Chevron and SpaceX withdraw from California. Are these unprofitable statements legal?

California lost a major multinational company this month when Chevron announced plans to move its headquarters to Houston, and another high-profile California company announced its departure from the state — Elon Musk said in July that he would move SpaceX and social media platform X to Texas as well.

The politics surrounding such moves are in the spotlight as the 2024 presidential election is dominated by California Democrat Kamala Harris. In short, will the bad business climate drive people and jobs out of California?

Critics have decried some of the state’s environmental regulations, taxes and liberal policies. More than 350 companies moved their headquarters out of the state between 2018 and 2021. Eleven of them were Fortune 1000 companies.

But California’s supporters point out that the state ranks high on a range of economic indicators, including gross domestic product, agricultural production and manufacturing. The number of California tech startups has surpassed the number of departures, at more than 7,600 over the past five years. California is also home to the most Fortune 500 companies — 57.

“It costs money to be here, but you also gain something,” said Loren Kaye, president of the California Business and Education Foundation.

Chevron lost a major multinational this month, California Announce The move to Houston follows another high-profile announcement by Tesla executives that they would leave California, when Elon Musk said in July that he would move SpaceX and social media platform X to Texas.

The politics surrounding such moves are in the spotlight as the 2024 presidential election is dominated by California Democrat Kamala Harris. In short, will the bad business climate drive people and jobs out of California?

How bad California is depends on who you ask. Critics and defectors decry the state’s aggressive environmental regulations, high taxes and socially liberal policies. Supporters point to the state’s high rankings on a range of economic indicators and quality of life, symbolized by year-round sunshine, sandy beaches, redwood forests and jagged Sierra peaks.

The state’s illustrious history of Hollywood and tech giants proves that with the right idea, the right connections and perfect timing, you might be able to strike it rich here, too. The state’s motto remains “Eureka!”

While the ancient Greek phrase means “I have found it,” today the question that many people are most concerned about is “Can I keep it?” High costs have become a key factor in the migration of individuals and businesses out of the country. Critics say the Golden State economy is no longer the Golden State.

“The California economy exists simply because it’s the most wonderful place on earth,” said Lance Christensen, director of policy and government affairs at the conservative California Policy Center.

But the situation here is delicate, and California advocates say the state should keep its morale high.

“When you look back, you have a perspective,” said Lenny Mendonca, a former top economic and business adviser to California Democratic Gov. Gavin Newsom. “When you look forward, I don’t think there’s a state in the country that wouldn’t trade its economy for California’s economy.”

CEOs say California is the worst state for doing business

California is the most populous state in the United States. One eighth But after tripling in the second half of the 20th century, the state’s population growth has slowed steadily over the past few decades, lagging the national rate from 2010 to 2020. The number of dwellings has been in deficit for the last three years, with only a slight increase until 2023.

The changes are far-reaching: California lost a congressional seat after the 2020 census. Outward Migration From 2020 to 2022, the state lost more than $100 billion in individual income tax revenue.

one Recent Surveys CEOs ranked California as the worst state to do business in, citing onerous regulations, labor costs and high taxes. 350 companies relocated Many companies moved their headquarters out of state between 2018 and 2021. Eleven of these companies were Fortune 1000 companies. Most of these companies moved to Texas, Tennessee, and Nevada because of lower corporate taxes and lower labor costs in these places.

Lower costs are the only reason businesses are attracted. Kenneth Miller, director of the Ross Institute for State and Local Government at Claremont McKenna College, said businesses are not leaving Texas because of the climate or other amenities. “They are leaving because they think Texas is more affordable and more profitable than California.”

That may help explain why Texas has been growing faster than California so far this century. In 2000, the Lone Star State’s economy was a little more than half the size of California’s; by 2023, it will be nearly two-thirds the size. Last year alone, Texas grew at more than twice the rate of California—the largest one-year gap in nearly 20 years.

High tech, high cost and nuts

But the number of tech startups in California — More than 7,600 Over the past five years, the number of new businesses in California has far exceeded the number of businesses that have left. For the first time in a decade, California has become the state with the most Fortune 500 companies. 57.

“California hasn’t spent much time trying to attract companies from other states to come here,” Mr. Mendonca said. “We grow our own.”

Innovation is at the heart of California’s business culture, whether it’s world-changing technology or fantasy-inspiring entertainment.

“It’s part of the California mythology or belief system that we can create something that changes the world, right?” Professor Miller said. “We’re at the top.”

Global Technology Center 30% The California Business and Education Foundation said the state’s economy would face huge losses given the financial ripple effects.

But in recent years, especially since the pandemic, the luster of an ideas-based economy — which designs products but doesn’t always make them — has dimmed. Americans have learned that global supply chains can be disrupted and that relying on geopolitical rivals like China to produce American products is risky.

Still, global trade remains a vital part of California’s economy, from imports of containers of Asian-made goods to exports of nuts and fruits from the state’s nation-leading agricultural sector.

“As long as we can continue to be part of the global knowledge economy, we will continue to be a high-value-added rich country, but we will also have a lot of poor people … who drive everywhere because we have so much income disparity,” said Martin Kenney, professor of economics at the University of California, Davis, and co-director of the International Economic Roundtable at the University of California, Berkeley.

Rich or poor

This inequality is inevitable. Nearly one-third of Californians are poor — living at or near the poverty line. That’s up 2.4% from two years ago. California has more homeless people than any other state, up about 20% in five years.

The meaning of “high salary” is different here, as housing costs exceed wages. The median selling price of a home in California is $900,000 This summer — for the first time — it was more than twice as many National median. Other things, like groceries and utility bills, are more expensive here, too.

Still, the California Dream lives on and fuels the state’s economy.

Small business (less than 500 employees) Employ nearly half Between 2021 and 2022, some 130,000 Many new small businesses were established in California, but more than two-thirds of small businesses closed that same year.

Loren Kaye, president of the California Business and Education Foundation, said every small business is an opportunity.

“Every business that closes or relocates has the potential to be the next Tesla or a success story that won’t happen in California. That’s a big risk,” he said. “You don’t want to have systemic disadvantages that hold back small businesses because they do provide jobs.”

Those disadvantages include strict environmental regulations. California’s landmark environmental law is a 44-year-old laundry list of regulations and procedures designed to minimize the environmental impact of any development project. The state has strict environmental requirements: by 2045, emissions must be reduced by 85% to 1990 levels, and all electricity from California must be Carbon Free For example, more information will be available by then.

Mr. Christensen said Chevron’s withdrawal “did not come for nothing.” “It was because Gavin Newsom’s legislature had made California so unfriendly to business that even the state’s largest, oldest, wealthiest companies decided they didn’t want to have anything to do with it.”

Chevron has long been outspoken about the difficulty of doing business in California, where thousands of employees remain even as corporate leaders move away. But the company’s declining business prospects in California partly reflect the transition to a cleaner economy where other employers can thrive in the future.

“California isn’t for everyone, but it’s certainly for a lot of different businesses and industries,” Mr. Kaye said. “There are costs to being here, but there are rewards.”

Staff writer Laurent Belsie contributed to this article.