California is losing some of its highest profile corporate residents to Texas, raising questions about its business climate.
The timing could not have been more ironic.
As veteran Democratic operative Dee Dee Myers — she was Bill Clinton’s press secretary at one point in her lengthy career — became Gov. Gavin Newsom’s new ambassador to business this month, three of California’s biggest and best known corporate entities announced moves to arch-rival Texas.
The splashiest émigré is Elon Musk, founder of the Tesla electric car company and other high-technology firms, who had already chosen Texas for expansions of his automobile and space businesses.
Musk revealed his personal move at a business conference and compared California to a sports team with a long winning streak, saying, “they do tend to get a little complacent, a little entitled, and then they don’t win the championship anymore.” California, he said, “has been winning for a long time. And I think they’re taking them for granted a little bit.”
Very quickly, two other stalwarts of the San Francisco Bay Area’s high-tech community also announced departures to Texas, Hewlett-Packard Enterprise Co. and software giant Oracle.
Hewlett Packard Enterprise is building a “state-of-the-art” campus near Houston for 2,600 workers and said, “HPE’s largest U.S. employment hub, Houston, is an attractive market to recruit and retain future diverse talent.”
Oracle, which is moving its headquarters to Austin, said, “We believe these moves best position Oracle for growth and provide our personnel with more flexibility about where and how they work.”
The three announcements — and Musk’s comments especially — renew a question that has hovered over California for several years: Do the state’s high taxes, high operating and living costs and a political drift to the left make it hostile to business? And, parenthetically, does Texas, which has no personal income tax and is a reliably conservative, pro-business state, benefit from that perceived hostility?
“Anyone who doesn’t believe that this latest departure isn’t a threat to California’s economy is a business climate denier,” Jim Wunderman, president and CEO of the Bay Area Council, said in a statement. “We are watching the unraveling on one of the world’s mightiest economies and the consequences will be devastating. California for too long has willfully ignored our awful business climate, even as we’ve enjoyed incredible success and prosperity.”
Wunderman added, “We can’t afford to dither any longer or California will permanently lose hundreds of thousands if not millions of jobs to states like Texas that place value on business and investment.”
Clearly the COVID-19 pandemic has had an effect on corporate attitudes. Many employers are now embracing work-at-home arrangements that make physical location less important and the Bay Area has been seeing an outward migration to communities, such as Sacramento, with less congestion and lower housing costs as a result. In that sense, moving headquarters staff to low-cost Texas buys more bang for the buck and makes perfect sense.
But there are other recent developments that may have a cumulative effect. They include state legislators’ calls for higher personal and corporate taxes, political efforts to help unions organize workers in the high-tech sector, legislation to dictate corporate board memberships, and direct slaps such as San Francisco’s new tax on corporations whose chief executives are paid over 100 times more than their rank-and-file workers.
We may have reached a tipping point in which the disadvantages of doing business in California outweigh the advantages. We should remember what happened to Detroit, which was the Silicon Valley of its day a century ago, but took its prosperity for granted and paid a heavy financial and social price for its complacency.
Good luck, Dee Dee. You’ll need it.