Go South, Young Man

The line was “Go West, Young Man” — and it was true for a long time. That’s where the money and the jobs were: California. Well, it hasn’t been true for a long time. Over the last 10 years Texas has added 732,800 private sector jobs, including over a quarter of a million in the last 12 months alone. The Golden State has managed to lose over 600,000 private-sector jobs over the same period.

Private-sector job growth, aside from Texas, has been greatest in Arizona, Utah, North Dakota, Washington, and Virginia. But none of the states has managed to even top 100,000 new jobs over the 10 years from 2001 through 2011. The worst losses, outside of California, have been in Michigan (619,000), Ohio (460,000), and Illinois (363,000).

The Golden State was once a powerhouse for job creation, home to world-leading companies like Google and Oracle. But now Chief Executive magazine has ranked California the worst state to do business in for the last seven years. No prizes for guessing which state is ranked #1 for the same period.

California has the second-highest taxes in America (and again, Texas has the second lowest). California burdens businesses with highly restrictive regulations, has bloated government payrolls, public-sector unions that have been promised absurd levels of benefits, and a government that is positively hostile to private-sector employers. Texas has no state income tax; in 2009 California was issuing IOUs in lieu of refunds to taxpayers. Small wonder that every year about 100,000 more people leave the state than come in (legal residents, that is). Texas gains 150,000 new (legal) residents every year.

Texas is the polar opposite, rated by the 550 CEOs voting in the Chief Executive survey as having the highest labor market flexibility, weak unions, and a small government. The state gets low marks on its education system but California’s schools were labeled “A lesson in mediocrity” by The Economist magazine.

For some time, the early 1990s through 2005, the conventional wisdom held that places like California (and New York) had the winning formula: they were home to the best talent in America, if not the world … the so-called “Creative Class,” subject of so much writing by University of Toronto Urban Studies Professor Richard Florida. The basic premise being that a state that had trendy, happening places would attract the talent necessary to build great companies and create lots of high-paying new jobs.

This was always near-complete nonsense but it sounded good. Then the Internet bubble burst in 2001 and boring places like Oklahoma City did better at creating jobs in a sustainable way than cool places like San Francisco. That was because the fundamentals never changed — being home to lots of talent can’t offset the burden of high taxes and restrictive legislation, especially when the taxes are largely going to pay for public-sector pensions and benefits, not education or job creation. Talent follows business, not the other way around. By 2010 Texas was home to more Fortune 500 companies than California (64 vs. 51) and has unemployment of 8% versus near 12% — fully 3% above the national average — in California.

Writing in The Washington Examiner, Michael Barone puts it this way: “if you take a previously prosperous and creative state and subject it to high taxes and intrusive regulations, it loses 5% of its private sector jobs; if you take a previously somewhat less prosperous and creative state and govern it with low taxes and light regulation, it gains 9% more jobs, even as the nation’s economy is suffering.”

The states that are adding jobs — Arizona, Utah, North Dakota — all follow the Texas formula to a large degree: low taxes and a business-friendly environment. But this is a lesson that’s not easily learned, as demonstrated by the recent antics of the California legislature. The Business Roundtable estimates that the state’s new carbon emissions law will result in over half-a-million jobs foregone this year as businesses choose to locate elsewhere.

Need further proof that Texas is where the action is now? TNT is bringing back Dallas.