Businesses are fleeing California with its residents, and President Biden should be careful

California’s population declined for the first time in history last year and it lost a seat in Congress. The state begins to develop a two-tier society, with high-income, educated tech workers clustering in the major coastal cities while low-income, less educated workers are relegated to the interior. State or expelled completely. Today, a new study reveals that corporate headquarters are also leaving the state at an all-time high.

For decades California has been the state of opportunity within the land of opportunity. Residents of eastern Mississippi, drawn by California’s exceptional climate, geographic beauty, and economic opportunity, settled there in droves: its population grew by 10% or more in each decade of the 1850s. to 2010.

Now, like its famous raisins, the opportunities in California seem to be drying up. From 2000 to 2020, California suffered a net loss of 2.6 million people to other U.S. states. Its total population has been supported by natural population increases and heavy foreign immigration, but in 2020 foreign immigration declined and the state’s birth rate continued its steady decline. As a result, California’s total population fell by 182,000 people.

A new study finds that corporate headquarters are also moving out of California, and at an increasing rate. Stanford University Hoover Institution economist Lee Ohanian and Joseph Vranich, chairman of site selection consultancy Spectrum Location Decisions, collected data on the January 2018 California corporate headquarters move to June 2021. As shown in the table below, they documented 265 head office moves over three and a half years, or an average of six moves per month.

It may not seem like much, but as the authors note, this is an undercoverage as many relocations are not made public, especially those from less newsworthy, often smaller, companies.

The trend is more of a concern for California than the actual number. There have been more relocations in the first half of 2021—74 — than in all of 2018 or 2020, and the monthly average in 2021 so far — 12 — is double the overall average of six. So while reported relocations slowed during the pandemic, they are accelerating as the economy reopens. It’s unclear if this is the new normal, but it’s not a good sign for California.

Some of the most notable companies to leave California during this period are Apple

AAPL
(its US headquarters moved from Santa Clara to Austin, TX), Nestlé USA (Los Angeles to Arlington, VA) and Oracle

ORCL
(San Mateo in Austin, Texas). The table below shows the most popular destination states, led by Texas, Tennessee, and Arizona.

While it is not surprising to see Texas at the top, the destination states are all over the country: the Midwest (Indiana and Minnesota), the south (Florida and Georgia), the mountain states (Colorado and Idaho) and other western states (Arizona and Oregon).

The authors provide a variety of reasons why companies are moving their headquarters out of California.

First, California has some of the highest taxes in the country. The Tax Foundation ranks California 49^e on its state classification of the fiscal climate for companies. Only New Jersey has a worse fiscal climate.

The state also has one of the worst legal environments. Laws such as the Private Attorney General Act allow employees to bring civil suits against employers on their own behalf, on behalf of other employees, or even the state of California. As explained in the study, these laws do little to protect employees, but they do create an abundance of expensive lawsuits filed by overzealous lawyers.

California is also the most regulated state in the country. According to the Mercatus Center at George Mason University, California has 396,000 regulatory restrictions. New York has the second highest number of restrictions at 296,000. Regulations increase the cost of running a business and, other things being equal, more regulations reduce economic growth.

One of the ways that regulation permeates the California economy is through permits and licenses. As the study reports, California permits and licenses “range from” Air Permits, “” Furniture or Bedding Manufacturer License, “” Importer License, “” General Industrial Activity Permit for Waters. storm ”,“ Medical device manufacturing license ”,“ Building and construction Permit ”,“ Anti-theft alarm permit ”,“ Industrial wastewater discharge permit ”,“ Public health operating permit / permit ” , “Underground storage tank permit”, among others.

Allowing frustrations can be the straw that breaks the camel’s back. The study gives an example:

“In San Clemente, Orange County, a company applied for a permit to construct a walkway between two buildings to allow forklift operators to avoid crossing an alley. The separate owners of the two leased buildings agreed to the gateway – which the tenant would pay for – and if complaints were made, they were not passed on to the company. The permit for a simple operational and safety improvement was refused. “Why should we stay here? A company vice president asked, saying, “This is one more thing that has made us sour about California.” Eventually, the company moved all of its facilities, headquarters and warehouse to Florida and no longer has a presence in California. “

California also has some of the highest prices in the country. The US Energy Information Administration ranks California 48^e for the cost of commercial operating energy per kilowatt hour (kWh). Only Alaska and Hawaii are more expensive. Florida’s cost of $ 9.35 per kWh is only about half of California’s $ 17.20. High energy prices increase the cost of running businesses, so it’s no surprise that businesses prefer low-cost states.

In general, prices in California are 16% higher than the US average according to BEA regional price parities. Again, only Hawaii has higher prices, and consumer goods have to cross the Pacific Ocean to get there.

Nowhere are California’s high prices more evident than housing. The typical value of a house in California is $ 683,996, right after, you guessed it, $ 730,511 in Hawaii. High house prices, caused in large part by restrictive zoning laws, and high prices for other goods and services make life in California difficult for those with modest incomes.

Of course, no one likes high prices, so the high cost of living in California deters some high income people from living there as well. For businesses, the high cost of living in California makes it more difficult to attract and retain employees.

Although this study focuses on California, it has national implications. Over the past decade, companies and individuals have moved from California to other states, especially Texas. In other words, they voted with their feet for public policies that made Texas affordable for residents and a great place to run a business.

If we want the United States to remain as attractive internationally as Texas is nationally, we must adopt policies that bring us closer to Texas and less to California. Sadly, the Biden administration and Congress are trying to turn the country into California, with higher taxes, more regulation, and higher prices via green energy mandates and inflation.

America has had the strongest and most dynamic economy in the world for the past 80 years, but economic success is not guaranteed. Bad public policies slow down innovation, discourage the creation of new businesses and repel talented workers. Look at California.