Good vibrations aren’t a policy platform. While Kamala Harris is campaigning on a promise to create an “opportunity economy,” employers are fleeing her home state of California. Over the past decade, companies from banking to aerospace have decamped from California, taking large numbers of middle-class jobs with them. The Golden State has shed major companies including financial-services giant Charles Schwab, pharmaceuticals supplier McKesson and commercial-real-estate giant CBRE. More recently the exodus has extended to high tech, with the loss of software and hardware giants Hewlett Packard Enterprises, Oracle, Palantir, Tesla and Space X.
Chevron’s decision to relocate its global headquarters is the latest evidence of the Golden State’s increasingly hostile business environment. The company—whose roots in the state run deeper than Apple, Google or even Disney—was the 10th most valuable company in the world 10 years ago. Today it doesn’t even crack the top 25. But managing an oil company in California was like running a whiskey distillery in Utah. One former California-based executive told us that he and his children were ostracized in his community for his employment choice.
Gov. Gavin Newsom, Ms. Harris and other boosters claim the state as a social-justice model, yet California now suffers the nation’s highest poverty rate, the widest gap between middle and upper-middle income earners, tepid job growth, and one of the highest unemployment rates. Adjusting for the state’s sky-high cost of living, nearly 1 in 5 Californians lives in poverty. The Public Policy Institute of California estimates another fifth live in near-poverty. That’s roughly 15 million people in total.
California’s climate policies, while largely irrelevant for global emissions, have chased out large employers like Chevron. A recent report from the California Air Resources Board projects that these policies are directing billions in subsidies to “clean” tech firms whose employees are disproportionately upper-income earners. This is what Holland & Knight’s Jennifer Hernandez calls the “Green Jim Crow.” California’s climate policies drive up the cost of housing, food and electricity while destroying thousands of energy-sector jobs held primarily by black and Latino workers.
Ms. Harris, who embraced California’s climate policies as attorney general and a senator, worked to limit building on the suburban fringe, one reason California now has the nation’s second lowest homeownership rate. A recent study by Knock.com found the median family in San Jose or San Francisco would need 125 years to save the money necessary to make the down payment on a median-priced home; in Atlanta or Houston (where Chevron’s new headquarters is) the figure is 12 years. Not one unionized construction worker can afford to buy a median-priced home in any coastal California county, according to a recent study by economist John Husing.
Is there any chance of this turning around? Last month the Bay Area Council, a centrist business group, called out California’s “misguided policies that make it incredibly difficult to do business here” and urged the state’s policymakers “to take stock of the decisions they’re making that affect millions of families and workers, impact the state budget and have grave consequences for the future economic health of this state.”
All too often companies think they can negotiate some sort of settlement with antibusiness activists. Executives seem more like victims of Stockholm syndrome, in which they seem to mimic the ideology of their tormentors. In 2021 Chevron, under pressure from a climate-change nonprofit, announced that it was investing $10 billion in new renewable-energy projects, three times what the company previously committed to spend. It later pledged support for “the global net zero ambitions of the Paris Agreement” and published targets for reducing the company’s carbon footprint.
But enough is never enough. Instead of accepting the olive branch, California sued Chevron and other major energy companies for, as Mr. Newsom put it, "wreaking havoc on our planet and lying to people about the dangers of fossil fuels." Meanwhile, Chevron's California-focused investment decisions failed to pan out. In 2020 it was a more valuable company than Exxon Mobil. Chevron's market cap today is half of Exxon's.
As Chevron prepares to refocus on maximizing the value of the company, Texas is poised to reap the benefits. Like much of Texas, greater Houston is gaining people and jobs while both are stagnant or declining in Los Angeles and the Bay Area.
Even as the media embraces the Harris and Newsom narratives about California, people on the ground know better. When hundreds of a state’s most well-established companies pick up and leave, it’s a sign that something is seriously off with the regulatory climate. If California’s leaders fail to address this, more companies will follow Chevron out the door. And if the country adopts the California model this fall, we’ll need a lot more than good vibes to face what’s next.
This piece first appeared at Wall Street Journal.
Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and and directs the Center for Demographics and Policy there. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.
Michael Toth is a founding partner of PNT Law, based in Austin, Texas.
Photo: Gage Skidmore via Flickr under CC 2.0 License.
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