High taxes, regulations and doing fine
by Froma Harrop
January 28, 2014 12:16 AM | 680 views | 0 0 comments | 34 34 recommendations | email to a friend | print
Portrait of Froma Harrop
Portrait of Froma Harrop
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“The not so Golden State” is how a recent issue of The Economist magazine tags California’s business climate. It’s the latest in a trove of conservative literature trying to dance around the fact that high-tax, highly regulated, bureaucratic states can be economic powerhouses. The writers deal with the “problem” by burying reality under a pile of “buts” and “howevers.”

In recent years, California has indeed suffered from gridlocked government, punishing pension obligations and debt — plus the housing meltdown. It’s been addressing these challenges. And though one cannot vouch for the wisdom of every regulation, the state’s environmental ethic is a big reason smart people put up with the warts.

But only Silicon Valley is doing well, The Economist says. Manufacturing stinks. “IPhones are ‘designed by Apple in California,’” the article notes, “but made in Shenzhen.”

Apple nonetheless employs 16,000 Californians in and around Cupertino and plans to expand that number to 24,000. The Apple workers reportedly earn an average of $125,000. There must be something going for Apple in California.

There’s this fantasy that if our environmental regulations just went lax, America would have some renaissance in factory employment. Thing is, manufacturing output in this country has actually tripled in the last 60 years, Bloomberg Businessweek reports.

U.S. factories are simply being run with fewer, well-trained people operating computers. The low-skilled, low-wage, labor-intensive factory jobs are not coming back, and why should we want them?

The Economist seems vexed that Gov. Jerry Brown would sign a bill raising the minimum wage to $10 an hour in 2016 — as though Wendy’s could sell burgers in Bakersfield from a store in Nevada. By the way, in 1968, the national minimum wage was $10.77 in today’s dollars.

Only Silicon Valley?! Check out The Wall Street Journal’s new “Billion-Dollar Startup Club.” These are companies valued at $1 billion or more by venture capital firms.

Of the 37 billion-dollar startups, 25 are based in the U.S. — 23 of them in California. Of the three U.S. startups not located in California, two are in New York City — not exactly your low-tax haven and, at the moment, freezing cold. The other one is in Jacksonville, Fla.

Those who strike it rich will do tax planning, and that may include buying homes in low-tax places. But the big tech innovators are still building their companies where their brainiacs want to be. Kings of the creative class demand the stimulation found in great urban neighborhoods. And they want a nice countryside to hike in.

Two years ago, The Wall Street Journal published an emotional essay titled “California Declares War on Suburbia.” The writer was especially upset that the Association of Bay Area Governments had proposed limiting new housing beyond the San Francisco and San Jose “urban fringe” to 3 percent of the total. Most new building would be multifamily homes.

Boy, do they hate San Francisco. But the strict building rules have kept San Francisco — and its environs — a beautiful place. That’s why tech people working in surrounding areas insist on making their nests in San Francisco when they could live cheaper, bigger and closer to work.

Universities are another magnet and incubator for new companies. They tend to spawn the liberal, active-government cultures in which innovation thrives. There’s some irony that the premier tech center of Texas is progressive Austin, thanks in great part to the University of Texas, a creature of state government.

To the states with good education, an open-minded community and an attractive environment go the tech spoils. Taxation does matter, and there’s such a thing as dumb regulations. But for the knowledge economy, that’s not everything or even, it seems, the big thing. California shows how.

Froma Harrop is a columnist for The Providence Journal.
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