A Bad Attitude

CaliforniaRepublic.org ^ | 4/25/03 | Carol Liebau

[So Cal Rocket]

Hostility to Private Enterprise Impedes California’s Economic Recovery by Carol Liebau 4/25/03

Even Hans Blix and his gang of merry inspectors wouldn’t have any trouble finding evidence that California’s economy is in a mess. The signs are everywhere. Last year’s budget deficit –$23 billion – was staggering, especially given that the combined deficit nationwide of all state governments totaled $40 billion. And this year, of course, California’s projected budget deficit is set at $35 billion.

The reasons are many, including the impact of a slow national economy and the bursting of the tech bubble. But occasionally, the simple act of reading the newspaper can shed light on more than just the events of the day. Take two headlines from last week. Up north, in The Sacramento Bee, the headline read, “Capitol staffers get pay raises”; down south, a San Diego Union-Tribune piece was titled “Plan would push exec pay reform.”

The first article discusses the pay increases to be distributed among Assembly staffers. According to the Bee, Assemblyman John Dutra (D-Fremont), who is handing out pay increases of 47.6% and 25% to his legislative director and chief of staff respectively, feels that “it’s false economy to underpay (staffers) [paraphrase in the original].” And Dutra is within his rights to award staff pay at his discretion – like every other assemblyman, he is given $264,000 yearly to run his office as he chooses.

In contrast, the Union-Tribune piece discusses a plan being floated by California Treasurer Phil Angelides, who wants to prevent the state’s pension system from investing in companies when they don’t run their businesses the way Angelides tells them to. Under the plan, the state’s pensions would be barred from investing in any company that grants more than 5% of their total equity compensation to the top five executives, and give more than 25% of shares awarded as pay to corporate executives and directors.

Whatever the merits of Angelides’ proposals, anyone seeking the source of California’s economic woes need look no further than at the juxtaposition of those two stories. Just note the contrast. Assemblymen – denizens of a state government that at once produces nothing and consumes money in monstrous gulps – are permitted to spend their money, sent to them courtesy of the taxpayers of California, to structure their compensation schemes however they please. But corporations – producers of jobs and of wealth – are apparently unworthy of being trusted with the same freedom, even though they are accountable both to a board of directors and to their stockholders . . . accountability that California voters find sorely lacking in Sacramento.

This irony is emblematic. A state that treats its own government as sacrosanct, while viewing private enterprise with a mixture of hostility and suspicion, can never thrive.

But for some reason, the Democrats who rule California either cannot or will not recognize two obvious truths: the state’s fiscal health is inextricably linked to the wellbeing of business, and that the costs they so lightheartedly impose on businesses are actually being paid by the people they purport to represent. This payment may be direct – when California consumers pay higher prices because businesses have simply passed the extra costs along – or indirect, as when hardworking Californians are denied jobs because businesses have decided not to open, hire or expand because of the burdens placed upon them by our legislative masters in Sacramento. But it is real.

And the costs that state government imposes have real consequences. A recent report by Economy.com concluded that as much as 20% of all employment gains (or losses!) across the fifty states since the mid-80’s could be explained by the cost of doing business. And California has the third highest overall cost of doing business in the United States, 32% above the national average (and the highest in the western states) according to a year-old Milken Institute study. So is it really any surprise that California has lost 230,000 manufacturing jobs in the last two years?

The California of today is bloated with government and heavy with regulation. It seems impossible to imagine that entrepreneurs like Steve Jobs, William Hewlett and David Packard would ever choose to establish a company in a state with a regulatory climate so inimical to its success.

If the legislature really cares about lifting California out of the economic doldrums, it needs to remedy a climate that the Small Business Survival Index has identified as one of the five least business-friendly in the nation. A good place to start? Repealing some of the feckless anti-business legislation passed in recent years. Among the bills that should be eliminated are: the worker’s compensation benefit increase, which increases worker’s compensation insurances rates by $3.5 billion; legislation that would allow local jurisdictions to establish and enforce local versions of labor laws, thereby raising extra compliance costs and legal liabilities; and legislation requiring overtime to be paid after eight hours of work, which eliminated the ability of employers and employees to use flexible schedules.

Senator Chuck Poochigian (R-Fresno) has recently introduced a bill to repeal these laws and others. Not surprisingly, its chance of passage is virtually nil, given the strangling chokehold that the trial lawyers and labor unions have on both the governor and the Democrats in the legislature.

But here’s a modest proposal: Perhaps Assemblyman Dutra and Treasurer Angelides should take a break from rewarding state employees and harassing corporations – and get to work on changing the laws (and the attitudes!) that are preventing California from becoming the “Golden State” once more.

CRO columnist Carol Liebau is a political analyst and commentator based in San Marino, CA.