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Marketplace Scratch Pad

The new war between the states

Scott Jagow Aug 27, 2009

Just about every state has budget wounds. Some, like California, look like they’ve been shot more than Sonny on the causeway. In California’s case, its neighbor, Nevada, smells the blood and is attacking with ferocity.

Check out these ads telling California businesses to get out while they still can:

At least one California assemblyman is offended by this campaign. His website California is Golden urges businesses to sign a petition that “I love California and am not leaving the state.” There’s also a Facebook page. It has 117 members.

And of course, there’s a counterattack ad: “Let’s face it, what happens in Vegas, stays in Vegas. But what happens in California makes the world go ’round.”

The Los Angeles Times has an op-ed piece today saying this aggressive courting of business is a spectacular waste of time and money:

The fact is the come-hither look is useless: Relatively few businesses, once they’re formed, pick up and move across state lines. Over the last several years, the nonpartisan Public Policy Institute of California has done exhaustive research trying to measure precisely how many jobs California has lost because of such moves, while also measuring the offsetting number we have gained from businesses moving into the state. The conclusion? The impact is tiny. The researchers found that the average annual job loss was only .06% of California’s total employment. Just to be clear, that’s not 6%; it’s six one-hundredths of 1%…

In other words, most businesses live and die where they are born, thriving or failing on the merit of their product, the wisdom or imprudence of their managers’ decisions and the luck of the marketplace.

When that truth is ignored, often because of the kind of one-upmanship foolishness embodied in both the Nevada and California ads, states can participate in a tax-cutting competition that does them more harm than good. Taxes, after all, fund things that businesses need.

The ads reek of desperation, and I suppose that’s fitting, considering that one state has been issuing IOU’s and the other has pinned its hopes on roulette wheels and now-foreclosed subdivisions.

Know of any other states trying to tear each other to shreds?

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