Last year’s worry about a budget deficit and the departure of big tech companies from the state has been replaced with a debate about how to spend the $ 75 billion budget surplus.
Lost in this embarrassment of wealth is concern for the long-term health of the California economy and the industries that will be needed to fund the state’s ongoing government liabilities.
While the shockwaves of the initial departures of Hewlett Packard, Oracle and others have faded, the issues that prompted these companies to relocate still exist and need to be addressed.
Sadly, concern for the welfare of the state’s corporate economy comes and goes. In 2013, the California State Assembly’s Committee on Jobs, Economic Development and Economy argued that “As the state emerges from the global recession, there is a need to reassess the strengths of the State in terms of innovation and consolidate its weak points. “
This imperative still exists. But rather than consolidating weaknesses and expanding the state’s leadership role, the state is focusing more on spending money out of pocket and regulating the innovation economy. For example, in 2018, the state legislature passed the California Consumer Privacy Act (CCPA), with an estimated cost of compliance estimated at $ 55 billion. In 2019, the Legislature passed Assembly Bill 5 to regulate the use of independent contractors, which increases costs for employers and cuts jobs for people who need the flexibility offered. by the status of independent entrepreneur. Then, in 2019, voters approved the California Privacy Rights Act, which added more state mandates and created a new regulatory agency, the California Privacy Rights Protection Agency (CPPA).
Why worry about the future of the innovation economy if the government has a huge budget surplus and all is well?
Works. The innovation economy isn’t just limited to big companies and startups located in Silicon Valley, there are a growing number of tech companies in Orange County such as Mophie in Tustin or WhiskerCloud in Newport Beach that offer jobs and economic opportunities.
In its 2019 Workforce Indicators Report, the Orange County Business Council (OCBC) said, “It is increasingly clear that companies that use data effectively and creatively are the performers in the modern economy, resulting in a sharp increase in job creation for professions such as business intelligence analysts. The report also found that “high-quality employment opportunities will increasingly be concentrated in occupations that use both technology and non-routine cognitive skills.”
Income and social programs. The pandemic has also revealed the resilience of the innovation economy and the economic benefits provided by the sector. According to the legislative analyst: “While many companies have struggled throughout the pandemic, California’s tech sector has thrived. Several large companies have posted historically high profits. Expanding companies have raised record amounts of funding through initial public offerings. Venture capital funds continued to flow to California startups. When tech companies are successful, their employees’ compensation goes up. This, in turn, strengthens state income tax collections. “
It is clear that the continued growth of the innovation economy is essential for financing education, health care, local government and various social protection programs. If the revenues of the technology sector decline, the funding of priority government programs will also suffer.
Mark. California has a trademark to protect. Governor Newsom recognized the need for California politics to match the image when he said, “It is this entrepreneurial and innovative spirit that has enabled California’s diversity to flourish and the economy to grow and become one of the largest in the world. The departure of branded companies is not a threat to the California economy, but a harbinger that business frustrations continue to grow, and then small signs of dissatisfaction could become a much bigger problem for the state. .
What should the state do?
First, the state needs to make a serious effort to understand the factors that cause some businesses and jobs to leave California – lack of housing, high taxes, regulations and lawsuits, or hostile state government rather than helpful. There is no illusion that the state will radically change its policies, but significant adjustments can be made to support the innovation economy and create a more positive business climate.
Second, the legislator must relaunch the efforts of the Assembly’s Committee on Employment, Economic Development and the Economy to understand the opportunities of the innovation economy and determine the actions needed to support economic growth. and employment. The state needs an economic and innovation plan, not just a state budget, to take advantage of the abundance of additional state revenues and federal stimulus assistance. An economic plan will force the state to focus on programs that will have a lasting impact on the state.
Third, the state must assess the business climate impacts of California’s aggressive regulatory and legal activities targeting the tech industry. The state must refrain from targeting California businesses, large and small, with punitive actions and lawsuits. For example, new privacy laws expand government enforcement powers and increase fines for breaches. Instead of focusing on penalizing businesses with fines and lawsuits, the attorney general and state agencies should focus on promoting compliance. Prosecuting employers should be the last resort.
The pandemic has taught us that the innovation sector is key to delivering on promises made to the next generation of California workers and entrepreneurs. Before decisions about the spending madness are completed, the state must restart the planning process. This is the immediate task of good government.
John Kabateck is California State Director for the National Federation of Independent Business.