Los Angeles Times, Thursday, September 2, 1999

Davis Must Rein In Antibusiness Efforts

Economics: A slew of measures before the Legislature could end up hurting the state's ability to compete globally.


The governor of California is a lot like the chief executive officer of a $70-billion corporation in a one-industry town: Every decision he makes affects the success or failure of all the other firms in town. That's a pretty daunting responsibility, and it's a major reason why California's governors must rise above the parochial when they assume office.

Lately, in our own company town of California, the board of directors--the California Legislature--has been running wild. If it isn't restrained, it might put a lot of firms in town right out of business. That's why it's now up to the CEO, Gray Davis, to put a halt to their plans.

There are roughly 100 antibusiness bills now pending that have some chance of passage before the legislative session ends Sept. 10. Democratic legislators have proposed, and at least one house has passed, legislation to increase workers' compensation and unemployment insurance costs by $4.2 billion. To put that into perspective, that's roughly equal to a doubling of the state's income tax on business.

Furthermore, at least 70 new and costly health care bills are under consideration. If all were enacted, health care costs for employers would rise by about 10%, or nearly $4 billion.

The legislators behind these misguided bills are almost like people in a cave; they assume that nothing they do will have an impact beyond the world of Sacramento lobbyists. But their bad legislation could end up short-circuiting the engine that keeps California's economy going.

That engine is increased productivity. The advances of technology and the pressing need to compete in a global market have made industry, especially manufacturers, more efficient and productive than ever. In fact, over the past six years, worker productivity has risen more than 2% a year, compared with increases of just 1% a year over the past two decades. The increase in production, Federal Reserve Chairman Alan Greenspan reminds us, is the primary factor behind the current economic expansion.

Employees, as well as employers, have benefited from this. It is efficiency in the workplace that allows employers to pay higher wages, as the Democratic Leadership Council recently noted: "Without faster productivity growth, faster wage growth is impossible. If we want to raise real wages in America, productivity is the key."

California's companies hope that Davis is listening to this and not the Democrats who simply want to load more costs onto the backs of business.

California manufacturers compete in a worldwide economy. If you add a cost to doing business in California that other states don't have to pay, you increase the productivity burden for California.

The legislation being pushed on the Democratic side of the aisle does just that. It hurts our productivity and thus helps other states like Texas, North Carolina or Illinois push us out of global markets. And while the other large industrial states have Republican governors to counter Democratic antibusiness legislation, California does not. Be assured that these other states aren't wasting any time finding ways to improve their competitive position at our expense.

Luckily, Davis seems to recognize this. His first budget carefully held the line on baseline expenditures, so we could avoid deficits three or four years down the line when the economy may slow. Now, he has to apply that same long-range thinking to the antibusiness legislation. It must be viewed in terms of the total impact on the economy, now and in the future.

Davis should recognize that government itself has been one of the biggest beneficiaries of the current low-inflation, high-growth economy, in which costs have remained stable and revenues have skyrocketed. And he must convince the Legislature that this prosperity will falter if business dollars that should go to technological innovation and increased productivity instead go to higher unemployment insurance taxes and health care costs and more regulatory bureaucracy.

In the company town that is California, we should have one overriding goal: Keep the company prosperous.

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Jack M. Stewart Is President of the California Manufacturers Assn.