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New economic study puts it plainly: California’s competitive edge is declining

This story appeared in Calmatters

A truck arrives to pick up a shipping container at the Port of Los Angeles, on Nov. 30, 2021. Photo by Damian Dovarganes, AP Photo

In summary

A new study analyzed California’s economic competitiveness compared to other states and found that its edge is now narrowing.

Has California lost its mojo?

This question, framed in various ways in media and political venues, has hung over the state in recent years as its population declined after more than 150 years of growth, as some major corporations (and their workers) decamped for other states, and as poverty, homelessness, urban street crime and other social maladies festered.

While California’s critics and defenders, both internal and external, cite isolated anecdotes and data points to bolster their arguments, there have been very few comprehensive and objective examinations of California’s strengths and weaknesses vis-à-vis its rivals.

Until now.

On Monday, the Los Angeles Area Chamber of Commerce released a deeply sourced and fair-minded study of California’s past, current and perhaps future economic standing, indirectly warning the state’s politicians that they should not take the state’s prosperity for granted because its rivals are gaining ground.

“We argue that California has been, and continues to be, the perennial winner in the overall competition that is the economic equivalent of an Olympic decathlon among the nation’s states,” the study declares. “However, other states have narrowed the gap or even captured top honors in an increasing number of event contests.”

In a statement, Maria Salinas, the Los Angeles chamber’s president, said: “We wanted to look at why California-based businesses continue to leave and whether the state was doing enough to stem the flow of business outbound migration.”

A major aspect of the study is viewing California not so much as a single entity but as a collection of regions, each with strengths and weaknesses, with a particularly focus, understandably, on Southern California.

It notes that while the Southland contains most of the state’s population and jobs, it generates only about 40% of California’s economic output – a disparity compared to Northern California, which has emerged over the last few decades. While Northern California, especially the Bay Area, focused on developing a high-technology economy, Southern California’s leaders opted for logistics – becoming a center for the global movement of goods – and its long-standing entertainment industry.

The study suggests that due to the state’s regional differences, “a one-size-fits-all approach to economic development in the 21st century must give way to a regional approach, one that not only looks at the differences across the state’s regions but also incorporates a meaningful understanding of the regions around the country to which the state’s regions have economic ties.”

“Other states are catching up to California in part because their regions more closely resemble California’s in terms of industry composition, workforce opportunities and amenities,” the study concludes. “In fact, given the acceleration in firm and population migration over the past decade, it appears that the gap between California and its closest competitor states has narrowed significantly since the Great Recession. The question is, what steps must it take to maintain its advantage over other states in the coming years?”

The chamber’s release of its economic study is quite timely, coming as Gov. Gavin Newsom and the Legislature consider dozens of bills that could affect California’s competitive position. They include those addressing the high cost of housing that is a major factor in personal and corporate departures, homelessness, taxes, employment costs and regulation, including the California Environmental Quality Act.

Unfortunately, one senses that those in the Capitol lack awareness that California is competing with other states for job-creating investment. Their prevailing attitude is that California will always be an economic powerhouse no matter what expenses and regulations are imposed on employers at the behest of powerful interest groups.

The facts presented by the Los Angeles chamber’s study underscore the fallacy of that assumption.

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