Question: Does California have a hostile business environment?
Answer: This question comes out of the false belief that “there is absolutely nothing golden about California. It is the worst state in the nation for business. Companies would rather do business in the heart of a frozen tundra or on the edge of an active volcano than come to California. Sacramento sucks most of the money out of companies trying to do business in the state. Businesses that have not been able to escape the clutches of California’s business-killing regulators are nothing more than piles of skin and bones, sputtering and dying. And despite California’s already barbarously high taxes and constrictively harsh regulations, Sacramento continually pours out job-killing legislation.”
Thus, mythology abounds about California’s business climate, propagated by a few very loud demagogues who thrive on atypical, exaggerated, irrational, or (at worst) fabricated anecdotes.
Beyond the myths
Research done by the Federal Reserve Bank of St. Louis dismisses some of this demagoguery through its examination of US migration (to be distinguished from international immigration). Research compiled on migration within the United States revealed two migration magnets which are powerhouses in California: business amenities and consumer amenities. Business amenities attract increasing numbers of young college-educated adults, college-educated couples, and companies. Consumer amenities attract married couples over the age of 55 and retirees. Older couples and retirees are the rational and stable segments of the American population – of which 13% (and growing) already live in California.
The Federal Reserve created two lists:
- the top five US metropolitan areas in the United States with the most business amenities; and
- the top five US metropolitan areas with the most consumer amenities.
What will surprise rumormongers –the cliché name given demagogues – is that four out of the five metropolitan areas in both lists were in California. San Jose, San Francisco–Vallejo, Oakland, and Santa Cruz top the list as regions with the most business amenities while Santa Cruz, San Francisco–Vallejo, Salinas–Sea Side–Monterey, Santa Barbara–Santa Maria–Lompoc topped the list as regions with the most consumer amenities.
So despite the problems those poorly-informed storytellers claim plague business operations in California, plenty of incentives induce businesses to come and to stay. California’s business-friendly regions act as magnets to companies in search of highly-educated and highly-skilled workers. The draw is so strong for high-tech, high-skill business that the Public Policy Institute of California estimates a shortage of nearly a million college-educated workers in California by 2025.
Regions in California with high levels of consumer amenities, on the other hand, attract older migrants with more cash than their younger counterparts, meaning more money is spent on California goods and services. And businesses not only want to be near business amenities, but they want to be near big markets, with lots of wealthy, high-earning consumers. And California definitely has lots of very wealthy people compared to the rest of the nation.
Poor leadership, strong regions and cities
While California is not the anti-business bogeyman it is made out to be, businesses do struggle against the juvenile antics of the short-term political participants in the Sacramento sandbox. Many elected representatives in Sacramento act less like public servants and more like toddlers on a short political party leash, spending their time flinging sand at members of the opposing party. They simply ignore the state’s more practical needs. At times their attention doesn’t seem necessary as businesses continue to excel, but there are times when political attention would definitely help.
But despite uninspired and poor state leadership since the 1960s, California cities and regions continue to attract creative, hardworking, and driven people. There is plenty of creative genius at the local level. That local genius is pulled in from all around the country by California’s business amenities: highly-educated, highly-motivated, and for real estate, highly-paid individuals. This creative class is the powerhouse of the enlightened post-industrial, service-based California economy of higher living standards than the rest of the country.
People may be pointing fingers right now, sneering and saying California has lost its luster. But the type of people and the type of businesses that California keeps and attracts means California will always bounce back, and be the first to do so, no matter how drastic the financial crisis.