Californians Reverse the State’s Legislature Providing a Fighting Chance for Innovation


Last month, Californians may very well have begun the process of saving their state, reversing a move by the state legislature. They voted by a large margin via Proposition 22 to preserve the ability of people to pursue flexible working arrangements if they so choose.

In September 2019, the California state legislature approved legislation to require companies to provide benefits and to pay overtime to contract workers. If that were the end of the story, the result would have been the end of the “gig economy,” and other working arrangements, in the state. However, a ballot initiative was put forward to reverse the legislature’s restriction.

Generally speaking, the gig economy is one where labor is largely made up of freelance workers or those working on short term contracts. The new law posed an existential threat for many, effectively ending freelance opportunities and placing the business models of many companies that need independent contractors at risk, not least of which were Uber, Lyft, DoorDash, Postmates, and TaskRabbit.

The use of independent contractors can be a core strategy for many start-up companies, including technology companies. But while technology companies have become known for this approach, the practice is common across many industries. Hiring independent contractors allows an enterprise to hire only the time and talent necessary which then allows it to direct the saved resources into becoming a successful ongoing operation. Then in time, if successful, the operation can employ many employees. Limiting the opportunity for businesses to start-up and grow, thereby providing not just more jobs but also more careers, would further harm an already challenged economy.

For citizens the law was also a threat, a threat to their ability to create a life to live the way they wanted. Many workers prefer controlling their work, enjoying the flexibility and independence that being an independent contractor can bring. New workforce models have been empowering people to choose for themselves how they will work and live, instead of those opportunities being directed, defined and limited by government. Such flexibility is liberty.

Consumers enjoy the results of these different work arrangements as well. Without a gig economy the same flexible services would cease, or at least severely decrease. Instead of being able to hire a handyman to do a small job for less, or a driver for one trip to the airport, people would be forced into a market where hiring a guy doing a “side hustle” was no longer available. Consumers would be forced to pay for more regardless of whether that is what the consumer or contractor wanted.

Understanding what was at stake, Californians spoke up via the ballot measure and told Sacramento that they will chart their own future. The voters flipped the script on Sacramento, taking care to protect the economic best interests of the state instead of leaving it to the politicians who clearly were making poor decisions.

The ongoing trend of massive numbers of companies fleeing California to other states is not happening because of a fluke or a sudden desire to leave a beautiful state. Rather the economic policies make it increasingly untenable for many businesses to stay, HP, Charles Schwab and Oracle amongst them.

The state has already sacrificed its leadership position, continuing to diminish its rating in state innovation standings. For example, the 2020 Consumer Technology Association’s Innovation Scorecard ranks California in 23rd place amongst the states, barely in the top half. Meanwhile states like Missouri, Iowa and Texas are racing ahead. Eliminating the gig economy would have been one more blow.

Not everyone is happy. The politician who drafted the Proposition 22 was widely quoted as saying, “We can’t just allow them to control what the future of work looks like. Somebody has to stand up for the future of workers.” The people taking charge of their own economic future? What good could come from that?

Bartlett Cleland is senior fellow in tech and innovation at the Pacific Research Institute.

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.

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