Are manufacturers really leaving California? It’s complicated

150 150 Matthew Grant Anson

Reports of manufacturers leaving California are overblown, statistics say. (Photo Credit: Chrystalline Radical)

California has an oft-bragged about economy that is the ninth largest in the world, but the benefits of its girth also make it a prime target for job poachers. Governors of multiple states, like Rick Perry of Texas, Gary R. Herbert of Utah, and Bob McDonnell of Virginia have made or have plans to make highly publicized trips to the Golden State with the aim of luring manufacturers away.

But while much has been about these safari trips, just how much game have these governors come back with to their home states?

According to Brook Taylor, Deputy Director of Communications and Policy at GO-Biz – The Governor’s Office of Business and Economic Development – the statistical reality on the relocation of California companies doesn’t align with the sensationalized words of the press and governors.

“I think the narrative of companies leaving California in general is overblown entirely,” Taylor said. “The data is not there. I know people like to take shots at California, but the fact is in the last year, California was the national jobs leader.”

By Taylor’s calculation, it would take 20 years for California to lose even one percent of the number of firms that are in the state.

“We see anecdotal stories that are highlighted in the press of firms that have the ability to move to other states,” he said. “What we think is the issue is different from what we’ll read in the newspaper. We’re the number one state for manufacturing, for total jobs, for total firms.”

In fact, the fabled California manufacturing exodus comes with critical details that don’t always reach the front pages. “My perspective is that there are a couple things going on,” Kevin Klowden, managing economist and director of the California Center at the Milken Institute said.

“First and foremost, very few companies leave California,” added Klowden. “What they do instead is they expand elsewhere. In a lot of cases what you’ll see is companies will move their manufacturing operations out of California because the process of approval through permitting, with dealing with local NIMBYs and CEQA, is so messy that companies would rather go somewhere else where they know they can get approval in a matter of months rather than years.”

Suzanne O’Keefe, Department Chair and Professor of Economics at California State University Sacramento, has the same observation. “California has a reputation for having relatively strict laws and regulations for employers and manufacturers,” she said. “We have environmental regulations and strict and relatively high employer taxes. Other states can come in and claim that they have a more friendly business environment.”

And if GO-Biz were to be approached by a company threatening to leave the state, they would be unable to sweeten the deal. “California does not have a discretionary fund where we can take taxpayer funds and hand it to a company to keep them from leaving the state,” Taylor said. “I don’t think that’s an ethical practice.”

Ethics might not lure manufacturers to the state, but despite its negative business reputation, California soldiers on in spite of the poachers.

Kish Rajan, director of GO-Biz, said his office is able to explore in some ways how to help businesses being wooed by other states, in order to find out how California can help them improve the bottom line and ultimately stay.

“Sometimes that does involve the utilization of incentives, tax incentives, other types of programs that help make an impact on that business’ bottom line and helps them to make the decision to continue to invest in California,” said Rajan.

“California offers so many things,” O’Keefe said. “Well skilled work force, great weather, great location. We have such a variety that employers find attractive. We’re coastal. We have ports. We have a lot of things going for us in California as far as getting goods to market or abroad.”

“There’s always going to be someone with a better deal,” Taylor said. “What California offers is a competitive advantage over any other state.”

That’s not to say the state should sit on its laurels hoping sunshine saves its manufacturing. “The most important thing the state needs to do is engage in regulatory modernization,” Klowden said. “That is the most important thing. That involves establishing clear lines of authority in areas where permits have to fall under multiple jurisdictions, which they often do. There needs to be modernization of the CEQA process.”

“Just simply navigating the system as it’s set up in Sacramento and the regional and local level is very time consuming – it can takes months or years,” Klowden said. “GO-Biz is clearly interested in trying to improve that. A real effort has been made to try to clarify things online where you can find out what permits you need to pull. The issue becomes the approval process; making sure the different branches of the government know.”

At the end of the day, being a target for bloodthirsty governors may not be such a bad thing.

“The fact is that we as a state wouldn’t be a target if we weren’t as dynamic as we are,” Taylor said. “Part of it we understand is these governors need to create media attention, which is why they come to the largest media market in the western half of the U.S. They have to demonstrate that they’re trying to make their state the best they can be, and they’re trying to emulate California.”


Matthew Grant Anson

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