Don't Forget About Big Business

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The article further notes that "as our state and nation emerges from this recession job seekers might turn their attention to large employers. There are more than 20 Fortune 100 employers that have at least 200 openings each; in total this is more than 60,000 jobs. These are the companies that are poised to help the economic recovery gain momentum. Not only will they put people back to work through direct hires, but they will create jobs indirectly through relationships with vendors and small businesses. Big businesses have already gone through the growing pains of business development and have established efficient processes and operations. The actions of big business have an economic impact far beyond their own doors. For example, a large cosmetic manufacturer contracts with small businesses to create the bottles, caps and labels that contain their products."

The authors point out that the current realities of the regulatory system in California inhibit business growth and economic development. Regulations and the tax system lead to a significantly higher cost to do business in California, relative to other states. To bring the point home, according to the Tax Foundation, California had the second highest combined state and average local option sales tax at 9.08 percent. In addition, the Milken Institute recently found that metropolitan areas in Texas were among the nation’s best performing cities in terms of minimizing job losses and economic dislocations in the midst of a severe national recession. Texas claimed 11 of the top 25 position whereas California had the most cities that had declined.

The authors state that policymakers need to develop a comprehensive and cohesive way to promote growth statewide for businesses of all sizes across various industries. If companies have more certainty that the conditions in California are conducive for success, they will be more likely to stay here as well as spend more money and hire more people.

According to the authors, there are three ways this can be accomplished.

First, policy makers should create an economic development plan for the state. This plan should focus on spurring investment, job creation, and workforce training so that California can successfully compete in the 21st century. The Los Angeles Economic Development Corporation developed a strategic plan for LA County that will guide Los Angeles growth and business attraction. Our state needs a similar plan so that we can create an environment where both large and small businesses can flourish. This strategic plan will lay the groundwork to solve our state’s financial crisis by creating more jobs and thus more taxpayers to fill state coffers.

Second, policy makers need to enact policies that make California an attractive place to do business. According to the California Manufacturers and Technology Association, California has lost over 600,000 manufacturing jobs in the past eight years and countless jobs from suppliers and small businesses that supported these manufacturers. We cannot allow this trend to repeat itself in other industries. By providing a fair and predictable tax structure and regulatory environment, companies will be incentivized to invest in plants, equipment and technology in California.

Lastly, we need to ensure that legislation and regulations do not stymie economic development. Implementing an "economic impact report" of all regulations and legislation before they are passed into law will ensure that we are creating jobs not sending them out of state. There is precedent for this at both the federal and local level. In 1993, President Clinton issued an Executive Order which established the general principle that the benefits of intended regulations should justify the costs. Similarly, in 2004, voters passed Proposition I in San Francisco which established the Office of Economic Analysis, which identifies and reports on all legislation introduced at the Board of Supervisors that might have a material economic impact on the City.

Governor Jerry Brown and newly elected decision makers need to ensure that businesses of all sizes thrive in the Golden State. An improved business environment for all employers will mean more jobs, more tax revenue and more economic activity. More economic activity will create a growing and more stable source of revenue for vital government programs. So amid all the talk of stimulus for small businesses, let’s not forget that America's largest companies serve a critical foundational element in our economy. California would be wise to enact policies that position them for success.

David M. Smith, Ph.D. is Associate Dean of Academic Affairs and Associate Professor of Economics at Pepperdine’s Graziadio School of Business and Management. Steven D. Todd is Principal at Sales & Marketing Training and Development and Vice President of Sales at Logos Health Systems.