Sunday, May 15, 2011

California: a tale of two states

California is both the best and the worst place to do business, according to a ranking of state business climates by CNBC. The rankings call attention to our ongoing problems — not likely to be solved anytime soon — in retaining and growing local businesses.

The state is worst (tie with Hawai‘i) in terms of cost of living, 49th in business friendliness (regulatory obstacles) and 48th in the cost of doing business.

However, it’s tops in access to capital — as defined by venture capital — and technology & innovation.

As the Orange County Register notes, the former is no great distinction:

The access to capital measure is extremely narrow. California benefits from having the Silicon Valley, which received 42 percent of venture capital in the first quarter, according to the Moneytree Report by PricewaterhouseCoopers and the National Venture Capital Association based on Thomson Reuters data. But only 212 companies received money. California has more than 1.3 million employer businesses, according to the Employment Development Department.
In other words, this “access” to capital is no great consolation to the 99.5% of companies that never get any VC: they still have the high cost of living and excessive regulation without any of the benefits.

In other words, there are two California business climates. For high tech companies — particularly young ones — it’s a great place to be. For the rest of the companies, it’s awful, although if you’re a doctor or a dry cleaner or a home builder, it’s where 12% of the country lives.

Not surprising were the two states on top — Texas and Virginia — with some of the most pro-growth policies in the country and relatively healthy economies. (Economist Arthur Laffer argues that it’s no coincidence that these and other right-to-work states have higher economic growth than more pro-union states.)

What I considered somewhat surprising was how badly California fares on the education rankings — 31/50. The state’s onetime dominance in higher education is jeopardized by the ongoing economic mismanagement in Sacramento, while the problems of the K-12 system are well documented.

If the findings of the survey are to be believed, those companies that have a choice will continue to vote with their feet, which does not bode well for an economic recovery.

While the problems are not new, I would have thought somewhere along the way there would be more of a sense of urgency to change what’s being done. Instead, politicians are voting the same way they voted 8 years ago, public employees are digging in their heels, and the big companies are largely sitting this fight out.

Certainly within the Silicon Valley bubble, the haves in the elite companies continue to assume life will go on as usual, while those with incomes under $100K wonder how they will afford a tax increase (if the legislature has its way) or private schools for their kids (if public schools continue to suffer).

It’s not like I have a choice: I was born in California and will likely die here. I wish there was a way out of the declining business climate, but it appears the voters (and thus their elected representatives) have been seduced by the myth that “tax the rich” is a painless way to spend money without having to pay for it. (Until of course the rich move elsewhere.)

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