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A MONKEY, representing California’s legislature, is sitting on a tree and looking silly. A voice lists the advantages of Nevada—no personal or corporate income tax, lower workers’ compensation insurance, less red tape—and urges Californian business owners to “get the monkey off your back” by moving to Las Vegas. In another television ad, California is a pig, and the voice-over tells entrepreneurs not to be fooled (to quote Sarah Palin) by the lipstick being put on it.
Since this advertising campaign began on August 7th, the Nevada Development Authority, which is trying to persuade companies from California to come to southern Nevada, has received 125 inquiries. Somer Hollingsworth, who runs it, plans to spend $1m on ads. Nevada, with great infrastructure, lots of underemployed but educated workers and (thanks to the property bust) cheap housing, has lots to offer, he says, whereas California is “anti-business. They don’t care if you as a company stay there or not.”
As California, a complicated place even in good times, has descended deeper into a budget and governance morass this year, the voices calling for, or warning of, a mass exodus of firms and people have become more numerous and loud. The gist is as follows. Byzantine regulations, high and complex taxes and legislative gridlock are driving out businesses, while high personal taxes are driving out the rich and a disintegrating social safety net is pushing away the poor.
Thus the Milken Institute, a think-tank in Santa Monica, said in June that California is steadily losing its manufacturing industry, “a canary in the coal mine for the California economy”, to more attractive, better organised states such as Arizona, Indiana, Kansas, Minnesota, Oregon, Texas and Washington. If California had maintained its position vis-à-vis other states since 2000, estimates Milken, it would have had 1.2m more jobs in 2007. Others are citing numbers showing that more people are leaving California for other states than are coming in.
There is some exaggeration in all this. The Public Policy Institute of California (PPIC), a non-partisan think-tank in San Francisco, has examined domestic migration in and out of California, and found that the high personal income taxes that are allegedly driving out the rich cannot be to blame. The poorest Californians, those paying very little in taxes, are the most likely to leave the state: 1.73 households are leaving for every one that arrives. Among the richest, only 1.09 households are leaving for each arrival.
It is true that the top destinations for those leaving include Nevada, Texas and Washington, three states that have no personal income taxes. Oregon, however, is also popular and it has high income taxes. Proximity seems to be a bigger factor than tax rates, says the PPIC.
Nor is manufacturing declining unusually fast in California, as the Milken Institute claims, thinks Steve Levy, the boss of the Centre for the Continuing Study of the California Economy, another research outfit. When California is compared with the entire country rather than a hand-picked group of alleged rival states, he says, its manufacturing job losses rank in the middle. Besides, he says, it is a mistake to count the decline of the aerospace industry in the early 1990s, which was caused by the end of the cold war. Excluding aerospace, California’s share of the country’s high-tech jobs has remained steady at just over 20%, estimates Mr Levy.
Even the claims about individuals fleeing the state are overdone, he argues. If you count people moving in and out of California from other countries as well as other states, more people are still coming than are leaving. Total migration has been positive for California since 1996.
California’s domestic out-migration, moreover, may have a simpler cause than dysfunctional government or high taxes. Houses became much more expensive in California than in the rest of the country during this decade’s housing boom, with the gap growing until early 2007, when most of those emigrating today would have begun to make their plans. Many Californians who already owned homes took their profits and are looking for larger houses in other states, while people in other states were priced out of California. Housing “unaffordability”, says Mr Levy, was and is California’s “principal competitive disadvantage”.
Even so, Californians are increasingly touchy about the troubles of their state. One state assemblyman, Jose Solorio, is so outraged by Nevada’s “nasty” ads that he is helping to fund a counter-campaign. “What happens in Vegas stays in Vegas, but what happens in California makes the world go round,” says a narrator. As he speaks, stunning images of the Golden Gate bridge and Santa Monica’s palm trees clash with a cow crossing a freeway in a drab Nevada desert.
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