Has the State’s Business Reputation Improved?

Joel Fox
Editor and Co-Publisher of Fox and Hounds Daily

Is California a stellar place for entrepreneurs? What caught my eye in Carla Marinucci’s California Playbook on Politico was an item than California ranked number three of all the states as a positive place for entrepreneurs.

One hopes that the entrepreneur spirit is alive and well in California. Certainly, many of the risk takers in the tech fields, Hollywood, aerospace and other endeavors have started out with little more than a dream and conquered their worlds. As Californians, we applaud those achievements.

Yet, California often ends up close to the bottom in so many surveys of states that are good places to do business.

So what gives?

The study cited by Politico was issued by the website, Go Banking Rates.com, self described as dedicated to connecting readers with the best interest rates on financial services nationwide.

The report builds its case for California by noting that the state had 3.5 more businesses created than closed in 2013. The report on California also boasts that the state has the second largest pool of potential employees.

However, both those facts could be connected to another item cited by the study. California has one of the highest unemployment rates in the nation. Does that pool of potential workers exist because so many lost their jobs? Were the entrepreneur start-ups outpacing business failures because so many out of work individuals decided they couldn’t find jobs so they went out on their own?

Many entrepreneurs may be frustrated job seekers. Nothing wrong with that and good luck to them for attempting to create a business. But it is fair to ask if the rise of entrepreneurs is the result of California’s difficult business climate?

In fact, the study itself noted the difficulties in starting a business in California because of “some of the highest business taxes and one of the highest costs of living in the country.”

I asked business location expert and occasional contributor to Fox and Hounds, Joe Vranich of Spectrum Location Solutions  to take a look at the study. He responded that the study includes all types of business, such as local restaurants that are considered secondary employers. To measure business health you should study primary employers.

Vranich explained the differences in an email. Primary employers sell the majority of their goods and services nationwide or even worldwide. Exclude “secondary employers” such as retail stores, restaurants, furniture wholesalers, dry cleaners, beauty salons (an inexhaustible list of enterprises) – businesses that are dependent on the wages that primary employers provide.

Another way of saying it is that primary employers bring wealth into the community from other places that increase local prosperity. Generally, the new money circulates within the community benefiting secondary employers (local businesses) through increased resident spending.

Generally, the futures of secondary employers rise and fall depending on what happens with primary employers, Vranich noted.

As long as California’s population continues to increase, of course we will have more restaurants and other retail establishments, he concluded.

Naturally, it’s good to have all the secondary employers and the jobs they create.

However, measuring California’s business climate is a complex puzzle. Given that businesses do give up on California and move out of state, the tale of the state’s business climate is not told by this study’s calculations.

Here’s hoping California’s entrepreneurs prosper but we have a long way to go to polish up the state’s business reputation.

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