The Conversation: Employment debate focuses on creaky wheels of industry Factory jobs critcal to growth

by Jack M. Stewart
Aug. 9, 2009
As seen in the Sacramento Bee

Since the latest budget revision was signed late last month, there has been a loud chorus decrying the compromise struck between Gov. Arnold Schwarzenegger and the Legislature because it contained no new taxes on business. The leaders of this "tax business" chorus have submitted an initiative aimed at repealing business tax reforms enacted in February that were meant to level the playing field for California employers.

Raising taxes on business, however, is no way to help the state's economy or its manufacturing base. In a June report on the state of California manufacturing, the Milken Institute found that California manufacturers are already hurt by high taxes, excessive regulation and a negative business climate.

California's deep-rooted economic problem lies in a lack of priorities. For too long our priority has been to fund state government with little regard for its ultimate impact on those who create jobs and ultimately produce the revenues needed to sustain state-funded priorities. Now that a "budget tourniquet" has been applied, we have a small window of opportunity to right California's ship. We must act now to retain and produce high-wage jobs, increase economic development and grow state revenues.

Family breadwinners are begging the state to get this one right. Ask the 400 workers who lost their jobs at Gregg Industries in Southern California. Ask the Intel workers who were forced to move to New Mexico or lose their jobs after a Santa Clara wafer fabrication plant shifted operations. Ask NUMMI's 3,700 union auto workers in Fremont who are petrified their jobs will be shuttered. Ask Chevron's 1,000 temporary union workers who were forced to stop working after environmental plaintiffs shut down efficiency upgrades in Richmond. The list goes on.

According to a Deloitte Touche study, 81 percent of Americans agree that manufacturing has a significant impact on their standard of living. Someone needs to get this message to Sacramento.

Among many, California's largest manufacturing hurdles are its highest-in-the-country corporate tax rate, a regulatory environment based on precaution over science, and the lack of focus on growing our economic base in a highly competitive world economy. Yet high taxes persist while the state lives beyond its means, unfounded regulations proliferate, and policies go on without regard for private-sector job impacts.

The hardest hit in California by far has been the manufacturing sector, which pays an average wage of $66,000. The sector has been the state's driving force for postwar prosperity from the aerospace industry in the '80s to high-tech in the '90s.

The Milken study finds that the state would have benefited from $75 billion in additional wages and $100 billion in added economic output if California had simply maintained the same level of manufacturing from 2000 through 2007. The wages alone would have created $5 billion in annual tax revenue to the state. Further, the study pointed out that California is the only state among its competitive peers that doesn't have a long-term economic development strategy. This void is the glaring genesis of California's current chaos.

Taxes, spending and regulations in California are in large part due to the unaccountable actions of a short-term legislative roster with no long-term strategy for private-sector growth. Put simply, job growth is far too often the rhetoric of press releases but seldom finds its way into policy and legislation.

Recently, the Economist magazine reported in a California-Texas comparison that, "high taxes, coupled with intrusive regulation of business and greenery taken to silly extremes, have gradually strangled what was once America's most dynamic state economy. By contrast, Texas … has coped well with the recession, with an unemployment rate two points below the national average and one of the lowest rates of housing repossession."

The Milken Institute underscored this point by comparing California and Texas high-tech manufacturing gains as a percentage of each state's economy from 2000 to 2007. California was up 7 percent while Texas was up an astounding 89 percent. The national average was a 39 percent increase. We are losing, and we are losing badly in the race for high-wage jobs.

In a diverse economy, there is a constant churn of jobs; some economic sectors create new jobs and other sectors lose jobs. An analysis of jobs data reported by the Employment Development Department reveals that between 2001 and 2008, California created about 733,000 new jobs, but lost about 700,000 existing jobs for a net gain of 33,000 jobs.

Further analysis of the sectors in which those jobs were created and lost reveals that while the lost jobs, mostly in the manufacturing sector, paid an average wage of $69,000, the new jobs, mostly in the service sectors, paid only $43,000.

Perhaps what California needs most is a comprehensive economic development policy where policy proposals are weighed against their ultimate impact on the economy. Our priorities should lead with economic growth and the creation of high-wage jobs.

Stephen Covey said, "Priority is a function of context." We have all the context we need. California's priorities must now go beyond well-meaning but reckless policy development and focus on creating sustainable economic growth where the private and public sectors both flourish. The window to increase California's economic competitiveness and expand middle-class jobs is open. Let's not miss the opportunity.

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