California: Elon Musk is Moving His Business to Texas or Nevada
By: Information Palace
Tags: Anarchy, Bayarea, Annalee

Tesla founder Elon Musk said on Twitter a few days ago that he had enough of California and is moving his business to Texas or Nevada.

Frankly, this is the final straw. Tesla will now move its HQ and future programs to Texas/Nevada immediately. If we even retain Fremont manufacturing activity at all, it will be dependen on how Tesla is treated in the future. Tesla is the last carmaker left in CA.

— Elon Musk (@elonmusk) May 9, 2020

Musk reopened the car plant in Fremont, in defiance of state and local authorities. The business and county health bureau had apparently found an agreement within a day that would allow the plant to operate legally.

It is impossible to tell whether the announcement Musk made that he would move his business was genuine.

Maybe it was just a way of expressing resentment and gaining the attention of the representatives of the state and counties. But, this is yet another hint that the peculiar benefit of California has come to an end.

Regional Value

I demonstrate how simple doing business drives the prosperity of countries and regions in my recent book Friction. Thirty years ago, China and India’s economies were approximately equal in scale. Today, China’s is eight times larger. There are many reasons for this disparity, but one big one was the Byzantine bureaucracy of India and what was known as the “License Raj” just before that period. Would-be Indian entrepreneurs found it easier to operate in the informal economy or simply to leave the nation to better business environments.

California’s Silicon Valley prospered in the early days of chip manufacturing and mini-computers, partially because of its ease of doing business. Researcher AnnaLee Saxenian wrote a whole book about how the greater concentration of big technology companies and superior universities in Boston was not a match for the free-wheeling business environment in Silicon Valley.

A potent mix of trust, helpful suppliers, easy financing, and inter-company mobility resulted in California growing faster. Its chip dominance and low-friction business environment enabled Silicon Valley to lead the way first in personal computers, then in software and finally in web and mobile technology. The accumulation of talent and resources fueled the development and brought businessmen from all over the world into the Bay Area.

California ‘s popularity has waned in recent years, even to technology businesses. The cost of living, driven by both taxes and housing, is among the highest in the country, with a average family of four seeking income in excess of $11,000 a month.

Regulatory disinclination

Although living costs may be the biggest obstacle to business growth in business centers in California, laws and regulations present challenges as well. For better or worse, California is a leader in stringent environmental laws, statewide rent control, job classification of contractors and other areas generally considered unfriendly to business.

In Friction, I propose an ideal amount of regulation that maximizes sound economic development.

To ensure contracts are enforceable, workers are not harassed or threatened, and so forth, some form of regulation is required. Anarchy is not the bureaucratic alternative. But as laws and regulations proliferate beyond what is required, the cost of business rises and economic growth stunts.

Costs to do business

The new CNBC rankings place California dead last among U.S. states in “cost of doing business.” Forbes places California at # 47 for “cost of business,” and # 40 for “regulatory environment.”

Helped by an extensive talent pool and a historically strong economic climate, California ranks on both lists in the low 30s for business attractiveness. That is below average, but it explains how the state has managed to stay a little prosperous in the face of what appears to be serious handicaps.

The Beginning of the End

It shows that frustration is reaching new heights when a California booster like Elon Musk says he is going to leave. The stringent lockdown of California has kept the incidence of COVID-19 infection on the state below many other populated states. But their rate is still higher, at least so far, than in more relaxed Texas.

Indeed, for the last twelve years, Texas has been the top destination for companies leaving California. Always close to top of the best states for doing business lists, Texas offers low costs and an environment that is business friendly. As soon as Musk discussed going to Texas he was proposed in public by the mayor of Fort Worth.

“message received.”

A tweet from a State senator, Lorena Gonzales, was symptomatic of California’s attitude towards attracting and keeping businesses. She simply tweeted, “F*ck Elon Musk.”

Message received

— Elon Musk (@elonmusk) May 11, 2020

His answer: “Message received.”

It is probably business owners and CEOs with less clout than the message Elon Musk will get too.

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