California’s perfect storm

Published 12:00 am Wednesday, August 20, 2003

By Dan Juneau-The LABI Report

Powerful storms begin with minor disturbances, intensify over time, and then wreak havoc by hurling their unrelenting fury against objects that can’t stand up to their destructive power. The economy of California–which would rank 5th in the world if the state were a nation–is now being battered by just such a “perfect storm.”

Much of the destruction that is now tearing apart the California economy began within the governmental sector. If a state’s legislature, executive branch and judiciary views business as a convenient vehicle to provide or finance the social “reforms” government desires to grant but does not wish to bankroll, an economy soon becomes endangered. If that anti-business governmental environment is exacerbated by sheer stupidity exhibited in governmental actions or inactions, a bad situation soon becomes a crisis.

California has lost almost 300,000 manufacturing jobs in the last two years, over 32,000 just in the month of April this year. An economy simply cannot survive with this level of eradication of its highest paying jobs. (Overall, private sector wages have dropped 1 percent in California due to the epidemic of manufacturing job losses.) It is interesting and ironic that pundits and journalists focus on California’s humongous budget deficit (a structural deficit of $20+ billion for each of the next five years) as the major problem facing the state and not the economy (poisoned to a significant degree by the state government) as the “big story” in the Golden State.

As with any major storm, there are warning signs foretelling its approach, and the loss of manufacturing jobs wasn’t the only portent of the current disaster.

The state of Texas recently passed California in the key indicator of total exports. California is 32 percent higher than the rest of the nation in the cost of doing business (more on that shortly). Seventy-five percent of Californians think the state is moving in the wrong direction. Fifty-seven percent of industrial site selectors think California is one of the least favorable states for plant locations.

The workers compensation system in California has become the most expensive and fraudulent in the nation, while electricity costs continue to soar out of sight. Simply put, California has become too expensive for business to risk capital in, and they are leaving in droves for other western states.

California’s refusal to build an adequate electrical generation and distribution system (coupled with boneheaded policies of the Davis administration) has resulted in the state having industrial electricity costs 96 percent above the national average. When all costs of doing business are computed, California “leads” the nation with an index of 132.2, with 100 being the norm. (As an aside, Louisiana doesn’t measure up well in this category either.) In tax burden alone, California’s index is 123.7, while Texas’ (the state that has replaced it as the leading exporter) number is 74.7. It shouldn’t be surprising that Texas leads the list of “business hot spots” identified by corporate executives, while California brings up the rear. (Louisiana doesn’t enjoy a high ranking on this list either.)

The current economic disaster in California could happen in Louisiana as well. While our electricity costs are not out of line, our workers comp costs are high; our business tax burden is higher than other southern states; and our perception as a great place to do business is lacking. Our state government–soon to be under new leadership–has two choices: It can join the private sector to make things better, or it can sit back and wait for its own “perfect storm.”