How California is Killing the Golden Goose

Wendell Cox and City Journal’s Steven Malanga have an article in the Los Angeles Times (Nov 14, 2011) dissecting how the state of California has gone from a leader in job creation to a laggard. A big reason, they argue, is the lack of new business start ups:

“The deep discontent of the business community is just one sign of larger problems in the California economy that predate the 2008 national financial crisis. A study by City Journal using the National Establishment Time Series Database, which has tracked national job creation and migration from 1992 through 2008 (the latest data available), suggests that California’s economy started showing signs of sclerosis a decade ago. So even after a national recovery takes place, the Golden State may keep struggling — unless Sacramento moves to improve the business climate.

“Economists usually see business start-ups as the most important long-term source of job growth, and California has long had a reputation for nurturing new companies. Indeed, from 1992 to 2000, California added 777,000 more jobs from start-ups than it lost to closures. But this dynamism vanished in the 2000s. Between 2000 and 2008, California lost 262,000 more jobs from closures than it gained from start-ups.

“Between 2000 and 2008, some 80,000 more jobs left California for other states than came here from other states. The leading destination of the job migration was Texas, with Oregon and North Carolina running second and third. California managed to add jobs only through the expansion of existing businesses, and even that was at a considerably lower rate than a decade earlier.”

Why is California failing to attract businesses and entrepreneurs? Cox and Malanga cite the high tax burden, a highly litigious legal environment, and hundreds of millions of dollars in regulatory costs imposed by the state’s byzantine regulatory process. California appears to be setting a new standard as a textbook case for how to discourage private investment and entrepreneurship.

One thing is for sure: It’s not the weather pushing businesses out of the state.