March 24, 2004, 8:57 a.m.
Exodus from California
Outsourcing happens between states, so why shouldn’t it happen between countries?

One of the oldest forms of outsourcing is when industries and commercial establishments move from one state to another to lower the cost of doing business and thus achieve a higher rate of return per investment. That, too, is outsourcing — and yet somehow it has not been criticized as immoral, unpardonable, and un-American. Why is outsourcing to Mississippi to escape tax and high-wage burdens in California acceptable but outsourcing to India or Bangladesh is not?

California is a good example of this double standard. The California Business Roundtable has described California's business climate as "atrocious." The Roundtable surveyed more than 95 percent of the state's industry sectors, including both small and large businesses.

Despite high worker productivity, a high concentration of science and technology workers (think of Silicon Valley), and available venture capital, companies seeking to expand or relocate avoid California even with a conservative governor like Arnold Schwarzenegger in office.

Here's what the Roundtable survey found:

1. The cost of doing business in California is 30 percent higher than the western-state average.

2. Almost 40 percent of the California decision-makers participating in the Roundtable survey plan to "outsource" jobs from California to other western states, preferably Texas.

3. Half of the companies have "explicit policies to halt employment growth in California while less than five percent of companies have retention policies in place to keep jobs in California."

4. Last, California's "regulatory environment is the most costly, complex and uncertain in the nation." Regulatory costs are 105 percent higher in California than in other western states.

Outsourcing from one country to another is as legitimate as outsourcing from one state to another. It's a principle from Econ 101. And, it works: Just monitor California.

— Arnold Beichman is a Hoover Institution research fellow.