California’s Corporate Exodus

California’s Corporate Exodus

In his final state of the state address, Governor Arnold Schwarzenegger maintained his vision of California’s bright economic future. Shortly before the governor’s speech, however, another company joined California’s ongoing corporate exodus.

The Northrop Grumman Corporation, a major military contractor, is moving its headquarters from southern California to the Washington DC area. Northrop’s action is far from isolated. Last year Science Applications International Corporation (SAIC) moved its headquarters from San Diego, where the company was founded four decades ago, to McLean, Virginia.Southern California has 19 Fortune 500 companies, down from 23 in 2006. Departed companies included Hilton Hotels, Computer Sciences Corporation and Fluor Corporation. In March, Toyota will close its Fremont plant, leaving California with zero automobile assembly plants and fewer high-paying jobs.Such departures do not augur well for the bright future Gov. Schwarzenegger still sees for the state, and which all Californians want. What could be causing the corporate flight? Northrop and SAIC want to be nearer to the levers of power in Washington DC. That makes sense but doesn’t explain everything.According to the Los Angeles Times, a dearth of big companies leads to a lack of business leadership and “the result is often anti-business regulatory policies, which prompt even more businesses to flee. ” That would fit the recent pattern, and the state’s largest city illustrates the hostile business climate, heavy on taxes and regulations.

A full 74 percent of Los Angeles business owners described the city as unfriendly, in a survey last November. True to form, as the Times noted, major stores have relocated to other cities to avoid “delays in obtaining building permits, and a range of fees and taxes higher than most other cities in the area.”

That models the statewide problem of excessive taxes, fees and regulation. Los Angeles is taking some measures that could be part of a statewide solution. Mayor Antonio Villaraigosa has tasked Austin Beutner, a former partner with the Blackstone Group, to make the city more friendly to business. Mr. Beutner has experience creating jobs in post-Communist Russia.

His annual salary will be $1, and his approach is not to hire more government workers and pretend to be creating jobs. Rather, he will seek to reduce red tape to make the city more business friendly. The biggest challenge, he told the Times, is to change the way of thinking in government. “We serve business,” he said. “They’re our customers as opposed to the other way around.”

Government making things easy for business, instead of making things hard. Government serving business. The entire state could use an attitude like that. It’s certainly not the one in play now, otherwise corporations, jobs, and workers would not be leaving. They are, to all but the willfully blind, and our economic performance remains dismal.

As PRI’s Assessing the State of the Golden State notes, California ranks 42nd out of 50 states in private-sector job creation, 44th in private-sector employment, and 44th in domestic migration. This means a net out-migration of more than a million residents over the last five years. To that add the corporate exodus. If this is what we can expect, contrary to the governor, we have seen the future and it irks.

Wanting a bright economic future is not the same as getting it. Doing the same thing and expecting a different result is insanity. Hostility to business in the form of high taxes and excessive regulation is driving jobs and prosperity out of California.

Pleasant weather and a large consumer market are not enough. We need new policies that will motivate corporations to move here from Virginia, Nevada and other states. When workers and corporations change their tune from “Exodus” to “California Here We Come,” the state will know it is on the right path.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.