The California Blues

Thanks to Silicon Valley, California is in better shape than it was. Governor Jerry Brown has done well in reducing the state’s deficit and leading something of an economic recovery.

Unfortunately, the recovery exists largely within the hugely profitable tech world. The benefits have not trickled down to the rest of the state.

Extreme inequality reigns in another of the bluest of blue states. And blue state policies have been contributing to it.

The Schumpeter column in The Economist tells us that California is still decidedly unfriendly to businesses:

Those observing from afar the valley’s burgeoning entrepreneurial scene could be forgiven for concluding that California must truly be a Golden State for business. But beyond the gilded strip of land between San Francisco and San Jose is another California, an inhospitable place plagued by over-regulation, mindless bureaucracy, high taxes and endless lawsuits. Last May, six months after the state raised its top income-tax rate to the highest in the land, Chief Executive magazine named it America’s worst for doing business—for the ninth year in a row. Four months later Governor Jerry Brown signed a bill raising the minimum wage from 2016 to $10 an hour, also the highest of all the states.

Entrepreneurs who survive the ordeal of gathering all the permits needed to start a business—opening a restaurant can take more than two years in California—are then micromanaged by labour laws telling them when to pay overtime, and how much. They suffer electricity prices that are already among America’s highest, and which may rise further to meet the state government’s ambitious carbon-emissions goals.

Then there is the California Environmental Quality Act (CEQA). A well-intentioned law to curb the damaging effects of development has mutated into a monster. Almost anyone can file a CEQA lawsuit against any project they dislike; plaintiffs win half of the cases they enter, and when they lose they do not need to cover defendants’ legal fees (the reverse does not apply). Builders are compelled to hire expensive unionised labour to ward off union bosses’ threats of spurious CEQA suits. Shops and petrol stations file cases to prevent competitors from opening up. A longtime observer sums up the attitude of Californian state government to business as follows: “Fuck you, fuck you, fuck you, fuck you, fuck you, fuck you, fuck you, fuck you and fuck you.”

High tech oligarchs are flocking to California.

But, they have convinced everyone that their clean work of coding should never be fouled by the dirt produced by other businesses.  Outside of Silicon Valley people are looking the exit.

Schumpeter explains:

And partly it is because many of California’s most onerous [environmental] regulations hit manufacturers hardest and creative types least: iPhones are “designed by Apple in California” but made in Shenzhen. Indeed, Silicon Valley’s greenish tech folk are among the biggest supporters of the sort of rules that they can live with, but which make life hard for other types of businesses. 

Is there hope? Schumpeter suggests that there is, but within limits:

It seems unlikely that California will ever challenge the likes of Texas or North Dakota at the top of business-friendliness tables. It is a progressive, high-tax, high-regulation place, and most voters like it that way. So reformers speak not of scrapping CEQA but of making it harder to file frivolous lawsuits; they urge not a relaxation of workplace rules but an end to their capricious implementation. If he wants to ensure that California’s recovery lasts, Mr Brown must back these efforts. He must also resist pressure from some Democratic allies for a renewed spending splurge, which might eventually mean even higher business taxes. Above all, he should apply himself to making the daily lives of California’s businessfolk a little easier and more predictable. Only then might the rush of businesses out of the Golden State be halted.