Tuesday, May 31, 2011

Business climate has many companies
singing “California, here I go”

California has been losing businesses at a ridiculous rate; 70 of them this year, as of mid-April, or nearly 5 each week. That number is up almost one company per week from last year. The Golden State has lost 1.2 million jobs in the last three years, and in April had an unemployment rate of 11.9 percent, second highest in the nation.

According to Chief Executive magazine, California sits atop the Worst States for Business list, for the second straight year. To rank the states the publication consulted more than 500 CEOs on “a wide range of criteria, from taxation and regulation to workforce quality and living environment.”

So why are businesses and jobs leaving the Golden State, and where are they going?

The painful reality is that businesses will pick up and move from a state that makes life difficult to a friendlier atmosphere, something California authorities, and those in some other states, apparently do not understand. But their counterparts in Texas do understand, and their state is one that attracts businesses that are unhappy elsewhere. Texas is rated as the best state in the nation for business, and when California lost 70 businesses, Texas gained 14 of them. While California lost more than a million jobs, Texas added 165,000 (61,000 of those came from California in 2009). While California has a 12 percent unemployment rate, Texas sports an 8 percent rate. Other states that benefited from the Golden State’s poor business environment are Kentucky, Florida, South Dakota, Utah and Georgia.

According to Chief Executive magazine, the ten worst states for business are: California, New York, Illinois, New Jersey, Michigan, Massachusetts, Connecticut, Hawaii, West Virginia, and Ohio. And the magazine’s ten best states are: Texas, North Carolina, Florida, Tennessee, Georgia, Indiana, Virginia, South Carolina, Utah, and Nevada.

Columnist John Fund of The Wall Street Journal wrote about California’s plight last month, discussing a trip to Texas by a group consisting mostly of Republican California lawmakers and Democrat Lt. Gov. Gavin Newsom to learn why firms abandoned California for the Lone Star State.

Mr. Fund recounted the negative experience of Andy Puzder, the CEO of Hardee's Restaurants. “He said it takes six months to two years to secure permits to build a new Carl's Jr. restaurant in the Golden State, versus the six weeks it takes in Texas,” Mr. Fund wrote. “California is also one of only three states that demands overtime pay after an eight-hour day, rather than after a 40-hour week. Such rules wreak havoc on flexible work schedules based on actual need. … ‘You can't build in California, you can't manage in California and you have to pay a big tax,’ Mr. Puzder told the legislators. ‘In Texas, it's the opposite—which is why we're building 300 new stores there this year.’"

More evidence demonstrating California’s anti-business atmosphere came from Mark Tolley, managing partner of real estate developer B. Knightly Homes. Mr. Tolley’s company left Long Beach back in 2005 for Austin. "The red tape is ridiculous," he said. "Regulators see developers as wearing a black hat and the environmental laws have run amok."

“I’m a pro-jobs Democrat,” Lt. Gov. Newsom told Mr. Fund. “My party needs to get back into the business of jobs.” We can give state Democrats credit for finally waking up to reality and taking steps to repair California’s business environment, but it really isn’t a secret what attracts businesses. The problem is that the things it takes to attract businesses run counter to the ideology and political methodology of many politicians, who show favoritism for workers over the people who employ them. In fact, several Democrat legislators who had planned to go on the trip yielded to pressure from public-employee unions, and didn’t go along to find out how to create jobs and attract businesses.

Despite the fact that businesses make and sell things people want and need, pay people wages to make and sell those things, pay taxes and fees that keep governments running, and generally do good things in their communities, politicians and governments often treat them as an enemy, making them the subjects of scorn and derision, and the targets of heavy regulation, punishing taxation, and adverse legal systems. Business is the engine that powers our economy and we need lots of them making enough of a profit to keep their doors open and keep people working.

Most of us believe that it is better to work and earn a living than to depend upon others to support us. However, today 15 of every 100 people wanting to work cannot find a job that meets their needs, or any job at all. Government policies like those of the Worst States for Business, and those so loved by Congress and administrative departments and agencies in Washington, DC, are designed not to foster business and job creation, but to serve special interests. Since January 2008, the US lost 8.7 million jobs, and so far only 1.8 million have been regained.

If the world we want is a world with 15 percent unemployment and underemployment, we should just keep on making it difficult for businesses to start up and operate.

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