Viewing blog posts written by Jack Stewart


Manufacturing job creation IS a state issue

Posted by Jack Stewart, President on Feb. 3, 2012

Cross-posted at Fox and Hounds

A few days ago, Governor Jerry Brown made the surprising statement that our state’s massive loss of manufacturing jobs is not a unique California problem because we have “lost manufacturing at about the same rate as the rest of America.”

While it is true that both the US and California have suffered manufacturing job losses, California’s industrial job loss rate was nearly ten percent higher than the U.S. loss rate.  In real numbers, we’ve lost a staggering 626,000 manufacturing jobs in the past decade.  If California had tracked with the national manufacturing job loss percentage, we would have 55,000 more Californians receiving paychecks than we do today.

More significantly, economists are proclaiming manufacturing growth is leading the national recovery. Bloomberg notes, ”Manufacturing accounts for about 12 percent of the economy and was at the forefront of the recovery that began in June 2009.” Contrary to this national trend, California manufacturing is moving in reverse. During 2011, the U.S. created 227,000 new manufacturing jobs, while California lost an additional 4,000 manufacturing jobs.  These are the middle class jobs that our elected leaders say they covet, but do very little to encourage and protect.

State policy has a tremendous impact on manufacturing job growth. States with a positive business climate (competitive operating costs, a trained workforce and a predictable regulatory climate) outpace states with negative business indicators.  California’s 34 percent manufacturing job loss compares with Texas at 21 percent, Indiana at 29 percent and Louisiana at 19 percent.

Business climate issues also have a direct impact on new investment. From 1977 to 2000, California received 5.6 percent of the nation’s new and expanded industrial facilities.  Since 2001, California’s share of those facilities has plummeted to 1.9 percent.  Industrial investors plan on a 10 to 15 year time horizon when making large investments in land, buildings and equipment.  States with long-term budget deficits, excessive infrastructure needs and aggressive regulatory agendas seldom make the short list of corporate planners.

It’s true that California continues to be the innovation state – we receive a large share of investment capital. But in the past decade, we have lost our ability to both innovate and manufacture new products here.   From 2005 to 2009, California received 48 percent of U.S. venture capital investment, but only 1.3 percent of U.S. industrial investment.

The current model is to innovate in California, manufacture in a more cost-competitive state or country, and market back to California consumers.  Under this scenario, California gets the jobs advantage of small, start-up research and development firms, but loses the enormous jobs benefit when those new products move to the production stage.

California’s modern government grew up of an era of rapid industrial expansion.  During the 1950s, 60s and 70s, California led the nation in industrial growth, becoming the top manufacturing state in 1977.  With that growth came a flood of new tax revenues allowing California to invest in infrastructure, education and new social programs.  California became dependent on the largess of a robust industrial economy.

During the ensuing 40 years, California found pride in implementing “first in the nation” environmental regulations.  Clean air, land and water are laudable goals, but the associated regulatory costs have had an impact.  Four decades of accelerating environmental activism have taken a toll on our ability to attract new investment and jobs.

We’re told by financial analysts that American corporations have $3 to $5 trillion available for investment when the current recession ends and that more and more U.S. manufacturers are re-shoring their overseas operations.  The question is: will California attract a fair share of manufacturing investment, or will investors look for states with a more favorable business climate? Our efforts should be to prove that California is serious about rebuilding a manufacturing economy by acknowledging where we must make improvements, not resting on an assumption that this is simply a national problem.





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Texas Trip Confirms: California Needs a Plan to Create Jobs

Posted by Jack Stewart, President on April 19, 2011

California has an unemployment rate of 12 percent, lost 11,600 jobs last month and has no plan for creating jobs for the more than two million California workers who are looking for work.  Texas has an unemployment rate of 8.1 percent, created 37,200 jobs last month and has an aggressive plan for investment and job creation. 

Last week provided an eye-opening look at some of the important differences between California and Texas for a delegation of California legislators, Lt. Governor Gavin Newsom and business association leaders who traveled to Austin, Texas on an economic development fact finding mission.

The mission was conceived by Assemblyman Dan Logue who arranged for ten legislators to spend two days in Austin talking to California companies who had recently moved or expanded operations in Texas.  The group also met with Governor Rick Perry, officials from his administration and members of the Texas Legislature.

 

The big take-away from the two days in Austin was the commitment Texas has to providing a positive business climate for its employers and to creating job opportunities for its workers.  That commitment appears to start with Governor Rick Perry, who prides himself in saying, “creating and growing employers is his number one job – with a healthy, growing economy other problems become less daunting.” 

There is no question that Governor Perry is the quarterback of Texas’ economic development team.  His enthusiasm and commitment permeates a state bureaucracy where government agencies are sensitive to employers who are willing to invest in Texas.  Governor Perry leads regular economic development missions to California, New York and other states and nations to recruit employers who bring jobs to his state.

The Texas economic development strategy was born out of the 2003 recession when state revenues dropped, creating a massive budget deficit.  To address the 2003 crisis, Perry made two decisive moves:  1. to aggressively promote Texas’ affordable business climate to grow revenues to the state through economic expansion; 2. move the state to a zero-base budget process to control the growth in government spending. 

His plan appears to be working.  While it’s difficult to understand all aspects of the Texas business climate in just a few days, the U.S. Bureau of Labor Statistics shows solid job growth in Texas over the past decade, while California’s job numbers are far below its 2001 levels.

 

This is not to say Texas has all the answers or that California doesn’t have its own set of attributes, but the fact is California’s business climate is very unpredictable and investors shy away from unpredictability. Texas places a high premium on a predictable business climate and investors seem to agree.

Over the past few months, I‘ve often greeted California legislators by saying, “Without having heard one of your campaign speeches or read a single piece of your campaign literature, I’m certain your number one campaign pledge was to create jobs.”  The response is always a big smile and an affirmation that my guess was correct.  My following  comment is, “Now that you’re here, you have no idea how you’re going to fulfill that promise.”  I typically get a very sober response, confirming that my second observation is also correct.

California hasn’t had an economic development strategy for more than a decade.  We’ve been resting on our laurels while other states and nations aggressively recruit our brightest and best entrepreneurs and innovators.  It doesn’t have to be this way.  California can become competitive for investors if we put our economic house and business climate in order.

For the past ten years, our Governors and Legislatures have focused on spending cuts and tax increases as the solution to our state’s economic woes.  There is a third leg to that stool, an aggressive plan for economic growth.  If job creation is truly our highest priority, then let’s create a plan to grow jobs.  Look to the future as Governor Perry did in 2003, set job creation goals for the next 15 years and develop a strategy to achieve those goals.  It’s simple, but it won’t be easy.





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Small gains in manufacturing do not tell California's story

Posted by Gino DiCaro, VP, Communications on March 25, 2011

California gained 3,600 manufacturing jobs in February and totaled 9,500 manufacturing jobs over the last year, according to the state's Labor Market Information Department press release today. Our unemployment rate also dropped to 12.2%.

This good news masks two larger California problems though.  

  • California is dead last in new manufacturing investment among 50 states from 2007 to 2010, according to Site Selection Magazine data.  (this chart has been updated with 2010 data since you might have last seen it)

  • Also California's  9,500 new manufacturing jobs since February 2010 account for only three percent of the country's 311,000 new manufacturing jobs in the same period.  California has 12 percent of the country's population and has long had 12 percent of the U.S. manufacturing base.

We can't lose sight of the need to gain back the 34 percent of our manufacturing base we lost over the last decade.  Issues such as Senator Bob Dutton's sales tax exemption on manufacturing equipment (bringing us in line with 47 other states) or legislative attempts to provide a smarter regulatory review process with independent analysis will go a long way in making our state more attractive for these jobs.

Eventually Gov. Jerry Brown and the legislature are going to have to make someone or some agency accountable for making conditions better in California to grow our manufacturing base.  The status quo is not keeping pace.





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A smart regulatory-making process will generate California revenue

Posted by Gino DiCaro, VP, Communications on Feb. 4, 2011

Last week we heard about California's budget crisis in Gov. Jerry Brown's 20-minute State of the State address.

While Gov Brown stuck to state budget details in his address, the regulatory crisis movement is gaining momentum as a realistic solution to revenue shortfalls here and across the country.

For example:

In late Jnauary, there were some particular light-shedding developments in a hearing at the Little Hoover Commission on California's regulatory process.

California has thousands of regulations that impact the way we operate. Given the state of our economy, many people ask the very valid but overwhelming question, "If there were just a few regulations that we could fix or eliminate to help us compete, what would they be?"   That was not the question before the hearing last week.

This is too daunting a question, at least for the moment. For a state with 37 million people, tens of thousands of businesses, a $1.7 trillion economy, and -- after years of the rule-making status quo -- thousands of regulations that might or might not be cost effective, a hundred people will give you 100 different answers to that simple question.

We learned in the hearing what most of us already felt. California is flying blind on the cost effectiveness of new regulations, with only a politically charged environment as its guide.

It's not that people aren't doing their job. Legislators are passing bills that they think are valuable. Agency rule-makers are implementing those laws or goals with regulations based on input. The folks tasked with economic impact analysis, Office of Administrative Law (OAL), are providing opinions on those impacts.

The problem lies in the anemic levels of economic analysis and an expedient culture to rule-making. Depending on the step in the process, you either get a foregone conclusion or a cursory analysis because of limited resources.

But here's the big kicker that came out of last week's hearing: When the hard working folks at the OAL suggest to a rulemaking agency that a regulation might have some negative economic impact on an industry or a consumer, they have almost no recourse to pull that regulation back. It was stated by OAL that not one regulation has been pulled back once their disagreement with an agency reached a judge who had authority to do so.

Overall, the OAL said the following:

  1. Resources are too limited for sufficient cost-benefit analysis on regulations.
  2. When they do see a potential problem, the process only provides for an expedient way to approve a regulation anyway.
  3. There are too many "underground regulations" that circumvent the analysis-requiring Administrative Procedures Act.

If you watch the hearing, you'll wonder, "What has everyone been so afraid of?"   Why has one of the most effective tools -- independent economic analysis -- been shunned by California?

Don't let one industry, one person, or one consumer tell us what regulation should be fixed or repealed. We can all make our case for certain regulatory fixes or relief (and we will), but independent economic analysis must be the government's guide or, at the very least, a well-regarded tool in their rulemaking for smarter regulations. Last week's hearing (the second conducted by the commission) went a long way in getting us there.

UC Davis economist, James Sanchirico (comments), and Harvard economist, Robert Stavins (comments) both provided compelling points that also underscored the need for sufficiently funded, independent and rigorous regulatory assessment.





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Why not California #15 - More solar manufacturing losses

Posted by Gino DiCaro, VP, Communications on Jan. 6, 2011

Add another big loss to the mounting list of solar start-ups that opt to manufacture their product outside of California.

This week, Stion Solar Panels announced it would build it's manufacturing plant in Hattiesburg, Mississippi after getting a $75 million loan from the state and citing lower wages and a more trainable workforce. (CORRECTION: This sentence reads as if California provided the $75 million loan. It was Mississippi that provided the loan.)

California's inability to manufacture it's home grown innovations continues to play out against its own economy and workers. Let's face it, without manufacturing, innovation is just a good idea. California has a tremendous market and we have cutting-edge research & development. We don't, however, have a competitive environment to make our products and employ thousands of workers. And it seems to be getting worse, not better.

The approximate 200 to 300 high-wage jobs that the Mississippi solar plant will produce in 2011 (1,000 by 2017) would have been a blessing to some of the 2.2 million unemployed Californians and a boon to state revenues.

More intriguing is the announcement from many states this month that they should and would more actively recruit companies from California, citing the difficult business climate. Add Mississipi to the list of states taking advantage of California's woes.





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