California government to blame for corporate films elsewhere

(Bloomberg Opinion) – Amid raging wildfires, progressive power outages and a worsening coronavirus outbreak, California has not been having a good year. Sadly, the state is also reeling from a man-made disaster: an exodus of successful businesses to other states.

In recent months, Hewlett Packard Enterprise Co. has announced its departure for Houston. Oracle Corp. said he would run off to Austin. Palantir Technologies Inc., Charles Schwab Corp. and McKesson Corp. are all intended for greener pastures. No less avatar of the Information Age than Elon Musk has had enough. He believes regulators have become “complacent” and “empowered” about the state’s world-class tech companies.

No doubt, he scores a point. Silicon Valley’s high-tech cluster has been the envy of the world for decades, but its success is by no means inevitable. As many cities have discovered in recent years, building such agglomerations is extremely difficult, both in art and science. Low taxes, modest regulations, strong infrastructure and good education systems all help, but are not always enough. Moreover, once wasted, such dynamism cannot be easily rekindled. With growing competition in the United States, policymakers in the region must recognize the dangers ahead.

In recent years, San Francisco has seemed to implore companies to leave. Along with the familiar governance failures – rampant homelessness, inadequate public transportation, skyrocketing property crime – this has also imposed more idiosyncratic hurdles. Far from welcoming experimentation, it has sought to undermine or eradicate door-to-door rental services, food delivery apps, ridesharing businesses, electric scooter businesses, facial recognition technology, mobile robots. delivery and more, even as pioneers in each of these fields attempted to settle in the city. He tried to ban corporate cafeterias – a major advantage of the tech industry – on the not-so-strong theory that it would protect local restaurants. He has created an “Office of Emerging Technology” which will only grant permission to test new products if they are considered, in the opinion of a city bureaucrat, to be “net common good”. Whatever the merits of such interference, it is hardly a formula for unlimited inventiveness.

These two traits – poor governance and corporate animosity – collided disastrously with regard to the city’s housing market. Even though officials offered tax breaks to tech companies for their downtown headquarters, most of them refused to lift residential height limits, change zoning rules, or allow significant new construction to accommodate the city. influx of new workers. They went on to express their shock at soaring rents and house prices – and blamed the tech companies.

The California legislature has only made matters worse. A bill he enacted in 2019, purported to protect concert workers, threatened to undo the business models of some of the state’s biggest tech companies until voters gave them a reprieve when they walked away. a November referendum. A new privacy law has imposed huge compliance burdens – up to 1.8% of state output in 2018 – while providing almost no benefit to consumers. A state corporation tax rate of 8.8% and a top income tax rate of 13.3% (the highest in the country) didn’t help.

Of course, California isn’t alone in wasting such benefits. New York City has been the world’s leading financial center for many years and is also increasingly home to a thriving tech community. But a similar mix of bad policy choices, high taxes, unnecessary red tape, increased crime, and the occasional outright hostility – like the insane opposition to the proposed Inc. headquarters. – has pushed both industries to friendlier climates in recent times. year.

Such negligence is all the more damaging as a technological pole is more than the sum of its parts. Such clusters accelerate the flow of ideas, concentrate skilled workers and create new productive networks. They are likely to stimulate investment, business creation, innovation, wages and growth. And their benefits are widely shared: According to one estimate, each new tech job creates five more jobs in other industries, a multiplier effect about three times that of the manufacturing sector. Not to mention the immensely popular products that result.

For now, the Bay Area is unlikely to be relocated as the country’s main tech hub. After all, it’s still home to some of the world’s most valued companies, attracts a disproportionate share of venture capital investments, and remains an unrivaled incubator for startups. And predictions of Silicon Valley’s demise have been reliably proven wrong for decades.

Even so, no state can upset its businesses so wildly and expect them to stay put forever. As any Californian knows, the open road is all too inviting.

—Editors: Timothy Lavin, Clive Crook.

To contact Bloomberg Opinion Editorial Editor: David Shipley at [email protected]

© 2020 Bloomberg LP

Bernard P. Love