California Business: A Seven-Year Plague

For the seventh consecutive year, California has again been listed as the worst state for business.

In its annual survey for 2011, Chief Executive magazine asked more than 500 CEOs nationwide to evaluate all 50 states on several factors including state regulations, tax policies, workforce equality, living environment and more. Results showed that for the majority of these criteria, California fell behind in providing business-friendly conditions. California was the only state to receive a failing grade in the “tax and regulation” category, though it did receive a “B” on workforce quality and living environment. Within the tax and regulation category, California received the lowest score in its perceived attitude towards businesses. Statistical charts showed that California’s scores were constantly lagging behind the average state grade.

“Our survey, year-over-year proves that those states with the worst records continue to practice the same policies that alienate businesses, says editor-in-chief of Chief Executive magazine, JP Donlon. “As the nation’s economic problems continue to snowball and an increasing number of states experience budgetary problems, state governments ought to take a hard look at their taxation and unionization policies if they want to turn the page and attract new businesses and capital to their province.”

Since January 2011, an increasing number of businesses have been reported to pack up and leave California, relocating to more business-friendly states, such as Colorado and Texas — states who are ranked in the top 20. According to Cal Watchdog — a website for political journalism —  Colorado boasts a 4.6 percent corporate tax while California’s corporate tax is twice the number, at 8.84 percent.

There is no telling what the future looks like for California, if businesses continue to leave the state. Businesses are frustrated at and concerned with California’s high corporate tax rates, costly state regulations, hostile government agencies, unfriendly litigious environment toward businesses and more. These conditions have placed many restrictions on businesses, and have discouraged them from pursuing any future potential prospects in California. Since then, reports have told of 30 businesses that moved out of the state during the first five weeks of 2011.

Sacramento has been infamous for its regulations in particular. In 2008, what was known as the “Green Chemistry Initiative” required manufactures to seek safer alternatives to toxic chemicals in their products. The resulting increased costs on businesses  led to a significant increase in unemployment.

However, according to Professor David Neumark, UC Irvine director of graduate studies in economics, through recent research on business climate rankings and the California economy done through the Public Policy Institute of California, the debate over business climate in California and elsewhere likely overemphasizes the role of policy and policymakers in determining their states’ economic performance.

Nevertheless, the research also concludes that a more business-friendly climate in California would provide a boost to California’s economic performance.

UCI economics professor Gary Richardson pointed out the need for more lax regulations.

“If we want a prosperous California, we need to allow for more businesses and capital,” he said. “Although there are some good and useful state regulations, there are also useless ones that would be best to get rid of.”

If conditions don’t improve for businesses in California, the state might soon find itself in not only greater budget deficit, but also in capital deficit.