KPCC's business analyst Mark Lacter talks about Texas' invitation for California businesses to move to the Lone Star State; he also talks about the sale of California Pizza Kitchen.
Steve Julian: On Tuesdays we talk about the latest business stories with Mark Lacter. Mark, is Texas making any headway in its push for California businesses?
Mark Lacter: Some headway, Steve, but the numbers are really small – Texas had a net gain of 26,000 Californians in 2009, not much considering that California has a population of 37 million. California actually gained residents that year because of births and immigrants. But don’t downplay those numbers to Texas Gov. Rick Perry – he’s almost made it a sport to track down as many California businesses as possible (Perry actually calls them “hunting trips”). Matter of fact, he sent out letters to the business owners in Vernon ...
Julian: … the city that could end up being disincorporated because of a financial scandal.
Lacter: That’s right. The letter invites them to move to Texas because it has no income tax, lower corporate taxes, lower wages, and a lower rate of union membership. That’s all true, and there’s no doubt that some California business owners are attracted to those statistics, but what he doesn’t mention is that Texas is now struggling with a massive deficit that rivals California – and as a result it’s had to take major budget cuts. Texas also has the highest percentage of uninsured children and it has the lowest percentage of residents with high school diplomas.
Julian: So locating a business isn’t just about lower taxes and cheaper labor.
Lacter: No, you also have to consider the size of the market, the competition in that market, the access to shipping – even stuff like the weather. The Wall Street Journal just did a survey of the 50 top companies in the nation that have venture capital backing, and 35 of them are in California. Two are in Texas. This is not about being boosterish – California unemployment remains a killer, no question, as does the housing market. But look, if California were such a horrible place to do business, which is what Rick Perry and others would have you believe, why on earth would the state economy be as large and diversified as it is today? And why would growth actually be picking up faster than for the nation overall? Sometimes, the narrative does get in the way of the facts.
Julian: Let’s look at one business in particular: California Pizza Kitchen. Is it the end of the line for guys who started it?
Lacter: Looks that way – the chain is being sold to a private equity group for $470 million, and the two founders, Larry Flax and Rick Rosenfield, are expected to ease out of the operations. Now, California has seen a lot of entrepreneurial success stories in the past 25 years (Silicon Valley is certainly loaded with them), but this one really resonated because the concept was so straight forward. You didn’t need an engineering degree to open a restaurant that specialized in pizza – Flax and Rosenfield were a couple of attorneys who invested about half a million dollars, and like all good business start-up stories, it was a huge gamble. But then the concept took off, they added a few more stores, and the next thing you knew Pepsico approached them about buying a majority stake in the company.
Julian: Other examples?
Lacter: Well, the remarkable thing about California Pizza Kitchen is that it’s not all that remarkable – Californians start up businesses all the time on a wing and a prayer. And what many of them have in common is this crazy notion that they can make it, despite all the obvious obstacles. I see it in an electric car company called Coda Automotive (I profile Coda in the June issue of Los Angeles magazine). And there’s an interesting online service in Santa Monica called Shoe Dazzle, which was co-founded by Kim Kardashian and has raised $40 million in capital (it’s a little like the book-of-the-month club except with shoes, handbags and jewelry). I doubt any of these companies would have gotten their start in Texas – and that’s really the point. This is an unusual economy, even today, and it’s really hard to export that to another place.
Julian: Mark Lacter is a contributing writer for Los Angeles Magazine and writes the business blog at LA Observed.com.