What a gap we have in the thinking of California’s academic types and business leaders about whether companies are fleeing the state because of high taxes, over-regulation and general hostility to commercial enterprises.
The Public Policy Institute of California (PPIC) has updated a report about companies leaving California that concludes the exodus is exaggerated. The San Francisco-based think tank says that between 1992 and 2006, jobs leaving the state never accounted for more than 2.3 percent of job losses in any given year. So, folks, don’t worry.
However, for two years in a row Chief Executive magazine found California to be the worst state in the nation in which to do business. Said one CEO, "California is terrible. Even when we’ve paid their high taxes in full, they still treat every conversation as adversarial. It’s the most difficult state in the nation." The magazine called California the "Venezuela of North America."
My job is to help companies in any state relocate locally or long distance to boost their chances for success. While I have enterprises contacting me to leave California, I don’t have one company seeking to move into our state.
Hence, based on what I know, the academics have it wrong and Chief Executive has it right.
The PPIC report is so deficient that it harms our ability to realistically discuss the state’s business-bashing practices. I’ve spent many years in the world of public policy, and if I ran PPIC I’d order the misleading report pulled from the internet.
I say that because the earlier report issued in 2007, to which the update applies, is based on a shockingly unacceptable definition of a "job loss." It said California lost "565,000 jobs in the manufacturing sector from net business failures," then brushed that aside by saying, "Many manufacturing jobs disappeared not because a large number of California plants moved to other states, but because many California plants simply shut down."
Wait a minute. What happens with complete closures? Well, production shifts to out-of-state facilities that stayed open. The latest example is Amway, which since 1954 has made Nutrilite’s vitamin supplements in Lakeview. Amway will close the plant by 2013 and transfer the work to other states and to Mexico and Brazil. PPIC would not call that "moving out of California," but I do. So would the soon-to-be unemployed workers in Riverside County.
Also, PPIC pooh-poohs out-of-state relocations because moving the workforce is "costly." That’s less relevant these days because California’s cost of living has increased disproportionately to other states. In the relocation business, we’re seeing higher percentages of employees willing to uproot themselves and their families. I just learned of an employee who has been with Boeing for 29 years who will transfer from Long Beach to Oklahoma City. He will join others affected by the 550-job move that will be completed by 2012. It’s more "costly" for Boeing and for him personally to stay in California than to move.
Work is more "portable" than ever before in the history of the world. Three weeks ago HomeEq Servicing near Sacramento said it’s closing and the jobs will go to India and Uruguay. The PPIC Report fails to acknowledge that companies elsewhere do the jobs we used to do without moving a single production tool, potted plant or paperclip.
In a state that’s home to Hollywood fantasies, it’s understandable that we suffer from what I call "Corporate Illusion." Sure, we have companies that keep their headquarters here, but many now use capital to finance growth in other states or foreign countries. Dollars spent elsewhere produce greater cost savings and higher rates of return.
Don’t take my word for it. In 2010 alone, McAfee, based in Santa Clara, revealed it avoids hiring here and saves about 30 to 40% each time it hires outside of the state. Apple, headquartered in Cupertino, will save a fortune on electricity costs alone by putting a $1 billion server farm in North Carolina, and Intel of Santa Clara boldly said it won’t put a new facility anywhere in California.
For a better idea of the companies diverting capital to more productive out-of-state uses, see my posting from two days ago "144 Companies Shrink from Calif. This Year – Three Times the Total for All of 2009."
Alarmingly, PPIC and others seem to ignore the value of the jobs that move out. The recent out-of-state headquarters relocations by Hilton Hotels, Northrop Grumman, StarKist and SAIC – and the upcoming HQ move by VeriSign to Virginia – take the highest-paid corporate jobs with them. Memo to state legislators: These are our highest-tax-bracket individuals.
The PPIC report also ignores "opportunity costs." When departing companies grow elsewhere, the new jobs won’t be counted as "California jobs lost" because they weren’t created here in the first place. None of us have any idea about the economic benefits we have lost or will lose in the future.
I once had an alcoholic as a client. He said the most important of the Alcoholic Anonymous steps to recovery was to "make a searching and fearless moral inventory of ourselves."
What is true for a troubled individual is also true for a troubled state. Until Californians admit to our abusive treatment of businesses – to our highly taxed, over-regulated, adversarial, and downright hostile environment – how will we possibly resolve the problem?