California is in decline. The Golden State lost population in 2020 for the first time in decades, and the exodus included celebrity entrepreneurs like Elon Musk and Joe Rogan. A long list of businesses, some as well known as Disney, Hewlett-Packard, Nestle, and Toyota, have either relocated or sent some jobs outside of the state in recent years.
But just how bad have things really gotten in California? A new study from the Hoover Institution at Stanford University analyzes the anecdotes and finds a damning trend.
Authors Joseph Vranich and Lee E. Ohanian examined available reports of companies relocating their headquarters outside of the Golden State. They find that 265 major companies have moved on to greener pastures since January 1, 2018.
The study also reports that the rate at which businesses are leaving the state is rapidly accelerating. For the first six months of 2021, the rate is nearly twice as high as it was last year. That means more businesses have already left California this year than in all of 2020.
The authors note that this count is, if anything, an enormous underestimate. Many small businesses exiting the state do not receive media coverage and are not required to file compliance reports, so many of their exits go uncounted in the analysis.
These businesses take more than just jobs with them when they leave the state. The local communities lose out on investment, income for local businesses, tax revenue, philanthropic work, and much more. So, it’s of the utmost importance to analyze why businesses are leaving California en masse.
Per the study, major reasons for leaving include “high tax rates, punitive regulations, high labor costs, high utility and energy costs, and declining quality of life for many Californians which reflects the cost of living and housing affordability.”
These issues all ultimately trace back to the state government. California has regulated and taxed its once-thriving economy into a coma. The state now ranks as the 50th-worst state to do business in, according to Chief Executive magazine’s 2021 survey. Meanwhile, the Small Business & Entrepreneurship Council ranks the Golden State the 49th-worst state to do business in. And the Tax Foundation reports that California has the 49th-worst business tax climate in the country.
It’s little surprise that top destination states, per the study, include Texas, Tennessee, Arizona, and other states that have taken markedly different policy approaches.
The great thing about a federalist, 50-state system is that different states can try different things. But this new Stanford study exposes the devastating results of California’s experiment with big government and welfare-state largesse. When empowered to vote with their feet, citizens and businesses alike choose freer markets over centralized government control.
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Brad Polumbo
Brad Polumbo (@Brad_Polumbo) is a libertarian-conservative journalist and Policy Correspondent at the Foundation for Economic Education.
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