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Is the Business Exodus to Texas Real?

Back Commentary Feb 1, 2021 By Winnie Comstock-Carlson

This story is part of our February 2021 issue. To subscribe, click here.

For nearly 160 years, waves of generations have taken the advice often attributed to author and newspaper editor Horace Greeley to “Go West, young man, go West and grow up with the country,” making California an economic powerhouse among the states.

But announcements in recent months that some of the state’s most iconic, homegrown tech companies, including Tesla, Hewlett Packard Enterprise and Oracle, are moving their headquarters to Texas has sparked what seems like speculation that California may not be so golden and that the Lone Star is burning brighter.

The exodus-to-Texas headlines suggest there are caravans of trucks driving east, and I realize many individuals are indeed leaving California for states where the cost of living might be less. As publisher of a business magazine in the Capital Region, the relocation of these large companies concerns me deeply, as the ripple effect could impact all of us. But a look behind the headlines seems to reveal a less dire story for California’s workforce and economy. 

In Tesla’s announcement, founder Elon Musk acknowledges the move was personal (one advantage in Texas: no state income tax) and says Tesla will continue to build cars at its Fremont assembly plant. The same is true of Oracle, which announced that many of the company’s 135,000 employees will have the freedom to work in any location they choose among its 284 locations around the world, including Rocklin and the Bay Area. HPE’s announcement says the company would continue to support its technology hub in San Jose. 

Moving a company’s headquarters doesn’t necessarily mean uprooting a large workforce. That is especially true in certain industries where more commerce is done over broadband than the highways, and employees can work from almost anywhere. That’s even true for the C-suite. Larry Ellison, Oracle’s founder and chairman of its board of directors, plans to work from Lanai, his semiprivate Hawaiian island, defying the idea that a headquarters is defined by having executives in corner offices.

Even so, no matter how symbolic, a company moving its headquarters sends a message. Technology companies that were birthed in the Bay Area have grown into global companies in a global economy. California now has to compete with places such as Denver and Austin, which have developed their own tech centers. And since the tech industry has evolved from hardware development to software products, competition now can come from every part of the world.

Just how competitive is California compared to other states? In its 2019 “Best States For Business” rankings, Forbes has California 31st in its comparison in six categories. Texas and Florida, which offer lower housing prices and have no state income tax, were ranked second and fifth, respectively.

Notably, California ranked 47th among the states for the cost of doing business, with housing affordability one reason for that. We also scored a lowly 40th for the regulatory environment, perhaps reflecting the recent fight over the fate of gig workers and the zealousness of local governments and the state Legislature to over-regulate how business is done. Underscoring that point, the California Chamber of Commerce identified 50 pieces of proposed legislation that it labelled “job killer” bills in 2019 and 2020. Fortunately, only two were signed into law.

On the flip side, Forbes ranked California higher for the factors that have always sparked our economy: 10th for growth potential and first for economic climate. A big reason for that is access to venture capital, necessary to feed new businesses. A PwC report about 2019 shows that California led all states in venture funding that year with $58 billion that fueled 2,311 new businesses. 

In his conversation with Wall Street Journal Editor-in-Chief Matt Murray during the newspaper’s CEO Council Summit in December 2020, Musk says, “There’s a lot of things that are really great about California. … (But) if a team has been winning for too long, they do tend to get a little complacent, a little entitled, and they don’t win the championship anymore. California has been winning for a long time … and they’re taking (companies) for granted a little bit.”

With a new legislative session underway, elected officials need to pay attention. We need to do everything we can to ensure that both new and established businesses succeed and that we achieve that growth potential Forbes sees. As the Forbes ranking shows, “job killer” bills, even when not passed into law, send a strong symbolic message of their own.

Fewer of those would go a long way toward helping California continue to compete in a global economy where rivals come from every geographical direction. 

Winnie Comstock-Carlson
President and Publisher

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Comments

Peter (not verified)February 1, 2021 - 10:28am

A key consideration is that issue of venture capital investment. Long term, how sustainable are businesses who seek to reduce bottom line costs by moving to "cheaper" areas where they may find less spin offs created via venture injection of capital funds.
How sustainable are states who attract large numbers by enticement of low/zero taxes which means building up services and infrastructure needs which need met via state funding.
Europe has played the "rush to the lowest rung" of the industrial ladders, it doesnt bode well for long term unless somethign different is undertaken.

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