IE Business Daily Business news for the Inland Empire.
According to the Fraser Institute, an independent Canadian public policy research and educational organization, the State of California ranks 2nd to last of 50 states in economic freedom.
The Economic Freedom of North America report released in December, ranks jurisdictions based upon their levels of economic freedom (measured by government spending, taxation and labor market restrictions) using data from 2013, the most recent data available.
The report ranks all 50 US States, 32 Mexican States, and 10 Canadian Provinces.
According to Dean Stansel, economics professor at Southern Methodist University and co-author of the study “the freest economies operate with minimal government interference, relying on personal choice and markets to decide what’s produced, how it’s produced, and how much is produced. When governments impose restrictions on these choices, there’s less economic freedom.”
49th out of 50. California ranks better than just one other state, New York. New Hampshire ranked first, followed by South Dakota, Texas, and Florida. According to the study, many Canadian provinces such as Alberta, British Columbia, and Saskatchewan outperform their neighbors to the South.
These numbers should not be surprising. Government regulations in California cause our state to have the highest taxes, highest energy and gasoline prices, and highest housing costs in the country give or take a ranking. These costs do not exist in a vacuum. They are passed on in the costs of goods and services every Californian business and consumer must absorb in every facet of our lives.
In the business world, these costs are factored into where they will locate, relocate, or expand. This is why the only real economic expansion in California has been among high tech firms located in Los Angeles and San Francisco. These “Intellectual Property” (IP) companies, such as Google, Yahoo, Apple and Facebook base their value on intellectual capital, unlike manufacturing of real goods which has to absorb far higher costs for resources. So while the IP companies can succeed in California, manufacturing has been leaving the state in droves over the last thirty years.
Even these IP companies that are involved with manufacturing hard goods, like Apple, manufacture their products somewhere else.
As higher and higher energy and regulatory costs increase in comparison to our neighboring states, businesses not related to intellectual production have found that they can no longer succeed in California. They have either closed up shop or moved, as Toyota and many others have. With those businesses, have gone middle class jobs.
California’s widening gap between rich and poor, and its declining middle class are issues that can no longer be ignored. Thirty percent of the entire country’s welfare recipients now reside in California, even though we have only twelve percent of the US Population. Housing has become unaffordable for half of California’s population.
There is another conundrum California faces. The Dot-Com Bubble of 2000 saw a huge plunge in technology company value, stocks, and employment. As California’s employment and finances become even more dependent on these IP companies, our economy is facing another eventual bust in California’s now traditional boom-bust economy. Yahoo just announced layoffs. Apple has seen a dramatic drop in stock value. The IP Companies have lead the way in what must at least be considered a downward correction in the stock markets. As California’s economy becomes more dependent on these companies and less economically diverse, how much worse would another “tech” bubble affect California?
California now ranks 10th highest in income inequality. This is growing worse as the concentration of wealth continues to grow in certain parts of Los Angeles and San Francisco.
Can a state truly survive with what is becoming an economy with a declining middle class, growing poverty, and severe wealth accumulation among a very small percentile?
California will lead the way into that discovery.
