Is California Losing Its Edge On Innovation?

By some measures, the competition among the states to attract business and new residents has never been more robust. With easier and less expensive travel options, increasingly ubiquitous high-speed broadband and more flexible work conditions, companies can locate their operations anywhere.

The future of good jobs and robust careers will be in states with the best policies to create and retain the best innovators and their creations. How does California stack up in this highly competitive environment? Not very well.

First, the good news. According to CompTIA’s “CyberStates” (, the definitive guide to national, state, and metropolitan area tech sector and tech workforce analytics, California has a huge number of good-paying, tech-sector jobs. The state boasts nearly 1.2 million tech-sector employees, a robust 7.2 percent of the workforce, making it number one in number of employees and fourth largest as a percentage of the workforce. The pay, on average, is nearly two and half times more than the average wage.

California also comes in first for most innovation per capita. Great careers and millions of jobs are driven by innovation and productivity. This all speaks to an environment that allowed industry to build and prosper.

But there are indications that California’s innovation gold may be tarnishing. The CompTIA assessment indicates that tech’s economic impact in Oregon is larger by a significant margin than in any other state. Washington clocks in with the second largest economic impact, while Massachusetts, California and Colorado follow behind. For innovation per capita, several other states nip at California’s heels — Massachusetts, Washington, Colorado and New Jersey.

Looking at state innovation policy differences, the WalletHub review of the most innovative states, as reported in Forbes, includes a warning note about taxes, “Silicon Valley tech giants like Apple, Google and Facebook might be based in California, but the state didn’t fare as well as you might have expected on this list.

“While it tied with D.C., Massachusetts, Utah and New York to take first place in venture-capital funding per capita, California bombed when it came to tax friendliness: It ranked number 49.”

The Consumer Technology Association’s Innovation Scorecard ranks the states with a critical eye toward “… overreaching mandates and outdated rules in local, state and federal governments.” The Scorecard calls out states that are “Innovative Champions,” listing in no particular order, Utah, Colorado, North Dakota, Michigan, Washington, New Hampshire, Massachusetts, Delaware, Maryland, Virginia. California’s absence is noteworthy.

Taken together, these analyses suggest that states like California are coasting on past policy that well served the state but that is not keeping up or is even headed in the wrong direction — a clear threat to continuing as an innovation hub. Massachusetts, Colorado and Washington seem to be living up to their potential and trying to grow from there, continuing their development for the next generation of innovation industry and creative people.

California seems to be resting on its laurels with policymakers apparently inclined to believe that having once allowed innovation to flourish that no more needs to be done. The Scorecard notes, “The state continues to be a hub for the tech and film industries, but saddles businesses with excessive state and local taxes and astronomical costs of living. Nearby states with friendlier tax and innovation policies, including Arizona, Colorado, Oregon, Texas, Utah and Washington, are finding increasing success in wooing tech companies to create jobs outside California.” The Scorecard gives California an overall middling rating of “C+” with only one “A” out of 10 categories.

A healthy California economy that grows innovation must be protected, guarding against regulations and laws that slow or end innovation. Onerous taxes, thickets of regulation and new laws that are not judged through a lens of innovation stand in the way of creative new ideas, processes, business models, services and products. State and local governments must get it right or people will just leave, along with jobs and industries, to more welcoming locales.

Where will the next generation innovation hubs develop? You can bet where public policy makes innovation feel at home.

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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