An East German Solution to California’s Business Flight?

Friday, March 5, 2004

Page 7

CALIFORNIA COMMENTARY (Column)

An East German Solution to California’s Business Flight?

By JON COUPAL

(The writer is an attorney and president of the Howard Jarvis Taxpayers Association.)

In 1961, the East German regime completed the now infamous Berlin Wall. This high wall topped with barbed wire was designed to keep its own citizens from fleeing communist oppression. The totalitarian government believed that by blocking all avenues of escape, it could compel the populace to conform to its dead-end economic policies. But freedom is compelling, and thousands of citizens perished trying to get through, over or under the wall.

While it may sound far-fetched, California may have to resort to an East German type of solution if it continues its ceaseless anti-business policies.

The California Business Roundtable has just released a study showing that that the business climate in California is the worst of all 50 states and this is triggering a “reverse gold rush.” The Assessment of California Competitiveness conducted by Bain & Company, found that 27 percent of California jobs, about 4 million, were in what are called “mobile sectors.”

These sectors are easily relocated outside California and include important industries such as entertainment, computer software and electronics. These mobile/at-risk sectors tend to be “high value” to the California economy. The results of interviews with company decision makers are disturbing. “Of the mobile sector companies interviewed,” according to Brian & Co., “55 percent have plans to move jobs out of California.” But the problem is even worse, because half of all companies interviewed have official policies prohibiting the adding of additional jobs in California. And taking all businesses into account, 40 percent of decision makers surveyed reported plans to move jobs out of state.

Brian’s research shows that the cost of doing business in California is 30 percent above the Western state average. The costs attributed to regulation are 105 percent higher than neighboring states. Overall, top executives regard California’s business climate as the worst of the 50 states. The high cost of doing business in California hits small businesses the hardest. Analysts conclude that a business with an operating income of $200,000 in California would be earning more than $1 million if relocated to a lower-cost state.

The study blames California’s regulatory environment for these dismal results. It is the “most costly, complex and uncertain in the nation.” To see the hand of the Legislature in the destruction of the Golden State’s economy, one of the most telling statistics comes from the area of labor law. California enacted 15 statutory changes per year between 1992 and 2002. The rate is four times the national average.

With exorbitant workers compensation costs, mandated health care to be provided by business and overall high taxes, should it be any surprise that many of our best and brightest are considering fleeing the state? Add to this what could be the last straw for California business, a split property tax roll. Some of the same public employee unions that brought you Proposition 56, a sneaky effort to make it easier to raise taxes, are now collecting signatures to place a measure on the November ballot to raise property taxes for businesses, including apartment buildings, by 55 percent.

While demagogues in the Legislature and among the public employee union leadership may defend their actions, saying they are necessary to protect workers from the capitalist corporations and the “evil rich,” every business that leaves the state means fewer jobs and fewer employed people to pay taxes. And, by the way, the comparison of California to a communist bloc country is not as far-fetched as it may appear. On the very floor of the California Senate, ultra-left majority leader John Burton spoke glowingly of the revolution that “ended aristocracy” in 1917.

For most Americans, the revolution that freed us was the American Revolution in 1776, not the Bolshevik Revolution in 1917. Until we change our ways and recognize the value businesses provide to our economy and the welfare of all California residents, we will continue to see a loss of jobs and tax revenue. That is, unless some of our collectivist lawmakers elect to adopt the East German solution.