Should California Business Leaders Accept a Deteriorating State Business Climate?

David Kersten
David Kersten is president of the Kersten Institute for Governance and Public Policy (www.kersteninstitute.org). Kersten is also an adjunct professor of public finance and economics at the University of San Francisco.

In recent weeks and months, there has been a back and forth debate in the media and at political events regarding California deteriorating business climate. 

In particular, as discussed in a recent Fox & Hounds Daily column, the liberal-leaning Economist wrote a major story that was highly critical of California’s political economy which concluded that the trend lines indicate that there is little hope on the horizon for things to get any better.    

One prominent USC academic even described the demographic trends of able-bodied Californians fleeing the state as a “slow motion train wreck.”  

President Donald J. Trump routinely characterizes California as a “disgrace” and a “disaster” for the homeless problems in San Francisco, where he owns property, and Los Angeles, where he has visited on several occasions during his Presidency.  

Yet California Governor Gavin Newsom and most other high-profile Democrats continue to maintain that California is a great place to do business despite the state’s worsening business climate, the high cost of doing business and myriad of worsening social problems such as homelessness, disease, and now some indications that crime is also on the rise.     

In life and in politics, nothing is more offensive than the truth.  

That is why it is time for California’s political class, particularly California Democrats to at least begin to admit that something is at least slightly amiss regarding the state’s worsening business climate.  

But to do this requires some admission of fault on the part of their governance, and more specifically the outcomes of their “progressive policy agenda” including the minimum wage, high-cost of living, over taxation, overly restrictive housing and land use policies, free and open illicit drug use areas, legalized hallucinogenic drugs, and the state’s “sanctuary state” policies to name a few.  

It is important to note that not all “progressive policies” are inherently bad for business, but many of them are, and they need to be evaluated on a case by case basis, particularly where they are failing or not serving their intended goals.  

For example, the welfare state, particularly expanded health care coverage are generally accepted policies, but the liberal excesses in taxes, regulation, debt, and state administration costs can begin to rapidly overshadow the benefits of an all-encompassing “progressive state.”  

But the unfortunate reality in California politics, is that very few high-profile California politicians, particularly Democrats, will admit to any flaws or failings of the “progressive policy agenda” and consider reasonable public policy solutions to bring down costs and ensure that these policies in fact serve their stated progressive goals.  

In other words, the majority of California Democrats are completely unwilling to admit any fault with regard to the state’s high-cost of living and deteriorating business climate.  

One prominent California Democrat Senator, Sen. Hannah-Beth Jackson, even denied that any people or businesses are fleeing the state, despite a growing body of evidence that indicates quite the opposite.       

On the contrary, most California Democrats tell California business leaders and anyone else who questions any of the natural outcomes of these “progressive policies” that everything is fine, and they should effectively not believe their eyes and ears, as well as all the newspaper headlines. 

The only California Democrats that are willing to undertake an honest examination of California business issues and policies are the so-called “moderate” Democrats in the Legislature, which are commonly ostracized by the left-wing and labor unions for their common-sense approach to policies impacting businesses and the state’s business climate.  

Fortunately, the ranks of the “moderate Democrats” have grown in recent years, as more and more Democrats acknowledge that being “progressive” does not necessarily mean taking an unreasonable approach to the state’s economy and business climate.     

While I am not holding my breadth for much to change regarding the mainstream “progressive” California Democrat narrative on the state’s business climate anytime soon, we have observed some recent notable victories from a business perspective.

To illustrate, despite supermajorities in both houses of the California Legislature, and a self-described progressive in the Governor’s Mansion, very little of the sweeping “progressive” policy agenda has advanced in the California legislature including major tax increases, single-payer health care, and other more extreme social programs, with the possible exception of paid family leave.  

It is still fairly early in the 2019-20 legislative cycle, but the fact that so little of huge negative consequence appears to be moving is a welcome sign for California business leaders and an indication that California Democrats might be choosing to mitigate their more “progressive” priorities due to electoral considerations.  

As former California Assemblyman and Senator Ray Haynes (R) often points out Democrats commonly lose elections because they keep their campaign promises, while Republicans, on the other hand, lose elections because they don’t keep their promises.  

In the case of California politics today, it appears as if some growing segment of California Democrats are moderating their progressive policy agenda which undoubtedly suggests some type of concern for repercussions at the ballot box associated with such policies.  

In addition, in a series of recent appearances with California business leaders, Governor Gavin Newsom has at least acknowledged some issues with the state’s business climate, while stopping short of making a clear connection that these issues stemmed from the “progressive” policy agenda.  

Gov. Newsom has said that, as a small businessman himself, he understands their concerns as well as how many of the state’s taxes and regulations impact California businesses.  

Newsom has even made it a point to dedicate a contingent of experienced and reputable staff in the Governor’s office (i.e. Governor’s Office of Business and Economic Development) to investigate ways to improve the state’s business climate and improve economic mobility for all Californians.  

While it is very early in Governor Newsom’s tenure, the Governor has demonstrated a willingness to address at least some of the state’s issues with regard to its deteriorating business climate “head on” as the Governor likes to say.  

We will see how things play out as the 2019-20 California Legislative Session progresses in the run up to the 2020 Presidential Election.  

In one fell swoop, things could go south in a hurry, including the state’s economy, if the Legislature, Governor, or outside special interests succeed in passing a major piece of “progressive” legislation such as “rent control,” a “wealth tax,” or the “split-roll” property tax. 

And it is tough to figure out why some major California business leaders, such as Google and Facebook, appear to wholeheartedly embrace the entire “progressive agenda,” including its failings here in California and elsewhere, despite the obvious repercussions that agenda is having on the California business climate as a whole.

For example, Facebook founder Mark Zuckerberg and his wife have given hundreds of thousands of dollars to help qualify the “split-roll” initiative for 2020, according to campaign finance records.  Recent media reports and comments by Republican Congressman Kevin McCarthy and Devin Nunes suggest that both Facebook and Google make it harder for California Republicans to get their message out on social media, despite the fact that Republican members represent the only pro-business voice in the state and federal political process.    

Unfortunately, there is already zero margin for error in California’s deteriorating business climate; preventing more bad things from happening is not nearly enough—the California Governor and policymakers need to consider a pro-business policy agenda that will actually make things significantly better in terms of bringing down the cost of doing business in this state as well as cutting business regulation and taxation. 

If the Presidency of Donald J. Trump has proven one thing, it is that the economy is without a doubt the most important public policy issue of our day and solidly pro-growth economic policies can trump a failed “progressive policy agenda”—even if Democrat politicians and the media tell us otherwise.   

Comment on this article


Please note, statements and opinions expressed on the Fox&Hounds Blog are solely those of their respective authors and may not represent the views of Fox&Hounds Daily or its employees thereof. Fox&Hounds Daily is not responsible for the accuracy of any of the information supplied by the site's bloggers.