Manhattan Institute

Blue State, Red Tape

California is shedding residents and businesses.

A Sacramento Bee headline from late October, “How liberal politics, COVID-19 and a high cost of living are fueling a new California exodus,” could have been written, without the virus reference, a year ago. Or ten years ago. The flight from California kicked off long before this year’s pandemic.

Eight years ago, an Investor’s Business Daily editorial laid out the reasons Californians were moving “To Texas (And Arizona And Nevada),” all of them fueled by progressive public policy. That same year, a Manhattan Institute report detailed “the great ongoing California exodus . . . reversing the storied passages of the Dust Bowl era.” The authors attributed the mass departure to policy decisions making the state a less desirable place to live. Two years earlier, in 2010, New Geography asked: “If California Is Doing So Great, Why Are So Many Leaving?” and noted that the state’s “domestic migration has been negative every year since at least 1990.”

Nor is the California exodus limited to desperate residents. Joe Vranich, a relocation specialist once headquartered in Irvine, California, but now settled in Pennsylvania, has been tracking business departures since 2008. Vranich says that he became “irritated by repeated comments from California politicians, including governor Jerry Brown, that business departures . . . were not a big deal.” As he analyzed the companies, jobs, and capital fleeing the state, he realized the drain was significant. The state’s toxic business environment, Vranich estimates, caused as many as 13,000 “disinvestment events” from 2008 to 2016.

Data-analytics software company Palantir is among the firms to announce more recently that it is leaving California. CNBC characterized its decision to relocate from Palo Alto to Denver as “one of the first signals that a long-anticipated exodus from Silicon Valley is on the horizon.” Hewlett-Packard, a garage-band Silicon Valley original, recently announced that it would move its global headquarters to Texas, seeking “opportunities for cost savings,” while accommodating “team members’ preferences about the future of work.”

California remains a large state with a diverse economy. Yet even if Central Valley agriculture, the entertainment industry, financial-service and insurance companies, and manufacturing continue to thrive, a hollowed-out Silicon Valley would inflict serious injury on the state. Carson Bruno, former dean of Pepperdine University and a Hoover Institution fellow, said in 2015 that “since the Great Recession, the Silicon Valley-Bay Area has become absolutely essential to California’s economic and fiscal health.” This is no less true today. In the pandemic era, Silicon Valley continues “to fare better than other large regions across California and the nation,” MarketWatch reports.

All this suggests the question: Why would tech companies want to leave California in the first place? Their political preferences often line up with California’s blue-state agenda. The weather in Silicon Valley is near perfect. The region is a magnet for talent. There’s a strong entrepreneurial vibe and embedded social and economic networks.

The short answer: too much government meddling in private business affairs, with the threat of more to come. Before Palantir announced its move to Denver, CEO Alex Karp publicly criticized the “increasing intolerance and monoculture of Silicon Valley.” He implied that the “the engineering elite” of Silicon Valley was convinced that it knew best “how society should be organized.” These same flaws characterize California’s single-party rule, which has contributed to a mass exodus by residents and businesses.

The blue-state mindset has produced a briar patch of laws, regulations, and ordinances. California consistently ranks near the bottom in surveys ranking state business climates. Chief Executive magazine has ranked the Golden State as the worst place to do business for 14 straight years. A survey of 200 corporate executives by the Pacific Research Institute in 2018 found California unattractive for relocation or expansion due to “all the regulations and red tape” and “so many fees associated with having a business in California for which we didn’t get anything in return.” Costly workers’ compensation laws, “insurance liability,” punitive taxes, labor laws that favor unions, and the steep cost of living also chill the business climate.

Policymakers might one day comprehend the damage they are inflicting on the state, but it might take another decade of headlines like that one from the Bee to get their attention.

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