Campaign Check: A Business Exodus?

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Photo: Getty Images

By now, it's become a staple of Meg Whitman's stump speech in the race for governor. In numerous events, the GOP nominee refers -- by name -- to large corporations that packed their bags and high tailed it out of the Golden State, as examples of California's unfriendly business climate.

But it seems more complicated than that. And in one of Whitman's examples, the company in question paints an entirely different picture of what happened.

As part of our election season segment Campaign Check, today's newsmagazine edition of The California Report takes a closer look at Meg Whitman's statements about the business climate, the loss of jobs, and what should be done as a result.

The bottom line: in most cases I've looked at, it seems the real stories don't fit cleanly into the campaign narrative -- a disconnect best seen in the case of Northrop Grumman.

"You probably read that Northrop Grumman just left Long Beach to go to Virginia," said Whitman in a campaign appearance outside Sacramento last month. It wasn't the first time she's mentioned the major aerospace and defense contractor, which announced in January that its corporate headquarters was headed to northern Virginia, just outside of Washington, D.C.

But while Northrop Grumman's top executives are moving, the company's not actually leaving the state of California. In a series of emails this week, company spokesman Dan McClain confirmed that some 30,000 employees -- one quarter of the company's worldwide staff -- are still here. That means that only slightly more than 1% of the total workforce was relocated.

Whitman also told her audience last month that the CEO of Northrop Grumman told her that no one from state government tried to stop them. Spokesman McClain says the company doesn't comment on whether conversations with folks like the GOP candidate take place. But contrary to Whitman's comment, McClain says state officials did talk to Northrop Grumman when the HQ relocation was announced. And he says that the company told those state officials that there could be a silver lining to the decision.

"We explained to them that the move was intended to bring us closer to our U.S. government customers," wrote spokesman McClain in an email, "and that one of our objectives in moving is to be able to better serve our customers' needs and hopefully win more business for our California operations."

The Whitman campaign, even when told of the company's comments, insisted this afternoon that geographic proximity to DC isn't the whole story. "Anyone who thinks Northrop Grumman moving their corporate headquarters to another state had nothing to do with California's terrible business climate is living in a fantasy world," wrote Whitman's spokesperson Sarah Pompei in an email.

Whitman has also mentioned several other companies by name when pointing to an exodus of businesses from the state, both in campaign events and on her website. A review of news stories about those relocations does, in fact, find some references to the overall business climate in California. But almost all of the stories also include reasons that would have probably led to the relocation of jobs no matter what state government did -- things like moving closer to a key base of customers, consolidating operations in a location where there was already a larger presence, and financial woes that were specific to that individual company.

The state's business climate is a frequent target of criticism, and sometimes rightfully so. There's no lack of national surveys and lists that show California in the lower portion -- or even bottom -- of states when it comes to some business desirables. Often cited are taxes and regulations -- two areas on which Whitman says, if elected, she'll focus. Her plan includes tax credits for research and development; the elimination of sales taxes on all manufacturing equipment, and an accelerated tax depreciation schedule on new business equipment.

Photo: Getty Images

Whitman says those are the kinds of things that other states do better than California. "We are bleeding jobs to Arizona, and Colorado, and Texas," she said in the Sacramento-area event referenced earlier. "And it's not complicated. The permitting process to expand your business is simpler, taxes are lower, and the leadership from the top is business friendly."

The "bleeding of jobs" -- the notion that a large number of jobs are businesses are fleeing California -- is a familiar talking point in state politics these days, especially among Republicans. But in the only broad, longitudinal nonpartisan study out there, the numbers don't match the rhetoric.

"We find that, for all of the reasons that jobs are lost in California, less than 2% of the jobs that are lost are because businesses actually leave California and move to another state," says Jed Kolko, the author of the study mentioned above and a researcher at the nonpartisan Public Policy Institute of California. Kolko says that a typical year sees somewhere on the order of 10,000 jobs lost in California due to businesses packing their bags -- a far cry, he says, from the roughly 18 million jobs that still exist in the state. Kolko says the expansion and contraction of jobs, on the whole, is for reasons unrelated to any business exodus.

Nonetheless, there is a sense that California's business climate needs a face lift, but that it requires broad policy changes, not special treatment (financial packages, etc.) for individual companies -- a process some have likened to 'ransom' demanded by those companies and willingly paid by other states.

Here again, Meg Whitman is calling for actual policy changes, things that she seems to believe will move the needle on the state's business climate towards the better. Her campaign points to policy changes in other states that have worked -- like one in Colorado that offers incentives to any company that creates 20 or more jobs (PDF).

One final note: at some point, one wonders whether the incumbent governor will be dragged in to this campaign rhetoric, especially when you consider that Whitman's belief that California's "top" leadership isn't business friendly would seem to, by definition, have to include the governor. Arnold Schwarzenegger would no doubt take issue with some of these criticisms. Earlier this year, he opened the Governor's Office of Economic Development, and a spokesperson there says efforts are now underway to reach out to many of the state's top business executives to see what they need to thrive.

In fact, in coordination with Schwarzenegger's just completed trade trip to Asia, his office is touting announcements of business expansion on several fronts, including an announcement by auto maker Hyundai of a $150 million expansion in Orange County.

For voters this fall, this subject may come down not so much to the theory that business is leaving California in droves, but rather what kinds of changes state government should pursue in making life easier for businesses... and what the pros and cons are of the proposals being offered.

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About John Myers

John Myers is Sacramento Bureau Chief for KQED Public Radio and "The California Report," heard daily on 23 public radio stations across the Golden State.
  • Martin

    Meg has nothing left for me. The lies and the deceit are too much…And she hasn’t even taken office. She really makes the decision easy for me in November.

  • Jon

    More jobs have left California for places overseas than in the US and mostly they are just being eliminated altogether. So Meg says we should copy Arizona? Why not China? Or Cambodia? Or Mexico.

    You can’t brag about your record as a Silicon Valley hero out of one side of your mouth and complain about the biz environment in CA out of the other.

    California: love it or leave it.

  • Christina

    Clearly written by someone who has never run a business. If they are moving to consolidate, why aren’t they consolidating IN California rather than another state? And you don’t think our business climate and tax structure contribute to those company specific and industry specific woes? I know a manufacturer is moving its operations out of state to “consolidate” operations even though they have huge sales here, and the company started here nearly thirty years ago. Why? #1 cost of labor and workers comp, #2 taxes and business climate. But I am sure they can make the case it is to “consolidate” operations or their company specific issues, California just places more hurdles to the already difficult job of running a business, creating jobs that feed families, and generating revenues that pay for our schools, teachers, and the salaries and pensions of state workers.

  • Laurie

    This just proves to me that Meg Whitman intends to be a business-friendly governor and not care about the rest of us.
    Being Governor involves being fair to everyone, not just big business. If elected, she is supposed to represent all of us, not just Big Business, Big Oil, Big Tobacco, Big Wall Street CEOs and all the “anti-tax” groups. I am a self-employed person and she offers me nothing. I can’t compete with her special interest pro-business, pro-Chamber of Commerce people. Meg, my vote is not for sale and I won’t be voting for you.

  • http://soquelbythecreek.blogspot.com/ Soquel by the Creek

    I think your article misses belittles the Meg Whitman’s point. She chooses a poor, single example. There is ample evidence that California is no longer the competitive powerhouse that it once was. Much of the problem is governmental policy. During a recent budget debate, one Legislator (sorry, I didn’t catch his name) said that California government was essentially becoming a jobs development agency for the State of Texas.

    My previous employer reduced headcount in California in favor of Colorado, Singapore, China, and India.

    Seagate, once a major employer here in Santa Cruz County, has reduced headcount in California and relocated employees and operations to Colorado.

    Intel Corporation, still headquartered in California, has major new investments in manufacturing facilities, but none in California.
    http://www.businessinsider.com/intel-ceo-blasts-obama-administration-says-anti-business-policies-are-killing-the-country-2010-8

    Toyota, once a partner with General Motors in the NUMMI facility in Fremont, CA, moved operations to Texas and other facilities. Thankfully, Toyota and Tesla Motors will re-open the NUMMI facility.
    http://www.autoobserver.com/2009/08/toyota-closing-nummi-in-march-tacoma-to-texas.html
    http://pressroom.toyota.com/pr/tms/manufacturing/toyota-commits-250-million-to-154644.aspx

    A business relocation specialist tracks over 100 companies that are relocating all or portions of their California operations.
    http://jan.ocregister.com/2010/02/24/list-names-100-companies-leaving-california/31805/

    California has consistently ranked 51st (DEAD LAST) in the nation on business climate since at least 2006.
    http://www.chiefexecutive.net/ME2/Audiences/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=D8BB1C4F12AE46EF9B7647E09E3253A6&AudID=F242408EE36A4B18AABCEB1289960A07

    California ranks 48th in tax climate.
    http://www.taxfoundation.org/research/topic/15.html

    California’s corporate income tax rate is the highest in the West.
    http://www.taxfoundation.org/research/topic/15.html

    California’s sales tax is highest in the nation.
    http://www.taxfoundation.org/research/topic/15.html

    A healthy economy means low unemployment. Good employment means a stable stream of tax revenue. Good tax revenues means funding for schools, roads, and social programs.

  • http://www.kqed.org/weblog/capitalnotes/blog.jsp John Myers

    Any exodus of businesses (and business tax revenues) is no doubt an important thing for voters to consider as they choose the next governor. And there’s no disputing the fact that some companies are making decisions to relocate certain jobs and business operations.

    There’s also some factual data that clearly seems to indicate that California can sometimes be in a class by itself when it comes to taxes, etc.

    But the only actual substantive, year-after-year research (more than just news clippings) shows that the total number of jobs being exported has remained, over time, a small percentage of the total California workforce. If we add up the jobs mentioned by the “business relocation specialist” you cite, they pale in comparison to a state workforce of some 18 million.

    That’s not to say those lost jobs are not missed, or that something shouldn’t be done to try to change the minds of those businesses. Rather, the point is that it’s an anecdote that fails to tell the whole story.

    (The study mentioned in my reporting also shows that most CA jobs are eliminated for reasons other than any “exodus” from the state.)

    Whitman’s frequent mention of Northrop Grumman is not the only example either she or her campaign cites that seems to gloss over what actually happened; I reviewed several examples. Our point in presenting this story was to say that the issue of business retention and job retention/creation can much more complicated than Whitman’s anecdotes make it out to be… and that the “business exodus” debate seems more rooted in politics than in either public policy or economics — neither of which seem to bear out the accusations.