California, the golden state, is famously recognized for being the land of opportunities and new beginnings, where great wealth rewards hard work, risk-taking, and persistence. In 1848 wood processing workers found gold along the American River near Sacramento. Shortly after, more than 300,000 people moved to California, keen to take significant risks with the aspiration of building wealth fast. Even though gold miners did not find much gold, the acceptance of failure has continued to bring the kind of entrepreneurs who are ready to risk everything to get the hoped rewards. Consequently, California became attached to the Gold Rush, and rapid success has become identified as the “California Dream,” inspiring the concept of the “American Dream.”
For decades, California kept tempting both foreign and domestic residents. Its population kept continuously growing. People from everywhere, lured by California’s exceptional climate, geographic beauty, and economic opportunities, moved there. Its population grew more than 10% every decade from 1850 to 2010. It became the capital of brilliant minds and discoveries, gathering a group of super-entrepreneurs, billionaires, and large companies like Facebook, Oracle, SpaceX, and Tesla.
Sadly, in the last decade, things have changed dramatically. California has started experiencing outmigration. In 2020, California reported a population loss under governor Gavin Newsom for the first time in its history. Many people began leaving it for other U.S. states, from big tech companies and super-entrepreneurs like Elon Musk to small businesses and ordinary residents. It seems that the California dream has come to an end. They all have had enough of the bad economic policies exercised by the government of California that made life unsustainable. Accordingly, people had enough of these bad policies and started looking for a place with affordable living and an open business climate.
California’s Great Exodus
Over the last two decades, California has lost a net of 2.6 million people to other states in the United States. Its population is primarily made up of foreign immigrants, but even foreign immigration fell in 2020, and the state’s birth rate continued to fall. As a result, the total population of California fell by 182,000 people. According to a recent UC Berkeley poll, about half of the people still living in California have considered leaving; 71 percent cited the high cost of housing, while 51 percent cited the high tax burden as a reason for wanting to leave the state. As a result of this population decline, California has lost a congressional seat for the first time. It should be no surprise that when a better path becomes available, many people will choose it over the more difficult one.
Not only do people leave California, but businesses do as well. A new study released by the Hoover Institution found that the number of companies leaving California in 2021 has increased significantly over the previous three years. According to the analysis, 265 companies have relocated from California to other states since 2018, for an average of six monthly relocations.
The notable companies that left California for other states include Tesla, Nestle, Oracle, Palantir, and Hewlett-Packard Enterprise, to name a few. Some of the wealthy individuals from the tech industry moving out include Elon Musk, Joe Lonsdale, and Drew Houston. Furthermore, with the rise of remote work due to the pandemic, many people relocated to other states. According to one recent survey, two out of every three Bay Area workers would leave the area permanently if they could work from home indefinitely.
It is not just residents and tech companies who are leaving Hollywood. The California brand is also running east. Movie studios are beginning to resettle in New Mexico to benefit from the 35% tax incentive for the entertainment industry. Within the last year, major production firms such as Netflix and NBC Universal constructed studios in Albuquerque. Netflix has committed to spending $2 billion on production in New Mexico over the next decade. The state also expects local businesses to benefit from Hollywood moving east, and the state’s economic boom thus far shows promise.
Why do people flee California for other U.S. states?
There are numerous reasons for this ongoing migration, including the terrible business climate of the state, high business taxes, an unfavorable legal environment for businesses, difficulty to obtain business permits, high labor costs, high energy costs, a lack of affordable housing, high cost of living. According to the US Bureau of Economic Analysis, prices in California are 16% higher than the national average. Especially in the housing industry. The standard house worth in California is $683,996, ranked second after Hawaii’s $730,511. The restrictive zoning laws is one of the main reason for the high housing prices, and high prices for other goods and services make it hard for people of modest incomes to live in California. Furthermore, the US Energy Information Administration ranks California 48th regarding commercial operation energy cost per kilowatt hour (kWh). Compared to other states, Florida’s cost of 9.35 cents per kWh is roughly half of California’s 17.20.
California, also, has some of the highest taxes in the country, ranked 48th in the Tax Foundation’s State Business Tax Climate rankings. The annual CEO survey conducted by Chief Executive magazine reflects the business climate, in which California is ranked 50th, the worst state to do business. The state also has one of the worst legal environments in the country. The Private Attorney General Act that enables employees to file civil suits against employers in place of themselves, other employees, or even the State of California is just one of those terrible laws. California is also the country’s most regulated state with more than 396,000 regulatory restrictions. For example, For example, the length of time required for one fast-food restaurant to obtain a building permit in Los Angeles is 285 days, while it’s only 60 in Texas. And permitting difficulties aren’t limited to the state’s large cities. Ongoing compliance and reporting can be expensive. San Francisco, for example, has placed restrictions on delivery robots, electric-scooter companies, facial-recognition technology, food-delivery apps, home-rental services, ride-hailing firms, and other novel technologies. Regulations increase the cost of doing business, and more regulation, all else being equal, reduces economic growth. Regulations increase the cost of doing business, and in turn reduce economic growth.
On top of those poor economic indices, California ranks 49th in the Fraser Institute’s 2021 Economic Freedom of North America report. Politicians’ attacks on economic freedom hurt entrepreneurship, job creation, housing construction, and prosperity. As a result, California has the highest poverty rate in the US, more than any other state, at 15.4%, according to the US Census Bureau.
To let the California dream continue to live, policymakers and bureaucrats need to start demolishing the artificially restrictive environment they have built, which has produced the opposite outcome they claim they want. Instead of making life more difficult and expensive by erecting barriers such as high taxes, occupational licensing requirements, mandatory union membership, and costly building requirements, California’s politicians could simply allow individuals, businesses, and industries to succeed or fail in their own market merits. With fewer obstacles to overcome just to get started, individuals and companies would stand a much better chance of improving their lives. Citizens and businesses alike prefer free markets to centralized government control when given the ability to vote with their feet. And that’s how California residents responded to their government’s bad economic policies.
Mohamed Moutii is a research assistant with the Arab Center for Research and a research fellow with the Institute for Research in Economic and Fiscal Issues. Co-founder of Wonderlustmag, an Arab electronic magazine that advocates and promotes classical liberal thoughts in the Arab world. Mohamed is the automn 2022 intern with the Austrian Economics Center
The AEC’s fundamental goal is to promote a free, responsible and prosperous society. Through education and improving public understanding of key economic questions, the AEC promotes the idea of a free market economy and the ideal of a free society.