as it does on overall employment growth).


The jobs that do emigrate are concentrated in certain categories, such as manufacturing and finance. These are industries the authors define as “footloose” — they can locate almost anywhere.

But California isn’t unique, or uniquely bad, in its rate of manufacturing loss; since 1997, its rate of factory job losses has been below the national average. (The state lost 27.7% of its factory jobs from May 1997 to May 2009, compared with the national average of 31.7%, according to the Palo Alto-based Center for the Continuing Study of the California Economy.)

“We are not a low-cost area, and you can’t make us one,” says Stephen Levy, the center’s director and senior economist. Trying to do so, by cutting services to the bone to turn California into a low-tax state, places at risk the features that make California attractive to other industries and workers, such as high-tech — world-class higher education, transportation, clean air and clean water.

“We sometimes forget that we compete for people, not companies,” Levy says. The chamber types who brood about our loss of low-cost jobs to low-cost communities, he says, “have to explain why we still get one out of every two dollars of venture capital in the United States, and Texas gets one out of 20.”


One reason is that California has created an inviting environment for the investments that venture capital firms like to make, in visionary and cutting-edge technologies.

Brown also needs to help the voters understand the distinction between government expenses and government investment. The latter includes reforming and adequately funding the public schools and higher education, which have been getting shortchanged in money and policy.

During the campaign, Brown, unlike Meg Whitman, admirably stood up for the principle of keeping the state universities open to our children — all our children, immigrant or otherwise. This is a particularly good example of investing for the long term.

Why anyone would think that California becomes more attractive to business by refusing to train and educate its young residents escapes me. Whitman argued that we couldn’t afford to do so; as a former Silicon Valley executive, shouldn’t she have understood that we can’t afford not to?


The debate we must have isn’t straightforward. The diversity of California’s economy means that the right development policy for some industries will be incompatible with those for others.

Agriculture needs a reliable water supply, but that has to be balanced with the demands of industry and urban residents. The ports need infrastructure; high-tech wants research and development tax credits and liberal immigration rules. Every industry needs an educational system that graduates students who can read, write and excel.

Every California governor comes into office with a clean slate, even one beginning a third term nearly three decades after ending his second term. Recent governors haven’t filled their slates with much that’s compelling. Will this one be different? Keep your fingers crossed.

Michael Hiltzik’s column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.