California, the Cautionary Tale

Here’s Peggy Noonan in her new column in today’s Wall Street Journal:

When Americans go to Europe they see everything but the taxes. The taxes are terrible. But that’s Europe’s business and they’ll have to figure it out. Yes what happens there has implications for us but still, they’re there and we’re here.

What Americans are worried about, take as a warning sign, and are heavily invested in is California—that mythic place where Sutter struck gold, where the movies were invented, where the geniuses of the Internet age planted their flag, built their campuses, changed our world.

We care about California. We read every day of the bankruptcies, the reduced city services, the businesses fleeing. California is going down. How amazing is it that this is happening in the middle of a presidential campaign and our candidates aren’t even talking about it?

She is — and you have no idea how much it pains me to say this — agonizingly correct. And, by sheer coincidence, my new column this week is a detailed portrayal of what this decline has wrought:

Every year, CEO magazine – a publication targeted at the nation’s captains of industry – ranks the 50 states based on how friendly their respective economic climates are for business. In 2012 – for the eighth straight year – California finished dead last.

As JP Donlon put it in the piece accompanying the magazine’s rankings, “Once the most attractive business environment, the Golden State appears to slip deeper into the ninth circle of business hell. The economy, which used to outperform the rest of the country, now substantially underperforms. And its status as the most ruinously contentious place to operate remains undisturbed.” 

Harsh words, but hardly a new diagnosis from America’s business community. In 2010, the magazine called the Golden State “the Venezuela of North America” for its overt hostility to any commerce that doesn’t originate via legislative fiat. If this were the diagnosis of a single, industry-specific publication, perhaps CEO’s condemnations could be taken with a grain of salt. But the numbers bear out the magazine’s claim at every turn.

Pick a metric for public sector performance across the 50 states and it’s likely you’ll find California at or near the bottom. The Tax Foundation ranks the state 48th in the nation for its overall business tax climate, and 50th for individual income taxes. The state has the highest number of public employees (nearly 2.5 million according to a 2011 report by MarketWatch) in the country.

The Mercatus Center at George Mason University puts it 48th in the nation for economic freedom. In its 2011-2012 rankings of “Judicial Hellholes,” the American Tort Reform Foundation ranked the Golden State second, noting, “perhaps no other state more clearly illustrates the direct impact of excessive litigation on job creation and the ability of businesses to survive and thrive.” As a result of these and other factors, the state’s unemployment rate for June was 10.7 percent, third-highest in the nation.

California: what Lindsay Lohan would be like as a state. Read it in full here.