By: Cynthia Kurtz
Posted: 5/14/2014
By now everyone has heard the news - Toyota is moving 3,000 jobs out of Southern California to Texas. Is this just part of the normal evolution of a business or is it a sign that California has lost its competitive edge? The answer seems to depend on whom you ask.
The Los Angeles Times ran an article claiming Toyota’s departure is simply a business decision to consolidate three corporate offices in a place closer to its manufacturing facilities. The article went even further saying that “taxes, regulations and business climate appear to have had nothing to do with Toyota’s move.”
The article cited statistics and experts. Based on a study conducted by the Public Policy Institute of California, companies leaving the state accounted for less than 2 percent of jobs losses in California. The study covered 1992 to 2006 but experts don’t think the percentage has changed greatly since 2006.
Good Jobs First, a national policy resource center also downplayed the idea that California is losing jobs because of its business environment. They contend that jobs are created by existing businesses not by companies moving from other states.
On the very same day and at the other end of the political spectrum, the Wall Street Journal proclaimed that the South is beating California when it comes to being a competitive locale for business. It quoted Jim Lentz, Toyota’s chief executive for North American. He admitted that the $40 million in relocation benefits that Texas offered wasn’t the deciding factor in the decision to move. Primarily, Toyota will be consolidating closer to its other operations in order to improve management efficiency. However, in comparing California to Texas, he did note the latter’s business friendly environment, affordable housing and zero income tax.
The Journal article cited specific policies as contributing to California’s overall job losses. Comparing California to Tennessee - where Nissan moved a few years ago - and Texas where more than two dozen California companies have moved since 2011, they found that right to work laws in those states keep labor costs lower, real estate is cheaper due to less restrictive zoning and environmental regulations, taxes are lower, energy costs are 33 percent lower and gasoline is 70 to 80 cents per gallon less expensive.
Who should we believe? Actually both perspectives hold some truth.
The Public Policy Institute‘s study show that a low percentage of job loss is due to companies leaving is true. Although one has to question the idea that the numbers haven’t changed since 2006. Everything in business has changed since 2006. But even if the number has doubled or tripled, it is still a small percentage.
Good Jobs First is also right. More jobs are created by growing them at home than by attracting new companies into a state. But you also need to keep the companies you have! A loss like Toyota does not total just the 3,000 Toyota jobs being lost. It must also count its vendors, the suppliers around Torrance, the entire supply chain of materials and services they use including the lunch places next door. These small and medium size businesses create a vast number of new jobs but they stop creating jobs when the corporations they support move away.
There are many factors that go into a company’s decision to move. Consolidation to gain more efficiency is certainly one of them. But companies also look at the cost of labor, land, regulations, taxes, and energy. The list of reasons why CA is less competitive is too long.
The idea that our good weather, good colleges and universities, and an innovative spirit are going to carry us through no matter the consequences of our regulatory and tax policies is dangerously naive. Rather than explain Toyota’s decision away, let’s use it as an opportunity to make California better and attractive to homegrown as well as outside companies.
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