What city, state, and even country in which you choose to ply your trade may be an increasing determinant of your chances for success. I think it is crucial for all owners to keep a clear focus on the macro-economic picture as well as on the quotidian rigor, passion, and creativity we pour into our firms.
I was caught by several headlines over the last month. First of all, the good news. Manufacturing is increasingly returning to the shores of America. Outsourcing has proven less than utopia for many companies and they are coming home. This is abetted by the increasingly rosy picture for cheap energy in our country, as well as the steady rise in the cost of labor overseas.
Now the bad news. Business is indeed returning—but only to certain states. Business is not and will not return to states like my beloved New York. Or to California. Or to New Jersey. Or to Illinois. Or to any of their benighted business-loathing, bureaucracy loving, blue state colleagues. These states will continue to bleed jobs and tax base.
Why is that? Look no further than recent headlines. Note the WSJ on May 2, 2014. Headline—“Toyota Escapes to Texas.” WSJ and the NY Times (April 29, 2014) report that Toyota plans to move 3,000 high-level (now revised up to 5,000), well-paid jobs from California to Dallas. Yup, that’s right podnuh. Yippee-o-ki-yay. Toyota is merely following the lead of its rival Nissan, which moved its headquarters to Nashville, Tennessee seven years ago for the same reasons. Additionally, Toyota’s CEO, Jim Lenz stressed that this move was not because of any incentives, but simply because Texas likes business. It welcomes it. Texas is truly business friendly, in addition to having affordable housing and zero income tax. The state-local tax burden is over 50% higher in CA. Electricity is also 50% higher. Just since 2011 over 25 companies—big companies—have moved to Texas.
Gov. Jerry Brown of CA, promoting his re-election, seems unconcerned. He says, “We’ve got a few problems, we have lots of little burdens and regulations and taxes, but people figure out how to make it.” Yes, they do, Jerry. They figure out how to make it elsewhere.
You may say that in NYC and Silicon Valley technology companies are booming. True enough. But how long can you disincentivize entrepreneurs till they move to Austin, Houston, San Antonio, Dallas, Nashville, Charleston, and Miami? Not forever, that’s for sure.
Note this headline in the NY Post from May 25, 2014–“Business Not Loving New York.” It documents why outsourced jobs won’t come back to NYC. The post quotes Neal Asbury, CEO of Legacy Companies, as saying, “If you are a businessman thinking of bringing jobs back to the 50 states, NY is at the bottom of that list….You have a governor telling you he doesn’t want conservative businessmen in his state and a NYC mayor obsesses with raising taxes to pay for even more entitlements. That’s not sending a great message.” Entrepreneur Art Shectman of Elephant Ventures, a 25-person midtown Manhattan digital strategy and consulting firm, says, “You pay $150,000 a year here for someone who will do the same job in the mid-west for $90,000.” That’s why CEO Magazine ranks NY 49th in business climate and and Texas #1.
In addition to California and New York, Forbes lists Massechusetts, NJ, Connecticutt, and Illinois among the top states people are fleeing in droves. And I would posit they are leaving these states as much because of their top heavy, inefficient bureaucracies as their excessive taxation. These states seem to go quite out of their way to throw up regulatory barriers in front of creative, disruptive job creators. Stupid.
Furthermore, on the international scene, four weeks ago Pfizer proposed a corporate marriage with British rival AstraZeneca simply to move their operations overseas (to Britain), away from the stifling US medical bureaucracy. And on June 16, Medtronic bought Covidien, an Irish company, to basically reincorporate as an Irish company themselves. (Note WSJ, 6/17/14, p. A12)
For several years the state of Michigan ran millions of dollars of TV ads featuring the charming actor Jeff Daniels as spokesman. But Michigan did not start to recover it’s mojo till it became a right-to-work state and reigned in its bloated bureaucracy last year. New York also has a massive new PR campaign with the slogan, “New York is open for business.” But NY is not open for business. Saying it over and over with millions of dollars in ads does not make it true. As in Michigan, I doubt PR will slow the NY exodus. Entrepreneurs are not fools. The fact is that only by really coming to culturally love business will there be a stop to the bleeding in these business unfriendly states. Like in Tennessee. Like in Texas. Like in North Dakota. Like in Florida. Like in Wisconsin. Like in Indiana. And now like in Michigan.
Ayn Rand understood this all too well. In Atlas Shrugged, her hero, John Galt, understood that prosperity and jobs do not come by government decree but from risk-takers willing to compete and create. At a pivotal point in Atlas Shrugged, John Galt faces a national TV audience and is asked what is to be done. His answer? “Get the hell out of my way.” I think that’s primarily what most of entrepreneurs want from government at any level. Thank you, John Galt.