Racing To Stay In Place

The state that gave us Silicon Valley has found that it can't rest on its chips.
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With an economy that would rank on its own as the world's eighth largest, California already possesses much of what other states crave. Home to Silicon Valley, as well as to a less celebrated but equally large hightechnology corridor in the southern part of the state, California now accounts for close to a quarter of the nation's frontier electronics companies. It also leads all other states in such key future-oriented industries as entertainment, biotechnology, and aerospace.

In recent years, however, this embarrassment of riches has led other states to mount major efforts designed to lure away some of California's high-tech dazzle. The most grievous cut came in the spring of 1983, when San Diego lost out to Austin, Tex., as the site for Microelectronics and Computer Technology Corp. (MCC), a research consortium involving some 18 large high-tech companies. Adding insult to injury was the decision of several leading California high-tech companies -- such as Xebec, Tandem, TRW, and Rolm -- to locate expansion facilities outside the state.

All this has sparked a fearful alarm among many of the state's top business and political leaders, who suddenly see the need to pump some fresh allure into California's business image. "We have become the happy hunting ground for officials from other states trying to lure jobs and industries from here," admits Democratic assemblyman Gray Davis, who served as chief of staff under Edmund G. Brown Jr., the former governor. "Perhaps our success made us complacent . . . . Only now is it dawning on people that other states have sunshine and universities, too."

One of California's biggest problems, Davis acknowledges, is a legacy of the "era of limits" ideology preached by his former boss, Brown. Many businesspeople perceived it as fundamentally antigrowth. To dispel this forbidding reputation, Davis sponsored a bill calling for a "Jobs Czar" who would work with companies interested in building plants in California. The Czar's job, in many instances, would be to help cut through some of the red tape involved in environmental and other regulations imposed during the Brown years.

Davis's bill recently passed the legislature with strong support from business and labor groups. A more significant, and costly, token of the state's defensiveness about its image is the new action taken by the Republican governor, George Deukmejian, and the Democratic legislature to shore up the state's education system. Many observers blamed the loss of MCC on the relative decline of California education since the passage of Proposition 13 in 1978. And so, this summer, the university system received nearly $1.5 billion from the legislature, a jump of 30.3%. The package, which called for an increase in faculty salaries by 16%, was designed to put the University of California on a par with such competitors as Harvard University, the University of Michigan, and, most pointedly, the upstart University of Texas. Other educational institutions, from state colleges to grade schools, have also been granted increases.

Oddly, most of the pressure for the tremendous increase in government funding -- which includes a massive five-year, $13.1-billion program to improve roads and mass transit -- hasn't come from free-spending Democrats but from the state's conservative-leaning business community. Once so supportive of the antispending tendencies of Governor Reagan, business leaders suddenly seem to have rediscovered the notion that government can play a positive role in promoting growth.

"Five or eight years ago, most people only cared about reducing regulations and taxes," observes Peter Giles, president of The Santa Clara County Manufacturing Group, a coalition of some 85 companies in Silicon Valley. "For the first time I can remember, there's a real merger of interests in this state. We all realize that improving the infrastructure is key to our long-run future."

If California seems determined to retool its infrastructure it has so far resisted adopting the company-specific incentives and other largesse used by other states to lure industry from outside. With around 35% of the nation's venture capital and an elephantine portion of young growth companies (27 of the 1984 INC. 100, more than three times its nearest competitors), California officials place their hopes for the future squarely on the shoulders of the state's burgeoning entrepreneurial sector. Those companies, they point out, have set an economic growth rate nearly twice the national average.

"Most of our growth has come from these smaller firms," notes Christy Campbell, director of the state's Department of Commerce, whose budget was doubled recently -- in part to pay for a $1.5-million promotional campaign stressing the state's economic diversity and entrepreneurial vigor. "When you give incentives to one particular company, you're really giving a disincentive to other companies already in the state. Given our size and the attractiveness of our economy, if we started giving out special breaks for companies to locate here, we'd soon run out of money."

This reliance on homegrown entrepreneurship is also reflected in the increasing support for small business in the governor's office and the legislature. During the past two years, more than two dozen new laws have been enacted to help the state's estimated 2 million small companies -- laws covering everything from regulatory reform to the treatment of capital gains on sale of stock in small companies. Equally significant, these measures have won the support of a wide range of political leaders, from conservative Republican assembly minority leader Robert Naylor to former radical activist, now Democratic assemblyman, Tom Hayden.

"Everyone wants to make this new interest in promoting our economic growth a partisan story, but it isn't," observes Commerce's Campbell. "Whether you have good schools or good jobs has nothing to do with party. What the Govenor expresses in his budget everyone feels. California has always been a place where people come to make changes. All we want to do is improve the conditions for doing that."

Last updated: Oct 1, 1984




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