California gets criticized regularly for having a bad business climate. The storyline goes roughly like this.
States compete fiercely for new businesses. California has high income tax rates and excessive regulations. We are not friendly to business and companies are fleeing California for these reasons.
I have a different perspective based on studying the California economy for the past 40 years.
The bottom line goes like this: 1) companies compete for workers and their families as well as for entrepreneurs and 2) companies care about much more than tax rates and regulatory policies when deciding where to locate. As a side note, the Public Policy Institute of California (www.ppic.org) has shown in several studies that neither companies nor high-income individuals are "fleeing California" in any large numbers.
I developed a short "hey honey" story to illustrate that competition includes being a state that is attractive to families.
"Hey honey, the recruiter from Apple called and you got the job--$200,000 to start." (You can fill in any famous company and amount).
"Wow, honey that's great news.
But what about Sarah and Chris? Where will they go to school? Do we have to buy a $1 million + house in Palo Alto or Cupertino to find a good public school?
And I hear that California universities are turning away students and raising fees.
Hey honey, do you know if California ever solved their water problem? And what about transportation and energy?
Isn't California where they fight over everything and can't pass a balanced budget?
Honey, I have a great idea. Let's call the recruiter and see if Apple wants to start a branch here in Omaha."
The California has a bad business climate narrative assumes that workers and families will come if only we can get companies to locate here. I think families today have many choices of where to live and have a good job. So California must compete with good schools, great infrastructure and communities that are attractive and affordable to the workers and families we are trying to attract.
But the argument that California competes by being a great place to live and work applies to businesses as well. Look at where California's good jobs of the future will come from. We are leaders in technology, in the expanding use of the Internet, in being creative designers of cars, energy-efficient buildings, clothes and entertainment products that captivate the world. And we hope to lead the world in developing goods and services that address energy-efficiency and climate changethe green revolution.
These businesses also want to locate in communities (and states) that are great places to live and work. The good schools, world-class infrastructure and attractive communities agenda is important to businesses as well or often more important than tax rates and regulations.
Californians need to engage in conversations about which vision of competing for business is the best guide to public policy or how the two visions can be melded.
If we decide that competing by having great places to live and work is the best strategy then we need conversations about how to fund the long-term investments in people, places and infrastructure that will make this happen.
This will all happen in a context of projected state budget shortfalls so it will be even more difficult to develop a consensus. Yet, what is true for companies is also true for states. If you stop investing for the future, you have stopped competing.
I end with two ideas to consider in these larger conversations about our economic future. I will write more about these ideas in the coming weeks.
The first idea is to make changes in the way we fund infrastructure investments. I think state General Obligation bonds should be funded with a tax just like we do when we pass local school or library bonds. This will improve decision making the costs real to voters and lower the cost to the General Fund of paying for bonds. The second change is to make it easier for local residents to pass infrastructure bonds by going to a 50% or 55% voting approval like we do now for school bonds.
The second idea is to engage residents in talking about how the future of California's generations (old and young) is connected. The idea of generational connection about our shared future is suggested in many recent articles by Dowell Myers of U.S.C. (Web Link).
In November 2008 at the darkest moment in recent economic times older voters in Los Angeles approved by more than a 2/3 vote $10 billion in school bonds financed by taxes. That money would go overwhelmingly to fund the children and grandchildren of immigrants who lived in a different part of the city from most of the voters.
How could they see that their futures were tied together and it is so hard to see this at the state policy level?
Happy New Year and may 2010 be a time of expanding peace and prosperity.