California Wants to Attract Jobs – But What About Retention?

With all the focus on encouraging new business, what about keeping the ones you have?
by | May 13, 2010 AT 3:00 AM

In April, Gov. Arnold Schwarzenegger created the Governor's Office of Economic Development, coordinating 100 programs in 28 state departments to establish, in the Governor's words, "a one-stop shop" for businesses looking to grow in California.

Unfortunately, the Golden State's reputation for high business costs and heavy regulations might outweigh any efforts to improve permitting or proactively create jobs. In general, when policymakers think of economic development, they tend to think in terms of tax incentives to attract particular companies, workforce training programs or providing small businesses with access to capital.

With all the focus on encouraging new business, what about keeping the ones you have?

That should be a much easier task. Imagine you owned a small manufacturing company. Think for a moment about how difficult it would be to relocate. You'd have to move equipment, reprint all marketing brochures, find a new site and, most importantly, risk losing skilled workers reluctant to transplant their lives to a new location. You wouldn't make such a change unless it was an economic necessity, right?

But that's exactly what Hayden Automotive recently did: "Hayden Automotive, which makes automotive fan clutches and transmission oil coolers in Corona, is moving to Texas. Hayden will relocate its entire operation...." In moving the 49-year old business and most of its 97 employees, officials cited "strategic considerations and competitive pressures."

Hayden Automotive is hardly unique. In California, the list of closing and moving plants is long. In testimony before the state legislature about the looming closure of a Riverside plant, Cal Portland Cement's CEO James Repman stated that: "A cement plant cannot be picked up and moved, but the next new plant probably won't be built in California meaning more good, high paying manufacturing jobs will be lost to Nevada or China or somewhere."

Cal Portland and its heavy cement trucks were hit hard by California's new, strictest in the nation's emissions rules. But since it opened its first plant in Colton, Calif., in 1891, it's been providing jobs, paying taxes and making a profit -- which is what good businesses do.

Policymakers in the area of economic development might want to start reading the same websites that business decision makers read, such as the The Business Relocation Coach, which advises businesses on where to locate and expand their businesses. Here's an observation from a recent column:

The risks of running a business in California are growing as state government is unable to restrain spending, state debt grows and interest costs paid by personal and business taxpayers become ever more burdensome.

A sure-to-come increase in taxes to cover the "new" $21 billion shortfall will only encourage more companies to move out of state, or if maintaining a headquarters here, will elect to expand in more business-friendly states.

The debt and taxes in California are a deterrent to job creation. Can Schwarzenegger's new coordinating agency fix that? In his YouTube address announcing his new Office of Economic Development, Gov. Schwarzenegger said the office would make starting or growing a business "as painless as possible, because we'll be cutting through all the red tape and streamlining state bureaucracy. And believe me, there's a lot of state bureaucracy." While it's nice to streamline, maybe part of the problem is that the state is running 100 programs in 28 state agencies in the first place. All that job-creating bureaucracy costs money, and that means job-killing taxes.

If your state isn't business friendly, billboards and "one stop" permitting won't matter. Marketers know that it is many times more expensive to attract a new customer than it is to retain existing ones. The same is true with jobs. Instead of working so hard to spur job growth, lowering taxes and easing regulatory burdens can enable existing businesses to thrive.