Response to Weintraub: CA's recovery requires action for high wage job gains

Posted by Gino DiCaro, Vice President, Communications on May 4, 2011

Dan Weintraub, who is often and appropriately looked to for well-reasoned and researched opinions of California's political and economic landscape, responded on the Fox and Hounds website to some issues I took with his original piece on California's employer climate.

Below are my responses to his points integrated into his exact piece.

Gino DiCaro of the California Manufacturers and Technology Association calls me out here for not being understanding enough about the plight of his bosses in the California manufacturing sector.

His beef is with a recent piece in which I pointed out that employment growth in California last year actually outpaced the nation if you remove the effect of government layoffs and ongoing problems in the construction industry, which was particularly hart hit by the collapse of the housing market in California.
My point was not that California is doing fine, but that analysts and lawmakers should exercise caution when deriding the "business climate" and demanding quick fixes that they say will lead to economic growth.

Response: Weintraub concluded that "[job] numbers bode well for the state's economic future." That would tell any lawmaker that drastic measures or a substantial state jobs plan are not needed. In fact, as I type, I just heard Senate pro Tem Darrell Steinberg quote Weintraub's original piece in a legislative hearing.

Manufacturers and other employers aren't talking about a "quick fix". We are asking for long term attention to the state's dire need for substantial high wage jobs -- through predictability and lower costs. We, at the California Manufacturers & Technology Assn., receive calls daily from lawmakers asking which one or two regulations they can fix to make manufacturers' world better. If only it was that easy. It's not about one regulation or one tax. The problem is the complete paucity of actions that would lead to large-scale growth of manufacturers and high wage employers in this state.

Imagine what would happen if the state said we must grow the job base by two million jobs by 2020 and held itself at least semi-accountable for it. Much like the state's goal to boldly reduce our greenhouse gasses, lawmakers and regulators would start making it happen.

In his piece, DiCaro does not mention that recent research by the independent Public Policy Institute of California has shed significant light on this question.

One study by the institute showed that California actually loses very few jobs to other states, probably on the order of about 10,000 a year, less than a drop in the bucket compared to the more than 15 million jobs in the state's labor market. Yes, California probably also loses some opportunities for company expansion, but those are much more difficult to quantify.

Response: We can quantify the loss of opportunity in California manufacturing - a sector that provides a $69k average salary to more than 1.25 million Californians. Over the last four years California is dead last in new manufacturing investment. Those are numbers provided by the unbiased Site Selection magazine.

Further, PPIC doesn't look at the wage disparity of the job losses in California. From 2001 to 2008, before the recession, California's growing sectors paid on average only $43k while declining sectors paid $69K.

A more recent study was even more on point for this debate, looking at 11 surveys that ranks the states on their friendliness to business. California ranks low in many of those, in part because of the state's high corporate tax rate. And the PPIC found that some of those studies did, indeed, seem to be correlated with economic growth. But that was just the start of the story.

The analysis also found that the simplicity of a state's corporate tax code, not its rate, tracked most closely with economic growth. And while higher government spending seemed to correlated with lower economic growth, the biggest culprit was not spending per se but programs that gave people an incentive not to work. In fact, there is a good case to be made that spending on infrastructure, education, universities, public safety and the environment, even health care, all contribute to economic growth.

Response: The recent PPIC report stated the obvious. Overall they said that California's natural advantages (favorable natural climate, favorable industry mix) offset the state's higher operation costs and our consistently low business rankings. They also said regulations can't be quantified. (sidenote: They also said that manufacturing growth/decline -- and other high wage sectors -- associated more with business climate rankings.)

The PPIC concluded their presentation of the report by saying, "a better business climate would promote faster growth."

Why are we so afraid to make a plan to grow the employer base with high wage industries?

DiCaro implies that I am suggesting a "do-nothing" approach, or at least providing political cover for those who would support such a strategy.

But investing in and improving kindergarten through community college education, protecting and enhancing the state's highly regarded four-year universities, and safeguarding the state's number one asset - it's incredible natural environment - would not be doing nothing. Combined with a fair and broad-based tax system, these steps would help put, or keep, California on the road to recovery.

Response: I'm not saying that Weintraub is suggesting a "do-nothing" approach. I'm suggesting that Weintraub's piece gives Californians a false sense of security by implying that we don't need an extremely high-growth rate of high-wage employers.

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Another CA manufacturer gone, but we fail to acknowledge the problem

Posted by Gino DiCaro, Vice President, Communications on Feb. 23, 2011

Yesterday the Inland Daily Bulletin wrote about a California-based hydrogen-powered fuel cell company, Bing Energy, deciding to locate its manufacturing, along with a headquarters and a technology lab, in Tallahassee, Florida.

Bing officials indicated clearly that it was 15 percent cheaper to operate in Florida and that the Sunshine state unequivocally wanted them there.

In the same article, Chris Thornberg of Beacon economics countered, "we've lost a lot of manufacturing jobs, but a lot less than in other states. California (manufacturing) is weathering the storm better than the nation overall."

The Public Policy Institute of California similarly countered that, "only a small fraction of the state's job losses are due to businesses leaving the state."

Brad Kemp, also of Beacon Economics, indicated that any statements about California's negative business climate become a self-fulfilling prophecy.

What? These are highly respected economists and institutions, but we can't just will this problem away.

I offer the following retort:

To Thornberg's "CA losing less" remark: California lost 37 percent of it's manufacturing base since 1990 while the country lost 34 percent. This period included the high technology boom in California so we are really losing ground in traditional manufacturing employment. But more important - look at recent manufacturing investment and facility growth compared to other states. This tells us our future. It's not good. Since 2007, California is among the worst in investment dollars and new facilities.

New manufacturing investment has come in at only $235 per person in California but a whopping $1,335 per person nationally. chart

New and expanded manufacturing facilities have been built or expanded at only 3.7 facilities per million people in California compared to 28.7 per million nationally. chart

This tells us all we need to know about the climate for manufacturing in California. We are near the bottom in new manufacturing growth.

To PPIC's "fraction of job losses due to leaving" remark: California businesses actually picking up and moving entire operations to other states has always been just a part of the equation. The important question is who is expanding in the state? It's the lack of new growth that is the most troubling.

To Kemp's "self-fulfilling prophecy" remark: If mere words repeated again and again could improve the business climate for California manufacturing, this blog would be shouting to the rooftops. Sadly, investors actually run the numbers prior to putting millions of dollars at risk. I don't think Bing Energy, the subject of the article, looked to comments made in the news about California's business climate to make their decision.

This raises a troubling question: If we can’t count on economists to avoid magical thinking, how can we expect legislators to govern with a higher standard?

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California global warming solution: Additional item for a $1 or $100?

Posted by Gino DiCaro, Vice President, Communications on Aug. 1, 2008

Ask a person if he/she is willing to pay more for something and they'll immediately ponder the item's importance and how much "more" means.

A dollar for an extra food item at Panda Express? Sure. A dollar extra at a retail store for a hungry children's charity? Of course. $25 more per gas tank fill-up for your own freedom and mobility? Oh I suppose.

These are the specific types of questions that should be asked of Californians as we make California-only global warming reduction regulations that will affect us all deeply. An extra dollar a day on an electricity bill to build the transmission needed to get renewable power to all corners of the State? An extra $10 a month in a mortgage for carbon-kind building material? An extra $2,000 on your vehicle for a low-carbon emission engine? Or worse yet, the loss of a job because a company can compete much better in another State?

If California is to meet its greenhouse gas goals, consumers must know -- and accept -- what exactly they are paying for and what it costs.

Two recent public items, among many, contribute to the notion that the public has accepted the real costs of AB 32. Absent, vague or minimal mentions of consumer costs lead everyone to believe that we can land at California's ambitious carbon reduction goals and an unaffected or even bolstered economy with little or no impact on our lives. Here's two examples:

1. PPIC's environmental poll: Californians and the Environment.
The poll released today states that half of Californians think global warming is a very serious threat and more than half think the State should do something about it "right now". Within the global warming portion of the environmental poll, there was only one question that loosely addressed the actual costs. It asked if they thought we would have to make "major sacrifices" to implement the law. There was no mention of what those sacrifices (or costs) would be or who would pay them. I read through the poll and there was literally nothing that indicated the affects on one's personal budget.

I went to a focus group about a year ago. Twelve people were asked if they thought global warming was a problem and if California should do something about it. Eleven said yes. When asked if they would pay extra at the gas pump while all other states did not, only ONE said he would.

2. Carl Guardino of the Silicon Valley Leadership Group in the SF Chronicle on AB 32: Warming to global warming solutions
Mr. Guardino's opinion piece outlined last week how positive AB 32 is for our environment, economy and the Silicon Valley itself. It does not however mention the word "costs" once in the entire article. Mr. Guardino's focus on the economy within the context of AB 32 is appropriately directed, because the economy must succeed if we are to keep emissions (and their reductions) in California. But we need a complete and realistic picture of AB 32's true costs and quality of life impacts. This is not an easy or quick task, but it is absolutely crucial if we are to predict the economic success or, more importantly, make the the actual regulations cost effective, as the bill states we must do.

Just as the California Air Resources Board (CARB) can't accurately project AB 32's true costs without including complete, objective data and real-time financial impacts, the citizen can't make an informed decision about the acceptability of those impacts in their budgets or their lives. CARB is working diligently on research and data to tell us whether each additional item will be closer to $1 or $100. Until then, we should wait on the public's approval and our own predictions on the California-only life-changing undertaking.

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Why not California?

Posted by Gino DiCaro, Vice President, Communications on Nov. 8, 2007

The following are two recent examples of growth and expansion that California could benefit from if the State were to offer competitive incentive packages:

Toyota's new car seat supplier in Indiana: A recent Indianapolis Star article pointed to a 275-job Toyota car seat supplier (partly owned by Toyota) that capitalized on a $2.5 million economic development package, including $1.8 million in tax credits, to build their facility in southwest Indiana. They also noted the importance of building so close to a Toyota truck-building facility, further indicating the extreme economic and job multiplying effect one manufacturing operation has on a region. Article: http://www.indystar.com/apps/pbcs.dll/article?AID=/20071016/BUSINESS/710160335

3 new solar manufacturers in Oregon: A recent Sacramento Business Journal article uncovered the decisions of three solar manufacturing firms to build in Oregon because of tax incentives, low energy costs, and trained workforce, even though most of the company's supply will go to California. "Bad business climate" was mentioned in various ways as a reason not to produce here. One very telling factoid from the article: Each megawatt of solar photovoltaics installed creates 20 manufacturing and 13 installation or maintenance job-years, which means a single person employed full-time for a year, according to a 2004 University of California Berkeley study. In the same article, incentives and available workforce were credited for a recent announcement by Santa Clara based Solaix, a silicon wafer fabricator, to develop in Oregon. Article: http://sacramento.bizjournals.com/sacramento/stories/2007/11/05/story16.html

It is well documented that California has dropped from 2 million manufacturing workers to 1.5 million over the last decade -- a decline that does not appear to be correcting itself. Industries ebb and flow and California has always relied upon new and old industry expansions from elsewhere to fill-in lost jobs (i.e. the aerospace industry in the 80's and the technology sector in the 90's). More and more, companies are looking to expand or site somewhere in the country and choosing to ensure their success in a commonwealth other than the Golden State. Governments such as Oregon's, Nevada's, Indianapolis' and others are offering incentives to attract high-wage, economy-boosting and cutting edge facilities to grab a piece of the highly-coveted manufacturing industry.

Inexplicably California is not attracting important new high-wage growth and losing out to other states. With looming revenue loss, Gov. Schwarzenegger has asked state agencies to cut their budgets by 10 percent next tear. Dynamic modeling shows that tax incentives and credits -- especially ones in a state that is so expensive to operate within -- will more than pay for themselves and bring in new revenues from increased economic activity and jobs. Attracting new firms to California must be a priority now ... in the immortal words of John Belushi, "Who's with me!!?"

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