California: CEOs Rate It Worst U.S. Business Climate For 8 Years Running

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California's economy continues to experience a tepid recovery since the Great Recession. One reason why: according to CEO Magazine, California has had the worst business climate in the nation for the last eight years, due in no small part to policies out of Sacramento.

Any economic growth in the Golden State is largely driven from the continued tech boom in Silicon Valley - although even it may not be immune to California's poor business climate. Depending on how one categorizes "small businesses"- typically, either fewer than either 50 or 100 employees - as of the 3rd quarter of 2012, between 96% and 98% of all businesses in California were "small." At the fewer-than-100-employees classification, small businesses employed 55% of California's total workforce. As such, how California's business climate affects small businesses has big consequences for growth prospects.

Earlier this month, advocacy group Small Business California released its annual survey of small business executives. While most reports noted a renewed economic optimism among executives, a more granular look at the survey's results suggest otherwise.

Roughly half of the executives surveyed believe California is heading in the wrong direction (even worse than Californians on a whole as recorded in the Hoover Institution's January Golden State Poll). This view is likely driven by the fact that, by a four-to-one margin, small business executives say the "business climate in California" is either very poor or poor, while a whopping 64% say the "business climate for small businesses" is such.

Executives likely get this impression of the business climate by looking at the results of their own companies. Roughly an equal share of executives said they experienced gross revenue decreases as those who experienced increases over the last year and two-thirds of executives said they do not plan on hiring new employees over the next six months (likely because a plurality-41%-believe the business climate for small businesses will get somewhat or much worse over the next few years). Moreover, over the last six months, 41% believe the economy in California has stayed the same. As noted in this Defining Ideas essay, California's economy appears to be stuck in neutral - obviously, not a good circumstance when a state is trying to recover from a terrible economic downturn.

California's poor business climate is its own doing. There is nothing inherently different about California than, say, its western or Sunbelt rivals. The differences lie in what policies the states' elected leaders pursue. And here, small business executives are very clear about how Sacramento can improve the situation. Strong majorities prioritize addressing the economy (83%), the availability and rising cost of health care (78%), the quality of education (73%), the amount of regulation facing small businesses (68%), California's infrastructure (62%), immigration reform (59%), and, finally, reducing state taxes (57%).

None of these issues should come as a surprise as they're all regularly mentioned as impediments of economic growth and improving the business climate. Unfortunately, they don't carry the same weight under the Capitol dome as such left-of-center obsessions as California High Speed Rail, gun control and solving the climate-change conundrum. And, of course, that most pressing of economic reforms: banning Shamu shows at Sea World. Not surprisingly, business leaders say they're largely ignored: of the 56% who said they've contacted either their state representative or the Brown Administration, two-thirds say their outreach had no impact on state policy decisions.

Despite its shortcomings, California has much going for it. That said some of those long held advantages are beginning to decrease as the Golden State's K-12 and public university systems struggle, its infrastructure weakens and crumbles, and the lack of affordable housing and high cost of living makes the "California Dream" unattainable for the working class. Until Sacramento leaders acknowledge California has a business climate problem, its poor standing with business leaders both in and out of state will only persist leading to continued lackluster economic growth.


Carson Bruno is the assistant dean for admission and program relations at the Pepperdine School of Public Policy. Follow him on Twitter @CarsonJFBruno.

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